Aug 01, 1991

UFFI Warranty #175


By Gerry Neely
B.A., LL.B.

A recent edition of the Bulletin contained a reminder that because of the risk of liability, licensees should not complete the UFFI disclosure statement on the standard Contract of Purchase and Sale. The timeliness of this reminder of the risks run by a vendor or a licensee who completes a disclosure statement without having certain knowledge that the building does not contain UFFI, is disclosed in a recent decision.

An owner of a duplex purchased in 1983 had obtained from the previous owner a warranty that the house did not contain UFFI. A subsequent appraisal obtained for mortgage purposes contained a comment by the appraiser that upon a cursory inspection, no evidence of UFFI was noted. On the one occasion when the purchaser opened up a wall he had noticed only pink fiberglass insulation. When the owner resold his property in 1989, he signed the disclosure statement in the standard form contract to warrant that the duplex did not contain UFFI.

However, during the course of renovations, the new purchaser discovered that UFFI was present in the lower part of the duplex. The removal of the UFFI led to an action for damages against the former owner.

The warranty was clear and unambiguous and since the purchaser had relied upon it in deciding to buy the duplex, the former owner was liable in damages.

The amount of the damages was based mainly upon the difference in value between the duplex he received (with UFFI), and what he thought he had paid for (no UFFI). Damages in any event would not be less than the cost of removal of the insulation. The new owner said that the cost of removal was $18,750. Another factor in assessing damages was the extent, if any, to which the stigma of UFFI having been in the duplex would reduce its value to a subsequent purchaser. The appraiser acting for the new owner estimated the stigma to be 10% of the value of the property. The appraiser acting for the former owner came to the conclusion that no loss in value could be attributed to, as the judge said "the ghost effect of the removed insulation."

The new owner had to restucco the entire duplex, the cost of which was included in the owner's costs for removal of the insulation. The question of how significantly this improvement to the appearance of the house may have added to its value, was another factor the judge had to consider.

In view of the conflicting evidence of the appraisers and the lack of evidence concerning the potential increase in value of the house, the judge awarded the new owner $25,000 to cover the cost of removal of the UFFI. This amount included a small allowance for the ghost effect on future value which was offset by an even smaller allowance for the extent to which the restuccoing improved the value of the duplex.1

***"Subject to purchaser's satisfactory inspection by November 30, 1990."

Is this a whim and fancy clause (Column 163) or is it a clause which requires the purchaser to act reasonably, in which case a contract exists which is in suspense until the condition precedent is fulfilled.

The clause was added because the prospective purchaser was concerned about problems relating to noise and vibration associated with the heating system. He was sufficiently concerned to employ not only the inspector recommended by the licensee, but also an architect. The architect's opinion was that curing the problem would require costly and disruptive work to be done in the condominium.

The purchaser declined to remove the condition and the vendor retained the deposit of $ 1 00,000, which the purchaser sued to recover. The judge's decision was that the conditional clause fell within those clauses which require the purchaser to act reasonably and honestly in satisfying himself that the condition should not be removed. in reaching this decision, the judge very carefully reviewed the evidence that the purchaser had employed qualified people to do the inspections. He had then considered the results of each inspection and the consequences for him in cost and inconvenience if he proceeded with his purchase.

In effect, the judge said that the purchaser had used his best efforts to satisfy the condition. No separate consideration was necessary to keep the contract open until the condition was removed. The case is useful for its assessment of the actions that a purchaser should take to satisfy himself about the condition of the building in question. 2

 1. Kirsh v. MacPherson et al., SCBC C895996 Vancouver Registry, Reasons dated May 8 and 14, 1991.
 2. COX v. Afley, SCBC C908658 Vancouver Registry, Reasons April 19, 1991.

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