Don and Louise Beauchamp owned a home in London, Ont., and during the six years they lived there they renovated their basement, first using it as a playroom and later as a guest room.
They sold the home in November, 2007 and a week before closing in early 2008 the basement flooded. They paid $1,649 to dry out the rug and replace the underpad, but did not tell the buyers. The Beauchamps thought this was a "one off" occurrence and since they had fixed the problem there was nothing to disclose.
A few weeks after closing, the basement flooded again and it ended up costing Adam and Yogi Soboczynski, the buyers, more than $20,000. They were convinced the basement had flooded before and sued, arguing that fact should have been disclosed to them.
The facts of the case are interesting. When the buyers made their offer, they asked the Beauchamps to complete a Seller Property Information Statement (SPIS) which they did. The Beauchamps said they had never had water problems in the basement. But for some reason, the form was not attached to the accepted offer.
The offer was also subject to a satisfactory home inspection, which was completed with no problems noted. An engineer hired by the Soboczynskis testified in court that flooding had probably occurred during the previous seven years, based on his review of the property. The Beauchamps brought in relatives who had stayed in the basement. All claimed there was never any indication of water problems. In addition, the Beauchamps had kept their computer in the basement for years.
The offer also included a standard clause called the �Entire Agreement Clause� which says that people who sign contracts can only rely on things that are included in the agreement. If it is not included, then it means that it did not matter to them.
In a decision released November 17, the judge preferred the evidence of the relatives over the expert. He agreed the flooding was a one off incident and did not have to be disclosed to the buyers.
The judge looked at other cases where sellers had been held responsible when completing the SPIS. In all those cases, he noted that one of the main reasons for liability was that the SPIS form had been attached to the agreement. As a result, if the sellers were dishonest or careless in completing the SPIS and the buyers relied on it, they could be held responsible.
In this case, the SPIS was not attached to the agreement, so the judge decided the buyers could not rely on it. Since the buyers could not prove that the sellers deliberately deceived them, the sellers won the case.
The lessons from this case are:
- For sellers, disclose all problems you know about. If you are not sure, err on the side of disclosure.
- If you as a seller sign an SPIS, to be safe, do not permit it to be attached to the agreement. That way, you will be protected if you made a mistake in completing it.
- Buyers should not rely on the SPIS because it is not supposed to be a warranty; it is just to be used for information purposes.
- If something matters, always include it in your home purchase agreement. Do not rely on verbal promises or advertisements.
Mark Weisleder is a lawyer, author and speaker to the real estate industry. Email Mark at firstname.lastname@example.org