Disclosure Obligations

source: Elliot & Elliot Barristers and Solicitors

I am often asked by real estate agents, what do I have an obligation to disclose… murder, suicide, death, grow-ops..?

I have set out below my response separating grow-ops from the other more emotional events. If the property has been the location of a murder, suicide, sexual assault or death these events are considered potential stigmas. Depending on the facts of each case and your individual purchaser's needs it may or may not impact the purchase price or the purchaser’s willingness to purchase the property. Grow-ops are different because depending on the size of the operation and length it has been operating the damage to the property could be extensive. There is also the added concern about what types of characters might have been attending at the property.


Stigmatized Properties - To Disclose or Not to Disclose?

Whether or not agents have an obligation to disclose information on stigmatized properties is unclear in Ontario. Ontario has no laws that require disclosure if a house is stigmatized. The law in Canada for purchasing homes is generally accepted as “caveat emptor” let the buyer beware. Some exceptions are hiding material defects or making misrepresentations.

The seller is under no obligation to disclose any information about murders, suicides or anything negative that might have happened in the house. Realtors, however, are governed by the laws, guidelines and code of ethics imposed upon them.

In the U.S. many States have passed laws but those laws generally require disclosure only if the buyer or buyers’ agent specifically asks for the information. Where States have imposed a duty to disclose, the types of things that require disclosure also varies; some require phenomena get disclosed, some only require murder be disclosed. At least 30 States, and the province of Quebec, require that a murder be disclosed if it occurred in the past three years. Quebec is the only Canadian province that has disclosure laws to the best of my knowledge.

As previously stated, real estate agents in Ontario are governed by the rules and regulations imposed by the Real Estate Council of Ontario. RECO requires agents to disclose any material facts that affect the market value of the property.

The Code of Ethics defines a “material fact” with respect to the acquisition and disposition of an interest in real estate, as a fact that would affect a reasonable person’s decision to acquire or dispose of the interest.

Code of Ethics sections called into play:

Material Facts

21. (I) and (2) A broker or salesperson who has a client/customer in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client/customer.
  
Obligation of Registrants

3.  A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity.
4.  A registrant shall promote and protect the best interest of the registrant’s clients.
5.  A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.

While there is a definition for “material fact” there is no definition for “stigmatized properties”.  Agents are on their own to decide how they interpret the disclosure requirements in each specific circumstance.
 

Most professionals that are writing in this area are advising agents to disclose matters that they themselves would want disclosed if they were purchasing the property as well as facts that you as the agent know this purchaser is sensitive too. For instance that the house was the scene of a sexual assault might not matter to the average purchaser but it would if the purchaser him or herself were sexual assaulted.

Given that the agents are required under the Code of Ethics to treat every person fairly, honestly and with integrity, if all agents made it a standard practice to ask if the property were stigmatized in any way there would be no disclosure dilemma because agents would be required to disclose the information even if the seller was reluctant. When faced with a seller who is reluctant to disclose something you feel should be disclosed I recommend you explain to the seller the potential of a lawsuit. If they are told that by not disclosing the fact in question they could be subject to the negative exposure and expense of a lawsuit you will often find the seller understanding the wisdom of your advice.

It would appear that some clarity may be provided by RECO as to whether you have to disclose if a property was related to a murder investigation. Many will recall the news stories about the nurse from Orangeville who was murdered and to this day the case remains unsolved. The purchaser of the nurse’s home was from Boston and he did not see the new stories at the time of the incident. He found out the house he entered into an agreement to purchase was this home when he saw a story on the news on the one year anniversary of the case. In this situation the police have still not revealed where the nurse was killed. This purchaser was released from the agreement and the property was later sold privately and the new buyer was informed of the history. The original purchaser was not satisfied with being released from the agreement; he has filed a complaint which is still working its way through RECO’s discipline system. The result of this decision has the potential to provide some clarity to this issue.

You only have one reputation. Think about this when you are interpreting your obligation against the facts of the properties you list.
                                  
Listing a Property Known to House a Grow Op?
What are Your Disclosure Obligations?

The disclosure obligations of real estate agents in Ontario are unclear for what are commonly referred to as stigmatized properties. But disclosure is clearly required for one category of stigmatized properties; that being homes that were used in a grow-op operation. The RECO website has a notice about marijuana grow houses which states that “Brokers and salespersons are obligated to disclose any material fact about a property that they are aware of that could affect a person’s decision to buy, including if the home is a former grow op.”

There are discipline decisions available on the RECO website that confirm RECO’s position that members are required to disclose if a property was a former grow op. A decision from 2007and one from 2011 resulted in the same penalty against the agents for failure to disclose, a requirement to pay $15,000.       
                                                                     
In Ottawa the Ottawa Real Estate Board, the police and the municipalities have worked together to make publicly available the locations of grow ops on a website maintained by the Ottawa Police found at http://www.ottawapolice.ca/en/servingottawa/sectionsandunits/drugs/index.aspx. Locations are only listed for three months. People wanting information on specific properties can make an inquiry of the Ottawa City Clerk.

I have contacted Barrie Police to inquiry how to obtain similar information in Barrie. I was informed that you need to make your inquiry in writing to the Barrie Police Freedom of Information Officer providing your name and the property in question and you will be advised if the property is known to have been a former grow op. There is no fee for this service.

Now that we have talked about disclosure it is important to determine how and when that disclosure will be made. I feel in fairness to the seller disclosure should be handled in a limited and delicate manner. I am a fan of simply stating in the listing that “any interested parties should contact the listing agent for further details”. By putting in this discrete notice you ensure that those that intend to make an offer are fully informed before making the offer while not making negative facts publicly available unnecessarily. In many cases the material fact will have limited impact most likely resulting in a discount to the purchase price which is the appropriate way to allocate the risk for this issue.

The content of the articles in this Newsletter are intended to provide a general guide to subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Article Source: Elliot & Elliot Barristers and Solicitors.  Article posted with permission of Shari Elliot.

http://www.elliottlawyers.com/