September 9th - 2005

Merv’s column: Illegal suite breaks deal

The buyers were interested in purchasing a home and enlisted the services of a real estate agent.

The buyers were interested in purchasing a home and enlisted the services of a real estate agent. The buyers allege their agent failed to protect their interests and in particular, failed to advise them with respect to a critical municipal by-law prohibiting a basement bedroom.

The buyers had emphasized the requirement of four bedrooms or space that could be converted to a bedroom. They eventually were shown a bungalow home and made an offer that was accepted. When they later discovered that the fourth bedroom was illegal they decided not to close the transaction. That cost them over $60,000 and they sued their agent for their losses.

The judge said; "I find as a fact that (the agent) owed the (buyers) a duty of care, which included the disclosure of material facts about the property to his principals. I further find that it was a material fact, known to (the agent), that the basement "fourth bedroom" was not compliant (or potentially not compliant) with the city's by-law." ... "(the agent) knew, or ought to have known, that the (buyers) considered this basement room to be a bedroom. Although the listing said otherwise, and counted this room as den, he knew that the (buyers) thought of it as a bedroom, and he did not correct their impression." ... "In my view, (the agent) owed both an equitable duty and a legal duty to tell the (buyers) of the fact that he believed the basement bedroom might not be in compliance with the municipal by-law. In my view, the duty of care of an agent and his fiduciary duty are intermingled in the case at bar to the degree that the breach of fiduciary amounts to a breach of the duty of care."

Malpass v Morrison 2004 ONSC 12542

MERV'S COMMENTS
In my seminars I often use an ad by a careful Brampton REALTOR that said “illegal in-law suite.” When in doubt, tell the whole truth – and warn them of the risks.

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