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April 18th - 2016

What a dump: Landfill discovered under dream home

The buyers learned belatedly that their dream home was built over a landfill site. Legal Beat discusses the court dispute over disclosure after a rural real estate sale.

Legal Beat

The buyers learned belatedly that their dream home was built over a landfill site. Legal Beat discusses the court dispute over disclosure after a rural real estate sale.

Legal Beat

by Merv Burgard, Q.C

At the heart of this case in eastern Ontario is a dispute over disclosure. The buyers learned belatedly that their “dream home” was in fact built on land that was part of a discontinued landfill site.

The seller acquired a piece of vacant rural land from his father. In July 1996, the father had an environmental assessment done by an engineering firm “to identify the location of landfill waste … and evaluate its potential for the creation of a residential development.” The report revealed that, on the property’s south half, “some of the parameters tested were above the set guidelines for [contaminants for a property considered for] residential development with private, on-site wells.”

The report concluded that if certain measures were taken, the north portion could be developed for residential use. A clay barrier was suggested to prevent “migration of suspected contaminants from landfill material” from the south to the north part, “where residential development would take place.”

In fall 1996, the father applied to the township to sever the land into two lots. The municipality approved on two conditions, namely that: (1) a clay barrier be installed; and (2) the owner register a notice on title that the lot was constructed on top of a pre-existing landfill site.

In March 1997, the father and son arranged for a clay barrier to be built between the north and south halves. Court photographs later showed that the adult son was present when the work was being done. There was no evidence that any notice about the landfill site was ever registered on title.

Later that year, the son, acting as a contractor, built a home on the north property, understanding it was ready for residential development and that the well water was potable based on an analysis his father obtained. The son began a relationship with a woman in 1998, and the couple moved into the home soon afterwards, where they continued to live happily for 13 years with no problems.

Meanwhile, in 2002, the son purchased the adjacent south lot from his father for $35,000. His reason was to avoid having any neighbours close by and to increase the size of his property, the court heard.

By 2011, the home appeared to be a “very nice looking, well-constructed bungalow with a manicured yard spread out over two large lots, and located very close to the town of Embrun.”

That same year, the couple decided to sell both properties. They worked with registrant Margaret Wilson as their real estate representative. The son’s common-law wife had advised Wilson of the pre-existing landfill site, and the REALTOR® “was surprised to learn of that fact, given the park-like nature of the property.”

Soon afterwards, Wilson died, and another REALTOR® from the same brokerage stepped in to work with the sellers on the listing. The second salesperson, Daniel Coveduck, was not told of the discontinued landfill site underneath. In August 2011, the property was listed at $449,900.

The local buyers, a man and woman with two young children, were seeking a larger property for their children to play. When the listing price for the two acres of land dropped to $430,000, they toured it, loved it, and were “ridiculously excited,” describing it as their “dream home” on a beautiful, spacious property. No mention of a pre-existing dump was made in conversations between buyers and sellers or revealed to them in any other documents, court heard.

A condition of the sale was that the seller complete a Seller Property Information Statement (SPIS). The environmental section of the SPIS later formed the crux of the legal dispute. Where the SPIS asked “Are you aware of possible environmental problems or soil contamination of any kind on the property or in the immediate area?’, the seller replied “unknown.” A second question asked: “Are there any existing or proposed waste dumps, disposal sites or landfills in the immediate area?” to which the sellers indicated “yes” with no further details.

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At that time in the local community, a notorious political battle was brewing. The prospect of a chemical disposal site in the township was being hotly debated, and an environmental protection group had set up an advocacy office in town called “Dump the dump”. This issue was constantly in the local news. The buyers testified that they believed the answer to the second question referred to this proposed local dump. 

The owner sold both lots to the buyers for $420,000 in November 2011 with a closing date set for March 2012. The buyers attended a home inspection in the fall. Well water tests done by public health revealed contaminants in the water, but this issue was resolved by installing a water filtration system. The buyers also entered the property to measure for kitchen cupboards and drapes. Soon after this, the buyers waived the conditions in the APS. It appeared that the sale would close as expected in March.

It was not until February that the buyers discovered a problem. Their lawyer, having done significant research, informed them that part of the lot was built on a discontinued landfill site and was potentially contaminated. He became aware of the property history and an engineering consultant report from 1995 that also referred to the risk of methane gas production due to decomposition of landfill material. It stated, “should the site be developed for residential purposes … as a minimum all the existing landfill materials would have to be removed from beneath and somewhat out beyond the footprint of the structures and be replaced to founding level with suitable engineering fill materials.… In addition, measures to prevent any methane gas from entering structures at the site would be required.”

The buyers were shocked. The mother of the two young children instructed her lawyer in no uncertain terms that she would not move her children onto property that could be hazardous to their health. Understandably, the buyers refused to close. Their lawyer sent a letter to the sellers’ lawyer stating their position due to the sellers’ failure to disclose the dump’s existence.

The sellers then sued the buyers, and the buyers countersued.  The sellers’ lawyer argued that the buyers breached their contract and had to close the deal after waiving the APS conditions. He also argued that the principle of caveat emptor (buyer beware) applied, and that the buyers had had every opportunity to satisfy themselves and conduct their own inspections of the property, including a home inspection they had done. He argued that the sellers had completed the SPIS to the best of their ability and there had been no misrepresentation of any kind.

The buyers’ lawyer argued that once the seller decided to complete an SPIS, he was obliged to give full, frank disclosure about the property. He stated that the seller either fraudulently or negligently misrepresented the true character of the property when completing the SPIS.

The judge reviewed previous cases dealing with “buyer beware” and others in which a seller attempted to conceal a serious latent defect. He noted that buyers are entitled to rely on the truth of the statements in an SPIS, which sellers should complete honestly. The seller lost, and the buyers won $4,000 for their expenses. They were also awarded costs of $30,000. The owner later sold the property for $330,000.

Menard v. Parsons 2015 ONSC 4123 (CanLII)
Menard v. Parsons 2015 ONSC 7658 (CanLII)

The judge ruled that the seller’s “yes” answer to the second question in the SPIS “without any further explanation in the circumstances of this transaction was misleading to the point of misrepresentation.” … [The seller] “made untrue, inaccurate or misleading representations” in the SPIS. He was required to “speak truthfully and completely about the matters raised in unambiguous questions… he did not. …The purchasers were entitled to rescind the contract and walk away from the real estate transaction in the manner that they did.”

MERV’S COMMENTS

Mervin Burgard Q.C.

Depending on the concentrations, methane gas can be very serious and therefore the presence of a landfill should be disclosed.

Apart from the false SPIS, a finding could have been made against the seller on the exceptions to the caveat emptor rule. Many cases have held that sellers must disclose known latent defects that make the premises dangerous and unfit for habitation, such that the failure to disclose has the effect of substantially depriving the buyers of getting what they contracted to buy. That could certainly involve radioactive soil or potential methane gas from a dump, as in this case.

Mervin Burgard, Q.C.

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