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Three bed, two undisclosed crime

Scarcity of law and regulation over stigmatized properties

By Shari Elliott & Hayley Valleau

December 21 2012 issue

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A home inspection for a property sale has become de rigueur. But not even the most astute building engineer can detect a stigma that might come with a house: be it murder, suicide, natural death or ancient burial plot.

Recent headlines in the Toronto area, about a couple suing after they learned their “dream home” had been the scene of a double murder or that of a woman who complained of failure to disclose that a baby had drowned on her property, may give pause to real estate agents on the extent of their disclosure obligations.

The fact is there is a scarcity of law and regulation governing properties that may be deemed to be stigmatized within Ontario. In the United States, roughly half of the states have a requirement, and its generally limited to the event having occurred within the past three years.

In Ontario, the seller and real estate agents are under no legislative obligation to disclose information about murders, suicides or anything negative that might have happened on the property.

However, the Real Estate Council of Ontario (RECO) requires agents to disclose any material facts that may affect the market value of the property. The code of ethics defines a “material fact” as something that would affect a reasonable person’s decision to acquire or dispose of the interest in a property. But there is no definition for “stigmatized properties” meaning agents are on their own to decide how they interpret the disclosure requirements.

Murder, suicide and death

If a property has been the location of a murder, suicide, death, or even sexual assault these events are considered by the general public as potential stigmas. Depending on the facts of each case, it may or may not impact the price or the purchaser’s willingness to buy the property. Accordingly, a determination of whether it would be “material fact” that is required to be disclosed is subject to interpretation and is subjective.

There have been news stories recently that highlight the need for clarity as to what would qualify as a material fact.

Many will recall the nurse from Orangeville, Ont., who went missing in August, 2010 and was discovered dead a short time later. The purchaser of this nurse’s townhouse was a man from Boston who learned of this home’s history when he saw a news story about the unsolved murder at the one year anniversary. This man was able to terminate the binding contract based on the fact that the agent misled him by not disclosing this fact. This purchaser was released from the agreement but nevertheless filed a complaint with RECO’s discipline system. We have been advised that this complaint was recently decided; however, the outcome is not public, and given appeal periods, it might be some time before we have access to this decision.

Another case involves a claim recently filed with court by a couple who purchased a home in Bowmanville, which they later discovered was the scene of a double murder many years earlier. This discovery resulted in a lawsuit being filed against the former homeowners, broker and agent involved for failure to reveal its history.

The couple also filed a complaint with RECO. The Toronto Star reported that RECO issued a warning to the real estate agent stating that she “deliberately withheld a material fact known to her” and it cited a number of provisions within the code of ethics, specifically section 39 relating to unprofessional conduct, which states that “a registrant shall not…engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.” The Star also reported on a second discipline decision within the span of two weeks wherein RECO issued a warning against not disclosing the fact that a baby had accidentally drowned on the property.

Many agents are concerned about the lack of guidance provided by RECO resulting in warnings when the agents interpret their disclosure obligations. The Bowmanville couple’s case, depending on the outcome, could result in some long overdue legislative changes regarding the disclosure of stigmas within Ontario or at the very least some common law to provide guidance and clarity on the issue.

Burial plots

Recently, we had a case where a couple entered into an agreement to buy a home to be built in a new subdivision. Several months after the purchase documentation was completed construction of their home was delayed in order to perform an archaeological study. They considered this to be a material fact and sought to terminate the contract. A settlement was reached and the agreement was terminated.

We believe there is resolution to the subjectivity around the interpretation of what qualifies as a material fact for agents. Agents are required under the code of ethics to treat people fairly, honestly and with integrity, if they were to ask if the property were stigmatized in any way, there would be no dilemma because agents would be required to disclose the information even if the seller was reluctant.

Shari Elliott is the founding partner of Elliott & Elliott, with a focus on real estate and environmental law. Hayley Valleau obtained her honours bachelor of arts from Wilfrid Laurier University and is pursuing a future career in law.

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