Brian Madigan LL.B.

Warning Clauses in Agreements

By Brian Madigan

Within the last few years it has become increasingly common for realtors to place warnings within the terms of the agreement of purchase and sale.

Precedents for such clauses abound, and the following is an example:

"The Buyers acknowledge that they have been advised to seek outside professional advice such as lawyers, insurance agents or brokers, title insurance, mortgage consultants, and the Chief Building Inspector for the Regional Municipality of Peel prior to the signing of this offer on the subject property."

The hope and expectation is:

· The Courts will recognize that the realtor is doing his job

· The advice looks like good advice

· If the purchaser were smart, then they would take the realtor's advice

· The realtor has disclaimed responsibility

· The purchaser is now the only one to be blamed for their own actions

First of all, I don't like the warning clause. The agreement of purchase and sale is just no place for that type of discussion. It's not very professional.

If my agent started warning me about things and giving me notices in documents directed to other people, I would be offended, and I know both purchasers and vendors who have been offended by similar clauses.

There are no other similar documents that I have ever seen in legal practice.

Now, if you are a realtor and want to protect yourself, the best way is to write a letter or similar document explaining all the problems. It can be delivered to the client. It's private and confidential, which is specifically what this sort of advice should be.

You can prepare two copies and give both to the client. He keeps the first one. On the bottom of the second one, there is a provision included to the effect that the client acknowledges having received a copy. This one he gives back to you for your file. Or, send it by e-mail or fax and you have "proof" that it was, in fact, given to the client.

A final method, and more formal, particularly if you don't want the client to go ahead, is to have a separate document prepared which is an authorization.

This document will direct you to go ahead with the transaction, notwithstanding your advice to the contrary. That's the practice followed by lawyers, and I think it makes a lot of sense here.


Here is what the Acknowledgement might look like:

"Acknowledgement

To: John Smith, the purchaser

Re: 25 Elgin Street, Mississauga

Authorization and Direction

The purchaser hereby acknowledges having been advised to seek outside professional advice including solicitors, insurance agents or brokers, title insurers, mortgage consultants, and the Chief Building Inspector for the Regional Municipality of Peel prior to the signing of this offer on the subject property.

And more particularly, the purchaser:

· Authorizes and Directs the agent to prepare and submit this Offer without such advice

Royal LePage Innovators Realty Brokerage

www.OntarioRealEstateSource.com

Toronto's Museum Makes Top Ten List

By Brian Madigan LL.B.

But, not in a good way!

It's #8 on the list of the world's ugliest buildings as selected by the members and editors at VirtualTourist.com.

"Many of these buildings don't have the warmth of an ice cube while others don't even seem completed. Either way, they make for very interesting conversation," said general manager Giampiero Ambrosi.

This is what he said specifically about the ROM Crystal:

"Michael Lee-Chin Crystal, Royal Ontario Museum, Toronto. What I.M. Pei's pyramid is to the Louvre, so is the relatively new Michael Lee-Chin Crystal to the Royal Ontario Museum. While many praise the glass structure, just as many are troubled by the incongruity to the original, more traditional museum that still sits directly beside it."

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

HST Adds to the Cost of a New Home

By Brian Madigan LL.B.

The Province of Ontario has introduced legislation to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).

It is proposed that the HST will come into force July 1, 2010.


Purchasers of real estate will face additional taxation, including:

· taxes upon certain services including moving costs, legal fees, home inspection fees, mortgage insurance premiums, title insurance, and real estate commissions (all of which were previously exempt under the PST; and,

· additional taxes upon the purchase price of newly constructed homes.

Application to Residential Properties

· HST will not apply on the purchase price of re-sale homes.

· HST would apply to newly constructed homes.

· a rebate is proposed so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000.

For an $800,000 new home, this would be an additional $40,000, and for a million dollar home, this would be and additional $56,000. That's a significant new tax.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

November 2009 Toronto Real Estate Market Cools Off

By Brian Madigan LL.B.

Here is the latest report from the Toronto Real Estate Board:

"In the first two weeks of November, Greater Toronto REALTORS® reported 3,666 sales - up 84 per cent compared to the first two weeks of November 2008. The average price for these transactions was up 10 per cent year-over year to $415,066.

Increased interest in ownership housing has been widespread throughout the GTA and across all housing types," said Toronto Real Estate Board President Tom Lebour.

However, it is important to point out that we are now making comparisons to the fall of 2008 when we experienced a marked decline in sales and average price"

Year-to-date sales, at 78,233 are up 11 per cent compared to 2008. Average price, at $393,180, is up by three per cent.

Sales and average price in the GTA this winter will be well above levels reported throughout the fourth quarter of 2008 and the first quarter of 2009, according to Jason Mercer, TREB's Senior Manager of Market Analysis."



Summary Of Mid November Sales Volumes and Average Prices

Note: November 2009 are shown with November 2008 in brackets


City of Toronto("416")

Sales: 1,560 (830)

Prices: $441,893 ($400,305)

Rest of GTA ("905")

Sales: 2,106 (1,161)

Prices: $395,195 ($358,130)

GTA

Sales: 3,666 (1,991)

Prices: $415,066 ($375,712)

That was the full TREB report. But remember, TREB compares statistics annually, while the actual factual information is available bi-monthly.

So, which way is the market going? Up or down?

For a correct answer to that question we have to look at the average price of a single family home in the GTA. As of 15 June 2009, five months ago, that number stood at $407,716. It then dropped until 15 October, increased to $423,559 at the end of October but dropped again in the first two weeks of November.


Let's have look at the average prices over the last few months:

$415,066......15 November
$423,559......30 October
$414,479.....15 October
$406,877.....30 September
$393,818.....15 September
$385,978.....30 August
$383,796.....15 August
$395,414.....30 July
$394,750.....15 July
$403,972.....30 June
$407,716.....15 June
$395,609.....31 May
$385,601.....30 April

The market in Toronto is starting to "cool off". This is a traditional occurrence every November.

What does this mean? Maybe nothing! Remember that TREB compares results annually, so that smoothes out the bumps over the long haul. The market is "up" from last year. If you are watching the market closely, the TREB report really does not describe what is happening in the market now, it makes a comparison to last year. There was a world financial crisis, bank failures, numerous bankruptcies and a stock market which had lost half of its value. So, if that's the comparative number, then this news is positive. But, it shouldn't be worth headlines today, however it is: "Home Sales Up 84% in First Half of Month" (Toronto Star 18 November 2009).

This is just pure and simple "sensationalism". All that really means is that there were 726 more deals in those two weeks this year than last. In the context of the year, November is a poor month. There are just less than 100,000 transactions annually, most taking place in months other than November.

It is also important to remember that average sale prices do not have the same meaning as the price of a stock traded on a public stock exchange. Each common share in a company is absolutely identical, so you can track the prices accurately over time. However when it comes to real estate transactions, we are simply talking about averages. No two properties are the same. Every property is different. So, the averages become more and more accurate with larger volumes. A yearly number might average out almost 100,000 properties, but a two week period may report only a few thousand. So, be careful in terms of over analyzing!

It is noteworthy that the overall sales volumes are now slightly ahead of last year. That means that deals are being done, and the demand is being satisfied. Going forward, there will be fewer buyers in the market. This, of course, means that there may be some excellent opportunities out there.

The annual highs are usually reached in May each year. Then there are cyclical declines in the summer months and a resurgence in the Fall. The October figures frequently match the Spring high. The market frequently tips over in November and this may simply be in motion again.

At the moment, there is upward pressure on prices since there is a limited supply of listings. You have to remember that a lot of prospective sellers heard that the market was "bad" so they changed their plans. Decreased supply have turned the situation into a sellers' market. But, that was old news! And, by old, I mean "October". Have another look at the prices. They are going down, not up.

Interest rates have never been more attractive. A full 1 per cent rise is about a 33%increase in the mortgage rates. That would have a significant impact on rising prices.

Longer term, real estate has always proven to be a good investment.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Seller Conceals Truth and is found Liable for Faulty Disclosure Statement

By Brian Madigan LL.B.

The case of Cutts vs. Okipnik is another Disclosure case. The action was tried in the Court of Queen's Bench of Manitoba.

The purchasers claimed that the vendor fraudulently or negligentyly misrepresented the condition of the property at the time of sale.

The buyers testified that this was the first house they had ever purchased and that it was very important that there be no cracks or leaking in the foundation. They both said that they had rejected other houses that had these identifiable problems. Mrs Cutts testified that, after seeing a property condition statement that referred to leakage, they asked their real estate agent to make further inquiries and were satisfied with the answers provided.

Not surprisingly, their agent and Okipnik's agent had no independent recollection of inquiries being made. However, both Todd and Colleen insisted that the property condition statement be provided as part of the offer to purchase.


Disclosure Statement

Okipnik provided the Seller's Property Condition Statement as follows:

1. (H.) To your knowledge has there ever been any flooding or leakage affecting any portion of the property, during the period of your ownership of the property, (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?

The answer checked off was "yes, leakage was fixed via drainage ditch. Works well."

5. (A.) Are you aware of any cracking, shifting or movement of the structure, that is not readily visible?

The answer checked off was "no".

5. (C.) To your knowledge, during your ownership of the property, has there ever been any damage to the buildings due to wind, fire, water, moisture, insects or rodents?

Answer "no".

The Facts

The deal was closed and the buyers moved in early January, 2004 and as you might imagine immediately became aware of problems.

Numerous photos were filed that show rust and mildew in the northeast corner and rust on the east wall, mildew on the carpet and wall in the laundry room, water leakage with water coming in from multiple points along the north end east walls, water leakage with water coming out of the furnace room and in from the north wall, and leakage along the north wall in the furnace area.
Clearly, there was a moisture problem.

Judge's Observations on Seller's Testimony

I found Okipnik lacking in credibility. A representative sampling follows:

1. Okipnik testified on direct that he was not even certain if the writing on the P.C.S. was his and that he did not recall filling it out. He tried to explain this as due to a heart attack and mini-stroke that he suffered shortly before the sale of the house. He was cross-examined about testimony given at his examination for discovery that he believed his agent had filled out the P.C.S. His final answer was that he just signed it to get it over with because he was too anxious for the sale and never bothered to read it.

2. He testified that contrary to what the P.C.S. contained he had in fact patched the northwest wall of the basement in the early 1980's to seal it and prevent leaks. This patch was completely covered by insulation and drywall at the time of sale. His only explanation was that he had not remembered that patch when he answered the P.C.S.

3. He denied at trial that there were any problems with water or moisture after the basement was furnished. However, at his examination for discovery he had testified that there was water on the floor in the laundry room on a few occasions when there was heavy rain or melting, and further that he had never found a source for that water. When asked to explain the answers from the examination he indicated that he did not recall those answers and was probably wrong then. He then added at trial that any water in the laundry room was from his washing machine. He had just remembered that the night before he testified and he further confirmed that his memory was better in 2006 than it was in 2004.

4. Okipnik testified that the state of the floor in the basement was very good, and then said it had had cracks earlier. He had torn the floor out and redone it in the early 1980's because of all the cracks. He was confronted by his testimony on discovery that the floor was redone around 1987, shortly before he installed the drywall. Okipnik replied that those dates were absolutely wrong.

5. Holes were observed in the floor in the southwest corner. Okipnik testified that he drilled those holes in the floors because he was using them to work with condensers. He denied that those holes were ever used to drain water from the laundry room one foot away, where there had been water in the past.

6. There is discoloration on many of the walls with patches of what looks like tar. Okipnik tried to suggest that he might have used tar to glue the insulation to the concrete walls.

7. Photos show water channeled through washed out concrete in the laundry room. Okipnik could not explain what that was, and purported not to recognize it.

8. Okipnik was absolutely inconsistent on his dates. He testified that the walls were finished the year after the floor was done. The markings on the drywall confirm that it was manufactured in 1988, so if his testimony is correct then the floor would have been done around 1987, which he absolutely denied. He then said that he was married in 1986 and the floor was finished before that time. He then said he realized that it had to be the summer before he was married or in 1985 at the latest. There was not the slightest consistency in any of his testimony on when work was done.

9. The P.C.S. suggested in answer to question 1.(H.) that leakage was fixed via the drainage ditch that he dug in his backyard. He denied at trial that there had ever been any leakage into the house. Again, at his examination for discovery he gave contrary testimony, as follows:

Q. 35 And what were the signs that you noticed that there was leakage?

A. There was water on the floor.

Q. 37 And where was the source of the water?

A. There was a crack in the foundation.

His response was that he did not recall those answers, but must have given them. He then tried to explain that away as a situation where he probably said water but meant water stains.

10. In his statement of defence at paragraph 8, Okipnik claimed that the walls ere drywalled in 1987. This could not be correct since the drywall was manufactured in 1988. He further claimed in his statement of defence that "at that time" a small crack in the north wall was filled. He testified that that was not correct and commented that he had no idea why he made that statement.

The Law

Is Okipnik liable to the Cuttses?

The leading case in Manitoba in this area is Alevizos v. Nirula [2003] MBCA No. 148.In that case the issue was whether the trial judge was correct in finding that there was a fraudulent misrepresentation when a false and misleading P.C.S. was provided to the purchasers.

In upholding the decision at trial, Scott, C.J.M. for a unanimous court stated: "It is clear that silence and half-truths can amount to a fraudulent misrepresentation." And further: "In addition to silence and half-truths that mislead or imply something other than the truth, active concealment of a defect that would otherwise be patent is treated as fraudulent."

Judgment

The trial Judge awarded Judgment based on the following damages

1.Repairs to foundation.....$15,860.45
2.Repairs to basement.......$23,500.00
GST + PST........................ $3,290.00
Total ................................ $42,650.45

In addition, interest was added to the Judgment.

Comment

As you probably noticed the Judge went on at length about the seller's lack of credibility:

The seller:

· Was forgetful

· Uncertain in his responses

· Failed to remember dates and times correctly

· Inconsistent in his story from the discovery to trial

· Completely failed to recall prior testimony given under oath

· Admitted his inconsistent testimony

· Blamed his poor memory on a heart attack

· Admitted that the Disclosure statement was in error

· Made up foolhardy explanations

· Refused to admit obvious facts

· Offered foolish explanations of prior testimony

· Unable to account for his prioer testimony

In this case, the trial Judge did not have much of a problem. The seller was not a credible witness at all.

It is noteworthy that the seller's agent was not called upon to assist with the explanations. It is also interesting that the agent did not counsel the seller either to tell the truth or not sign the Disclosure statement at all.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com