Bob Aaron

Bob Aaron bob@aaron.ca

September 20, 2014

Will discipline hearing end risky SPIS form?

Seller's form has prompted 200 Canadian court cases

A recent decision of a discipline panel of the Real Estate Council of Ontario (RECO) could spell the end of the Seller Property Information Statement in Ontario.

The SPIS is a disclosure form published by the Ontario Real Estate Association (OREA). Some real estate agents swear by the form, while others are strongly opposed to it.

I have been very critical of the SPIS because, in my opinion, the questions are ambiguous, technical or complicated, and they require expertise in property law, building code, accounting, zoning and other issues — which most homeowners do not have.

Some agents feel the form exists to protect them from allegations of failure to disclose property defects. But it now seems that the form will only create problems for agents who fail to verify its contents.

Across Canada, the SPIS and similar forms have resulted in about 200 reported court cases since 1997.

A disclaimer on the forms attempts to shield real estate agents from responsibility for the accuracy of the seller’s answers. But that disclaimer may not be effective in light of RECO’s recent discipline decision.

Dale Godfrey is a real estate broker in Sault Ste. Marie. Back in 2010, she represented both buyer and sellers in a purchase agreement for a $105,000 home.

Before the agreement was signed, Godfrey provided an SPIS to the buyer. It stated that there were no known problems with moisture or water infiltration. The buyer relied on that representation in deciding to buy the property.

A subsequent home inspection revealed that the foundation had significant cracks and was very vulnerable to basement water leakage.

The inspection company estimated the cost of repair at $12,000. The buyer’s bank would not advance funds in the face of the home inspection and the buyer was unable to complete the transaction as a result.

Godfrey was charged with breach of several sections of the RECO code of ethics. In an agreed statement of facts submitted to the discipline panel, she admitted acting unprofessionally by failing to verify that the SPIS was accurate, and failing to promote and protect the best interests of the buyer.

Godfrey also admitted that her conduct was unprofessional or dishonourable, or both.

The panel ruled that Godfrey failed to treat her clients fairly, honestly and with integrity, and that she failed to promote their best interests. As well, it found that she failed to exercise reasonable knowledge, skill, judgment and competence in providing services to her clients.
In admitting that she had an obligation to verify the contents of the SPIS, Godfrey allowed the discipline panel to find her in breach of several sections of the RECO Code of Ethics.

Its reasoning seems to be based on an agent’s obligation to discover and disclose material facts relating to a property despite the disclaimer on the SPIS form that the agent is not responsible for its contents.

Godfrey was fined $6,000.

The discipline panel’s decision may well send a chill through the ranks of Ontario’s real estate agents because it ruled that Godfrey failed in her obligation to ensure the SPIS was accurate.

I interpret this case to mean that agents in the future will now be required to verify all the contents of an SPIS or face the consequences in a regulatory hearing. If that is now RECO’s position, it is not difficult to imagine that no agent will ever use the form again.

In the past, OREA has said that it takes pride in the SPIS form because it acts as “an excellent tool” to inform buyers and protect sellers over many years of use.

Last week, when asked to comment on the Godfrey decision, an OREA spokesperson emailed me to say that “the SPIS is another tool in a registrant’s tool kit which can be helpful in determining information about a property.”

In  2009 the SPIS was “excellent.” Now, it’s just “another” tool. As I read it, OREA’s enthusiasm for the SPIS is waning.

If OREA wants to keeps its own agents out of trouble, it should kill the form now.

 RECO DISCIPLINE DECISION

 http://www.reco.on.ca/publicdocs/20140623_201200385.pdf

Real Estate Council of Ontario
File #201200385
DISCIPLINE DECISION
IN THE MATTER OF A DISCIPLINE HEARING HELD PURSUANT TO THE REAL ESTATE AND BUSINESS BROKERS ACT, 2002, S.O. 2002, c. 30, Sch. C
BETWEEN:
REGISTRAR UNDER THE REAL ESTATE AND BUSINESS BROKERS ACT, 2002
- AND -
DALE GODFREY


 Subject to Rule 4.02 of the Discipline and Appeals Committee Rules of Practice (REBBA 2002), I, the Chair of the Discipline Committee (REBBA 2002) have reviewed and considered the Agreed Statement of Facts and Recommended Penalty together with the Waiver of Hearing submitted by the Parties to this proceeding and provide the following Order:  
 FINDINGS: In violation of Sections 3, 4, 5 and 21(1) of the REBBA 2002 Code of Ethics.
 
ORDER: Fine of $6,000.00 payable to RECO on or before December 5, 2014.
 
WRITTEN REASONS:  REASONS FOR DECISION INTRODUCTION  This matter proceeded on the basis of an Agreed Statement of Facts and Penalty and Waiver of Hearing, pursuant to Rule 4.02 of the Rules of Practice (REBBA 2002). The Agreed Statement of Facts and Penalty read: AGREED  STATEMENT OF FACTS AND PENALTY  1. Dale Godfrey (“Godfrey”) is registered as a broker under the Act.
At all relevant times, Godfrey was a broker and broker of record with the Brokerage.

2. The Brokerage, through Godfrey, listed 1-A Street, City A (the “Property”) for the Sellers.
 
3. By agreement of purchase and sale (the “APS”) dated April 20, 2010, the Numbered Company agreed to purchase the Property from the Sellers. The APS contained the following provisions: a) a purchase price of $105,000.00; b) a deposit of $500.00; c) a date of June 25, 2010; d) the brokerage was the brokerage for both the Sellers and the Numbered Company; e) the completion of the APS was conditional upon the Numbered Company arranging suitable financing; f) the completion of the APS was conditional upon inspection of the property by a third party and the obtaining of a report satisfactory to the Numbered Company at its own expense; and g) the Numbered Company had the rights to inspect the property one additional time prior to closing.
 
4. In addition to the APS, both the Sellers and the Numbered Company consented to multiple representation (dual agency) by signing a Confirmation of Co-operation and Representation. The document stated, among other things, that the listing brokerage has a duty of full disclosure to both the Numbered Company and the Sellers, including a duty to disclose all factual information regarding the Property. Godfrey, on behalf of the Brokerage, signed the Confirmation of Co-operation and Representation.  5. On or about April 20, 2010, Godfrey provided a Seller Property Information Statement (“SPIS”) to the principals of the Numbered Company that indicated there were no known problems with moisture or water infiltration. This SPIS was provided to the Numbered Company before it entered into the APS and was relied upon by the Numbered Company in its decision to enter into the APS.  6. The Numbered Company needed financing to purchase the Property. The Bank contemplated financing the Numbered Company’s purchase by providing a first mortgage. However, in order to approve the financing, the Bank wanted a report completed on the condition of the Property. In accordance with finalizing, the Numbered Company retained the Inspection Company prior to closing to meet the Bank`s requirement. As a result of the Inspection Company’s report, the Bank refused to advance funds for closing and, therefore, the Numbered Company was unable to complete the transaction.  7. The Inspection Company report concluded, among other things, that: a) That the foundation was “very vulnerable” to water leakage into the interior basement;b) There were several significant foundation cracks that were visible at the exterior that extended below grade; c) That the Sellers confirmed that there were no footing or weeping tile system around the exterior foundation; d) That a portion of the Property had been actively leaking the previous year; e) That chronic leakage occurring at the foundation cracks; f) Chronic leakage at several areas where the concrete had spalled; and g) That water collects under the basement floor and is forced up under pressure through cracks and joints into the basement, and the water cannot be drained away properly due to either a dysfunctional or nonexistent tiling system.  8. The Inspection Company’s report estimated the remedial work to cost in excess of $12,000.00.  SUMMARY OF AGREEMENTS It is agreed that Godfrey acted unprofessionally when she:  A. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Godfrey failed to act fairly, honestly and with integrity.  B. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Godfrey failed to promote and protect the best interests of the Numbered Company.
 
C. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Godfrey did not provide conscientious service to its client, the Numbered Company.  D. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Godfrey, in the course of a trade in real estate, engaged in an act or omission that, having regard to the circumstances that the property was subject to leaking, was unprofessional or dishonourable, or both. It is agreed that Godfrey breached the following sections of the Code of Ethics:          FAIRNESS, HONESTY, ETC.         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.         BEST INTERESTS         4. A registrant shall promote and protect the best interests of the registrant`s clients.                         CONSCIENTIOUS AND COMPETENT, ETC.         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.         MATERIAL FACTS         21(1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.   AGREED PENALTY DALE GODFREY, the Respondent, be ordered to pay a penalty of $6,000.00 on or before December 5, 2014.  By initials below, I, DALE GODFREY, acknowledge that I have read and understand the penalty outlined herein and agree to the said terms and/or conditions. [Respondent’s Initials] By initials below, I, DALE GODFREY, agree, understand, acknowledge and consent to waive the requirement for a hearing and to request an Order from the Chair of the Discipline Committee that includes this Agreed Statement of Facts and Penalty as a final settlement of this matter. [Respondent’s Initials] By initials below, I, DALE GODFREY, acknowledge that I exercised my right to be represented by Counsel or agent in this matter. [Respondent’s Initials] By signature below the Parties agree, acknowledge, understand and consent to the final settlement of this matter by way of this Agreed Statement of Facts and Penalty. [The Agreed Statement was duly signed by the Parties.]   DECISION OF THE CHAIR Having reviewed and considered the Agreed Statement of Facts, the Chair of the Discipline Committee (REBBA 2002) concluded that the Respondent breached Sections 3, 4, 5 and 21(1) of the REBBA 2002 Code of Ethics.  The Chair of the Discipline Committee (REBBA 2002) is also in agreement with the joint submission of the Parties as to penalty and accordingly makes the following order:  1. Dale Godfrey is Ordered a Fine of $6,000.00 payable to RECO on or before December 5, 2014. [Released: June 23, 2014]

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at
bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.
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