In a 2011 case, which sent shock waves through the real estate community, a real estate agent was ruled 25 per cent responsible for the buyer’s damages for taking a “hands-off approach” with respect to the home inspection, and because he failed to warn his client about the implications of the home inspector’s report.
It all began in 2006, when Glenda Halliwell wanted to buy a home on Dufferin St. in Toronto. She made it clear to her real estate agent, Joel Lazarus, and to the home inspector, that she was allergic to mould and wanted a dry house.
Lazarus ensured that a condition was inserted in the purchase offer allowing Halliwell to terminate the transaction if she was not satisfied with the report from the home inspector.
On the recommendation of Lazarus, Halliwell hired Brian Edwards to conduct a home inspection. Except for the furnace, which the seller replaced before closing, no other serious problems were noted during the home inspection, and there was no evidence of water penetration through the foundations.
Unfortunately, two months after closing, there were clear indications of moisture, mould, mildew, rot, rust and drywall deterioration in the home. Halliwell sued her agent, the broker, the seller and the home inspector. The parties agreed on $90,000 damages prior to going to court, but not on who should pay them.
Following a 13-day trial, the judge found the home inspector liable for 50 per cent of the damages, and the purchaser for 25 per cent for failing to read the inspection report. But the part of the decision which upset many real estate professionals was the finding that the agent was liable for 25 per cent of the damages.
Justice Margaret Eberhard found that Lazarus took a “hands-off approach” with respect to the home inspection report. “Had he read the report he . . . might well have concluded that the parging and driveway issue raised concerns.”
The judge found that the agent induced the purchaser to rely on the home inspection, and then “washed his hands of all responsibility to his client. . . . He failed to advise the purchaser of the use to be made of the report . . . (and) fell below the standard of care by failing to review the report with his client before waiving the home inspection condition.”
Halliwell, the agent and the broker all appealed. Earlier this year, a three-judge panel of the Ontario Court of Appeal reversed Eberhard’s findings of negligence against the real estate agent and the purchaser, and determined the home inspector was responsible for all of the damages.
“Turning to the agent’s liability,” the appeal court wrote, “we agree with the agent’s submission that the trial judge erred in finding the agent liable on a failure to read the inspection report, review it with the (purchaser), and bring to the (purchaser’s) attention the potential for moisture problems arising from the findings in the report.”
This is not to say that some agent in the future would not be held responsible for failing to warn a buyer about a home inspection report. In the Halliwell case, the trial judge did not hear any evidence concerning the standard of care expected of an agent in these circumstances.
As a result, the appeal decision in the case presents both good and bad news for agents and their clients. While the agent in the case escaped liability for the moisture damages to his client’s property, a future court in a different case could decide differently on the agent’s responsibility.
Prudent agents will still review a home inspector’s report with their clients, but in the end it seems to me that the obligation, and the risk, all fall on the shoulders of the home inspector.
See Title Page column on trial decision at http://www.aaron.ca/columns/2011-06-11.htm
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 firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.
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