A recent case demonstrates any breakdown in the five-way test required to establish negligent misrepresentation in real estate transactions will result in a failed claim.
The plaintiff’s claim was unsuccessful because he was unable to establish two of the required elements.
Lisa Laredo of Laredo Law in Toronto says honesty is indeed the best policy when it comes to defending an accusation of negligent misrepresentation.
“The key requirement is that the vendor be honest,” observes Laredo.
“From a legal point of view, it is better that a vendor say nothing rather than a half-truth. If you say something, you need to be forthright and honest.
“There is nothing in law that requires the vendor to say anything as to the condition of the property.”
While the agent clearly owed a duty of care to the purchaser and the information the agent told the purchaser turned out to be false resulting in him suffering damages, Brockville Small Claims Court Deputy Justice Shane A. Kelford determined that the agent didn’t act negligently and, even if he did, the purchaser didn’t rely on that information because he made his own independent inquiries.
“In this case, there is no evidence which would allow me to conclude that (real estate agent Brittany) Holtzman failed to meet the usual or customary standard of a purchaser’s agent with respect to her efforts to verify the accuracy of the vendor’s information regarding the suitability of the property as a building lot.
“Other than perhaps obtaining a zoning certificate in respect of the property, no evidence was led by the plaintiff as to the standard practice of real estate agents with respect to confirmation of zoning or suitability of a property for building,” wrote Kelford.
Court heard the agent had gone to the township to confirm the purchasers would be allowed to build on the property.
The purchaser also approached the township office.
Both were told they would be permitted to build.
After closing, the purchaser spent $18,000 preparing the property, which included excavation, securing the septic permit as well as designs and entryway permit off the municipal road.
He then built the driveway and applied for a building permit only to be told he would be prohibited from building because the site was within 500 metres of the former dump.
The property owner partly rectified his dilemma by selling the land to the municipality.
But he was still out what he spent preparing the property for construction so he sued the agent.
Facing two sets of contradicting expert opinions left the court to choose between them, observes Matt Maurer, a litigator with Minden Gross LLP in Toronto.
The plaintiff presented no witnesses to testify as to what a reasonable agent would have done in the circumstances.
But the brokerage led evidence that it is not standard practice for a purchaser’s agent to obtain a zoning certificate to confirm zoning for a purchase, observes Maurer.
“In this case, if the plaintiff led evidence that it’s common practice, every purchasing agent goes out and gets a zoning certificate to certify the zoning before they close, things would have been a lot different,” says Maurer.
Michael Swindley, the Kingston, Ont. lawyer who successfully represented the Real Estate Council of Ontario in defending the agent, says if the link of any of the five required elements is broken, the accusation of negligent misrepresentation fails.
“Where the chain breaks is on the reliance and on the negligence,” says Swindley.
“The court found that because they were told the same thing . . . it wasn’t negligence because she [the agent] met the standard of care owed by a real estate agent by going out and doing that extra research.”
Three of those elements were proven: The client is automatically owed a duty of care in a relationship with an agent; the representation the agent made turned out to be inaccurate; and the plaintiff suffered damages.
But what was missing was any evidence that the agent acted negligently in making the representation and that the client relied upon the misrepresentation.
The two that failed — negligence and duty of care — resulted in the failure of the case.
Swindley points out that a very large majority of RECO-related claims appear in small claims court, as did Drolet because of its $25,000 limit and few land in divisional court these days.
The plaintiff would have had to call expert evidence to prove what the standard of care was.
That would have likely been another agent or expert in the field, “and that’s pretty tough to do,” says Swindley.
He says agents are more aware about the standard of care in their business to provide them with guidelines when they are dealing with clients, so when people consider suing the agent if something goes wrong, purchasers “will think twice about suing them.”