Flood, flood, pond: Property disclosure statements are no game

In late November 2012, the Ontario Divisional Court released an interesting decision, Costa v. Wimalasekera, which underscores the consequences of completing a property disclosure statement.

Property disclosure statements, as many REALTORS® likely know, are forms that buyers may ask sellers to fill out. They typically consist of a series of questions containing information about the state of the sellers’ property. Buyers love them. Lawyers hate them. Sellers should be wary of them.

In Costa, the buyers, Mr. and Mrs. Costa made an offer to purchase conditional on receipt of a property disclosure statement completed by the seller, Jaagara Wimalasekera. Mr. Wimalasekera subsequently completed the form and answered “no” to the question “Is the property subject to flooding?”

Much to the chagrin of Mr. and Mrs. Costa, one month after the sale closed, they discovered that the backyard of their new home was subject to accumulation of water up to a foot deep when it rained. They sued the seller for fraudulent and negligent misrepresentation (in plain language, they claimed the seller had lied).

After the buyers successfully obtained a $25,000 judgement against him, Mr. Wimalasekera appealed to the Divisional Court. He argued, among other things, that the trial judge had erred in finding that the water in the backyard was “flooding” in light of the technical definition of the term by the local wetland authority, the Credit Valley Conservation Authority (CVC), and that the judge had erred in finding that Mr. Wimalasekera had misled the buyers as he thought the term “property” in the flooding question referred only to the house.

For the inquisitive reader, the CVC defines “flooding” as the escape of water from a water course. In its view the accumulation of water in the Costas’ backyard was “ponding.”

In dismissing Mr. Wimalasekera’s appeal, Justice van Rensburg made a few observations.

First, the trial judge was correct to reject the conservation authority’s technical definition of the term “flooding” in the property disclosure statement in favour of how the term would be understood by the general public.

Second, it was open to the trial judge to conclude from the fact that Mr. Wimalasekera had two different explanations to the flooding question (the water accumulation was “ponding” and the question only referred to the house) that he was not credible on this point.

Finally, it is interesting to note that prior to the purchase, the Costas had contacted the CVC regarding the property to inquire about building restrictions associated with the property. Justice van Rensburg rejected the seller’s assertion that a reasonable person would have made further inquiries which would have revealed the flooding and noted that in light of the Mr. Wimalasekera’s negative response to the flooding question there was nothing to alert the buyers to investigate the issue.

The article above is for information purposes and is not legal advice or a substitute for legal counsel.

Simon Parham, Legal Counsel, is always on hand to provide helpful advice to CREA, Boards, and Associations on all aspects of federal legislation that can be reduced to an acronym, including: PIPEDA; FINTRAC; and the DNCL. In his spare time, Simon enjoys running, camping, discovering the world with his daughter, and planning his “big year.”

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