In the recent case of Wang v Shao (2018 BCSC 377), the BC Supreme Court re-examined the issue of stigma and disclosure obligations.
The case concerned the collapsed sale of a large home in Shaughnessy in Vancouver for $6.1 million. The buyer refused to complete the purchase relying on an undisclosed stigma. The plaintiff seller sued the defendant buyer for failure to complete, for release of the $300,000 deposit and additional damages in reselling the property for a $600,000 loss.
The buyer defended the action by claiming that the seller had failed to disclose a murder at the property two years before the property was listed for sale.
The buyer argued that the murder at the property involved the cold-blooded, gang-related shooting of the seller’s son-in-law at or near the front of the property, that the shooting remained an unsolved murder and that this was a latent defect that rendered the property dangerous or potentially dangerous and thus should have been disclosed by the seller. The buyer elected not to close, fearing for the safety of herself and her family.
In the alternative, the buyer alleged that the seller or the seller’s agent made a fraudulent or negligent misrepresentation when they omitted to disclose the death as a reason for selling.
When the seller’s agent asked the seller why she was selling, he was told that it was because the grandchild was changing schools, and this is the information that was passed on to the buyer when they asked the same question. There was no mention made in that answer of the fact that the school change and the move was a result in part or in whole because there was a murder at the property.
The case went to trial in the summer of 2017, by which time the claims against the seller’s agents had been dismissed by consent. At trial, the judge considered the issues to be:
- whether or not the seller owed a duty to disclose to the buyer the murder of her son-in-law at the front entrance to the property;
- whether or not the death of the son-in-law was a material latent defect rendering the property dangerous, or potentially dangerous to the occupants or unfit for habitation; and further,
- whether or not the seller made a material fraudulent or negligent misrepresentation by failing to disclose the death of the son-in-law as a reason for selling the property.
The judge accepted as a fact, despite the evidence of the seller and her daughter to the contrary, that the reason for the move was in part because of the death at the property.
When they listed the property, the seller’s agents were made aware of the death at the property. They sought advice from their manager about their disclosure obligations and were advised that unless a prospective purchaser specifically inquired about a death, they did not have to disclose it. They were also advised to recommend that the seller seek legal advice with respect to her own disclosure obligations, which advice they passed on to the seller.
The court found that the buyer directed her agent to ask why the seller was selling the property. The seller’s agent provided the answer that the seller had given to him, that the seller’s granddaughter had changed schools. There was no discussion of the death at the property.
Shortly before the completion of the sale of the property, the buyer heard through a friend about the death at the property which she readily confirmed through a Google search. The buyer then determined with legal advice that she would not complete the purchase of the property.
The court reviewed the law with respect to caveat emptor, or buyer beware, in detail and in particular in relation to the disclosure of stigmas such as murders, suicides, and other events with potential psychological impacts.
Subject to certain exceptions, including fraud or failure to disclose a latent defect of which the vendor is aware, the court confirmed that the doctrine of caveat emptor applies to real property in BC.
The court concluded that the death in this case was not a latent defect rendering the property dangerous or uninhabitable, nor was it a defect related to the physical or intrinsic qualities of the property. There was no obligation on the seller to disclose the death as a latent defect.
Although the judge found that this did not constitute a defect, he went on to note that even if it was a defect, it was patent rather than latent, easily discoverable by a purchaser making reasonable inquiries.
Despite having no positive obligation to disclose the death, the Court did go on to find the seller had made a fraudulent representation by telling her agents that the reason for selling was because of the change of schools, knowing that this is the information they would convey if asked and knowing that it was an incomplete answer.
The seller “intended that any prospective purchaser who made the inquiry would believe the truth of the statement and would accept that the vendor had no other reason for selling the property.” This fraudulent representation vitiated the contract.
The seller’s agents in this case acted prudently in seeking advice from their manager as to their disclosure obligations and to advise the seller to get her own legal advice respecting her disclosure obligations (though they would have been wise to put that advice in writing since the seller denied being given such advice, leaving it up to the judge to decide who to believe).
As he was not aware of any reason for selling other than what the seller had told him and his associate, the licensee answered the question about the seller’s reasons for selling honestly.
As noted in the Professional Standards Manual, “buyers are ultimately responsible to satisfy themselves that the property they are acquiring is suitable for their purposes” and if “concerned about certain possible stigmas in regard to a property, are responsible to conduct their own investigation which could include inquiries of licensees who represent them or direct inquiries of the seller or licensees representing the seller. When asked by their client, a buyer’s agent must make the appropriate inquiries.”
A seller’s agent should seek instructions from the client as to whether to answer the question directly or to decline to answer the question. When the seller’s agent does answer the question, they are expected to use reasonable care and skill to ensure the accuracy and completeness of the information provided.
Given the outcome of the Wang case, licensees should be careful if they are ever told by a seller to only provide a partial answer to a question. This may be a red flag that the seller is not being forthright, and the licensee may be wise to reconsider staying in the agency relationship.