If your PVR looks anything like mine does these days, it’s filled with baking shows. Like a cake recipe, a misrepresentation claim has several ingredients and steps. Unlike a cake being served on Cake Wars, a successful claim against you for misrepresentation is something you’ll want to avoid.
In this article, I’ll walk you through a misrepresentation claim: what it is, what the ingredients are, and how it’s made.
Lastly, and most importantly, you’ll learn how to avoid one.
The ingredients
Despite my attempts at humour, misrepresentation claims are not a baked good (perhaps a baked bad). They are about misstating something about the property being sold, and they make up about one-half of the claims made against licensees.
Over the years, the courts have developed a multi-part test setting out the requirements to prove a misrepresentation[i] claim against a licensee. In other words, the ingredients for a successful misrepresentation claim are:
- A false statement negligently made;
- A duty of care on the person making the statement to the recipient. A duty of care does not arise unless the person making the statement is possessed of special skill or knowledge on the matter in question; and the circumstances establish the reasonable person making the statement would know that the recipient is relying upon his skill or judgement;
- Reasonable reliance on the statement by its recipient; and
- Loss suffered as a consequence of reliance.
If any of these ingredients are missing, the misrepresentation claim fails.
Like a cake, claims against licensees for misrepresentation sometimes fall apart. They may crumble because the alleged misstatement cannot be proven to be false or to have been made at all. Other cases fail to rise because the licensee may owe no duty of care in the circumstances. Still other cases fall flat because there is no actual or reasonable reliance by the claimant, or the claimant has suffered no loss.
In the past several years, about half of my recipe book (file cabinet) has been filled with misrepresentation claims; I’ve been in court many times defending licensees against them. Like creating a difficult puff pastry, these claims are all complex, time-consuming and stressful for the licensees involved.[ii]
Baking instructions
The starting point is a false statement made by a licensee. These statements are often about:
- The features of the property or its use;
- The size of the property or lot;
- The condition of a property;
- Secondary suites; or
- Applicability of GST or other taxes.
Simply put, misrepresentations are made when licensees say or write things about the property without knowing and verifying that they are accurate. They make a negligent statement.
The next step is when a client to whom the licensee owes a duty reasonably relies on the representation to their detriment in buying or leasing the property. The client is left with a property that has the wrong features, is too small or cannot be used as they intended.
The icing on the cake is when they blame you for it and demand compensation.
How to turn down the heat on a misrepresentation claim
The best way to avoid misrepresentation claims in the first place is to exercise due diligence. Easy answer, sometimes hard in principle.
The basics
Whenever you represent anything about a property:
- Be sure to use reliable sources for information;
- Verify the source if possible;
- State the source of the information; and
- Be candid with your clients – if you do not know an answer about a property, say so and recommend expert advice where appropriate.
Detailed instructions
When acting for a seller and dealing with questions from the buyer’s side, take care when answering questions about the property generally. For example, in most transactions the agent for the seller receives an email from the buyer or their agent asking several questions about the property. The questions may directly relate to a representation the licensee has made.
The questions may be about the age of the roof, whether the fireplace has a certificate, the condition of the property or the size of the yard. For strata units, they may be about parking stalls and storage lockers, or if there are restrictions for pets, age or rentals.
When answering, the agent for the seller should be sure that they are getting the best information possible (from official sources where available), getting information in writing, indicating the source of the information and finally, indicating if information is not available.
When providing information, indicate where it came from. For example, rather than saying “the roof has never leaked,” say “the seller says the roof has never leaked.”
When acting for a buyer with questions about a property, the same logic applies. Ensure that you understand what information your buyer is looking for. Indicate if you are going to provide the answers, if the seller is going to provide the answers and/or if the answers are going to come from official sources such as the title search, a strata plan, a property floor plan, or government documentation.
When licensees are acting for either the seller or the buyer and are faced with questions about the use of a property, such as whether a suite is authorized or not, be certain in your answer. When acting for the seller, don’t advertise that a suite is authorized or legal unless you have verified this, preferably in writing from the municipality.
Don’t simply take the word of the seller, the MLS listing or an old MLS listing as gospel. Verify if possible and get information in writing.
When dealing with issues concerning the structural condition of a property, it’s best to simply stay clear of any representations. These matters are best assessed by an engineer, a contractor or professional building inspector. The moment you go beyond advertising puffery, such as stating the property is “a wonderful home” and drift into factual assertions such as “a well-built home” or “structurally sound home” you have drifted into dangerous waters and are heading for a misrepresentation claim[iii]. Recommend in writing that your clients have the appropriate subject conditions and engage the appropriate experts to determine the condition of a property.
Last thoughts
As always, when making recommendations, do so in writing. When taking instructions, get them in writing. Never stray beyond your expertise in dealing with a client. The other half of my file cabinet is full of claims against licensees who drifted into providing advice on property development, municipal approvals, tax and engineering matters. Misrepresentations are often made by licensees who don’t know their limits and don’t take the time to ensure the information they are conveying is accurate.
None of the above is a silver bullet to avoid a misrepresentation claim. Caution and due diligence are the best ways to lower the risk of a claim against you.
[i] Kingu v. Walmar Ventures Ltd. (1986), 10 B.C.L.R. (2d) 15 (C.A.)
[ii] See for an example of Supreme Court misrepresentation claims: Chen v. Cao, 2014 BCSC 404 concerning a misrepresentation claim about the size of a property and Mohan et al. v. 1007442 B.C. Ltd et. al., 2017 BCSC 926 concerning an alleged misrepresentation that certain plans were included in the property purchase
[iii] See the June 2018 Risk Report Article Puffery or misrepresentation by O. Hyatt for a discussion on where the line between puffery and representation falls.
