Your son is shot and killed in front of your house. When you sell, must this be disclosed?
Recent case law provides the answer to this, and disclosure obligations generally, for agents and sellers with regard to emotional vs physical situations that may have occurred at the property.
Every time I lead a discussion on disclosure it becomes an emotional exchange with people passionate about their position one way or the other. Recent the British Columbia Court of Appeal provided some much-needed clarity on items referred to as stigma and when and how to disclose.
In the case of Wang v. Shao, 2019 BCCA 130, the most sensitive of stigmas, murder, was considered. The seller’s son-in-law was murdered in a gang-related killing on the sidewalk outside the seller’s house. The publicity related to this killing resulted in the seller’s daughter having to change schools. The seller purchased a house closer to the new school her daughter was attending.
The seller put the property on the market. The seller’s agent was asked why the seller was moving and he said that he was informed it was because the seller’s daughter had changed schools. No further questions were asked and no further explanation was given. As part of the evidence provided in the resulting lawsuit, the seller disclosed that she was also moving for the safety of her children.
The Court of Appeal reviewed all the evidence and the decision of the lower court judge and stated that the rule of caveat emptor applies to the purchasing of property. This means the buyer alone is responsible for checking the quality and suitability of the goods before a purchase is made. But there are exceptions. You cannot misrepresent or tell half-truths.
The court decision provides a very clear and thorough review of the reasons for the finding that it is the buyers’ responsibility to ask questions to which a seller must truthfully answer. However, it should be noted that the property disclosure statements used in Quebec now include the following question: Has there been a suicide or violent death on the property?
In Wang v. Shao, the court reviewed relevant case law to make its determination. A similar case, Knight v. Dionne 2006 QCCA 1260 (CanLII), was reviewed. In that case, the seller failed to disclose the suicide of their son that had occurred 10 years prior to the sale. The court drew a distinction between “subjective and purely personal grounds” that could affect the value of a property in the eyes of an individual, from factors relating to the “objective and intrinsic” value of the property.
The judgment stated:
“It may be that, for some individuals, including the plaintiff and her spouse, the fact that a death – especially a death in tragic circumstances – has occurred in a home constitutes a subjective obstacle to purchase or occupation of this house.
“In such a case, it appears to us that it is up to the buyers to ask specific questions reflecting the phobias, fears or other subjective considerations that could, in their view, interfere with their full enjoyment of a building or even with their purchase of a home in the first place. Once such a question is asked, the seller’s obligation to make full disclosure is heightened, and the seller must not induce erroneous consent through silence or a failure to disclose an element that appears to be important to the buyer, at the risk of having the validity of the sale contested in cases where the other party would not have contracted or would have contracted on different terms had all the information been known.
“The Court is of the position that the events and facts of the life of the residents of a residential property cannot normally be considered to be liable to significantly influence the consent of the adverse party, unless there have been questions asked about those events and facts.
“A death, suicide, or even a murder in a house cannot be considered to be something the seller is obliged to disclose to the buyer, just as there is no obligation to disclose domestic violence, trespasses, births, marriages, baptisms or other life events, whether happy or sad, that may have occurred there.
“The conclusion appears obvious to us, because if the compulsory disclosure of facts or events in the lives of the residents that are liable to significantly influence the buyer’s decision became a rule governing the sale of residential buildings, it would be extremely difficult to determine where the line should be drawn, and this could create a risk of unnecessary uncertainty.
“Would sellers have to disclose domestic violence or domestic arguments? And if so, starting at what level of violence? Could the divorce or separation of the sellers be a factor that affects the value of a house and therefore important to disclose so that the buyer can make an informed decision?
“In the case of a death, could the value of the residence be affected differently depending on whether the death had occurred suddenly, during sleep or after a long illness, or as a result of a suicide or a murder? And would the obligation to disclose vary accordingly?
“The Court has a great deal of difficulty in agreeing that elements whose importance depends on sensitivity, phobias, sentiments or purely personal and subjectively apprehensions that are not related to the quality of the building should be subject to compulsory disclosure.
“Imposing such rules would place an impossible burden on the shoulders of the seller in assessing which of the events that had occurred in the house might be important in the mind of the buyer and therefore of consequence in terms of his decision.
“That is why it seems more logical to us that it should be buyers who have the obligation to ask questions that will enable them to ascertain that nothing that would prevent their full enjoyment had occurred in the house.”
In Wang, the Court of Appeal found that the trial judge erred in law in ruling that the seller’s answer to the buyer’s question constituted a misrepresentation by omission and erred in fact in finding that her answer to the buyer’s questions concealed a fact that the seller ought to have known was important to the buyer.
The Court of Appeal found that if the seller were under a duty to disclose why her daughter was not going to public school and why she left her previous private school, the law relating to real estate transactions would be turned on its head.
If the law were changed and required that upon being asked a general question like the one asked – “Why are you moving?” – then vendors would have to disclose all their personal reasons and explain the causes for those reasons, even when they had no relationship to the objective value or usefulness of the property. The door would be open to a huge number of claims. It would be extremely difficult to determine where the line should be drawn.
The rule that exists and is upheld by this decision of “buyer beware” is not intended to permit sellers to deceive buyers. Rather, it places the onus on the buyers to ask specific questions designed to unearth the facts relating to the buyers’ particular subjective likes and dislikes.
The finding in this case has been my position for years. I have researched and written/presented about the topic of disclosure extensively. I have made many an enemy over this very topic. While this case provides much-needed confirmation to the status of the law (absence legislation to the contrary) it is easy to understand why it is such a difficult area of the law. This case alone makes that point in that the lower court found for the purchaser.
The lower court felt the seller’s answer was a misrepresentation of why she was moving and fraudulent. The finding was in favour of the purchaser. The purchaser was provided their deposit and legal costs. It was on appeal that the principle of buyer beware was applied and the reason given for moving was found to be truthful and no further explanation was needed.
There are many people on either side of this issue. Some are adamant that any item considered a stigma must be disclosed including, murder, suicide, natural death, sexual assault and the list can go on and on. The very fact that some lists are longer than others is the first problem in the area.
The easiest way to view this area of law is to look at what most will agree is the worst thing that could happen in a house, murder.
The first place to look for guidance is laws and regulations. The only place in Canada with law pertaining to this area is Quebec; however, it is limited to three years to disclose if a murder occurred. No other stigma is legislated.
A canvass of the United States legislation reveals the same outcome. There are only some jurisdictions with laws with regard to disclosing if a murder occurred, and where there are, it is most commonly limited to three years. The next place to look for guidance would be the governing body of real estate agents. Here you have language around a material fact and the only guidance given is with regard to grow ops. The positions taken on that may change in light of recent legalization. With no guidance on material facts, we are left with the code of ethics that requires an agent to be truthful when an inquiry is made.
As a lawyer, the other place to look is to case law. Generally, the cases are consistent and rely upon the information provided. This is exactly how this case was decided. There is no law requiring disclosure; no standard that agents or sellers are held to. The default position is then to look to the contract language and determine if what is given as representations in the agreement are true and not misleading. If you are not required to disclosure something, you cannot say something untrue or misleading to avoid disclosure.
This case and the code of ethics of agents rely upon questions being asked and answered. Think about what the judge said in this case. Sellers are not required to disparage themselves. Does it make you think of criminal law? You have the right to remain silent. This pretty much sums up this issue for us too. You can remain silent until specifically asked. Then you must answer truthfully and not be misleading.
Original blog post by Shari Elliott, REMonline.com