Anne Marie Lorusso, sales representative

November 21, 2009  

 The home inspection industry in Canada may never be the same again following the decision of the British Columbia Supreme Court last week in the case of Salgado v. Toth*.

Back in September 2006, Manuel Salgado and Nora Calcaneo signed an agreement to buy a house in North Vancouver for $1,095,000. The contract was conditional on financing and a home inspection.

At the recommendation of their real estate agent, the buyers hired Imre Toth and his company HomePro Inspections to prepare a home inspection report for the property. Toth inspected the interior of the house, then spent another 30 minutes examining the roof and the rest of the exterior.

The contract Toth signed with the buyers stated that the inspection and report could not be used as a warranty of the condition of the house, and in the event the inspector was found liable for negligence or breach of contract, his liability would be limited to the $450 cost of the report.

After the inspection, Toth provided both a written and verbal report to Salgado and Calcaneo. He noted a number of structural deficiencies and told his clients that repair costs would be in the neighbourhood of $15,000 to $20,000. On that assurance, the buyers closed the deal.

After closing, the new owners discovered serious problems with the wooden structural beams of the house due to rot and moisture. As well, it turned out that the south part of the house was sitting on fill that had not been properly compacted and the structure itself was settling and unstable.

The buyers sued Toth, the sellers and the real estate agents. The case against the former owners was settled before trial and the claim against the agents was discontinued. The only defendants remaining at trial were Toth and his company.

After a five-day trial, Justice Grant Burnyeat awarded the buyers $192,920, representing the restoration costs of $212,920, minus Toth’s original $20,000 estimate.

The judge ruled that Toth was negligent in not inspecting all of the structural beams and in failing to draw to the buyers’ attention that the rot was much more widespread than he indicated to them.

The judge found that Salgado and Calcaneo would not have bought the house and would not have suffered damages had they known the full extent of the rot on the east and west side beams of the house. The judge also ruled that Toth was negligent in failing to advise the buyers to retain a geotechnical engineer before waiving the inspection condition in the offer. They relied on Toth’s advice regarding the stability of the house and suffered damages as a result of that reliance.

Toth’s repair estimate, said the judge, was “woefully inadequate.” The judge decided that the repair estimate Toth provided led the buyers to believe that the structural expenditures would not be excessive and that the problems were not significant.

He awarded them the actual cost of the necessary structural changes, including engineering costs. With respect to the exclusion of liability in Toth’s inspection contract, the evidence showed that the buyers never read the contract before signing it. The court decided that it was incumbent on Toth to draw to Salgado’s attention the exclusion and waiver clauses in the contract and ensure that he understood them.

Since that didn’t happen, the judge ruled the exclusion of liability paragraph didn’t apply.

An award approaching $200,000 in a home inspection case is virtually unheard of in Canada. My guess is that the case will result in an end to “quickie” home inspections.

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Thanks to Bob Aaron for this informative article…

Last week I had the opportunity to review a condominium builder purchase agreement with a couple of clients. They had been told in the sales office what they thought was the total purchase price and asked me to see if there were any surprises in the 39-page offer.

The salesperson had failed to mention that the price on the front page was not the final one and that there were a great many extras not included in that figure. I went through the offer with the clients, pointing out many such items.

The more I talked, the unhappier they became. I provided them with a long list of items classified as extras to be paid on closing in addition to the purchase price:

• The unit’s proportionate share of the cost of installation of gas, hydro, sewers and water service and meters, to an unlimited amount.
• Any new taxes imposed on the unit by any level of government after the agreement was signed (think HST) – also an unlimited amount.
• The Tarion warranty enrolment fee of $502.
• An unlimited levy against the unit for parks or other municipal charges.
• Provincial sales tax on the appliances included with the unit.
• An extra $300 for the paperwork to hold the purchasers’ deposits in trust.
• $150 to discharge the builder’s construction financing and give clear title after closing.
• The builder’s $52.50 transaction levy payable to the Law Society.
• $150 to subsidize the builder’s legal fees.
• Interest on the balance of the purchase price from the day of final closing to the next banking day.
• The amount of any increase in municipal, education or transit development charges imposed between Oct. 10, 2008 and closing.
• An unlimited contribution to the builder’s proportionate share of all costs associated with a development agreement entered into with the city.

The total cost of these extras could easily exceed $10,000 to $20,000. And since they are classified as extras or “adjustments,” they are typically not eligible for mortgage financing. Not one of them was mentioned in the sales office.

To make the purchasers’ cash flow even worse on closing, the offer requires that the purchasers prepay to the builder estimated property taxes for the year of closing and the year after – another $4,000 or $5,000 for taxes that won’t even be assessed for at least a year.

But that’s not all. Buried in the thick binder of disclosure materials is a requirement for all the condo owners to jointly buy from the builder a $185,000 guest suite and a $215,000 superintendent’s unit. The unit owners have to pay this money over 11 years with interest at 4 per cent over the 10-year Canada Bond rate.

Based on the proportionate share of the unit in the building, the extra cost to my clients for their share of these two units would total about $555, plus interest for 11 years. This charge is not even mentioned in the purchase agreement.

I told my clients that if they wanted to proceed with the purchase, they should go back to the builder and amend the agreement to cap the extra charges. Some builders will do this and some will not.

I have no problem at all with builders charging whatever they want for houses or condominium units, and for imposing any extra charges they see fit.

My clients and I have a serious problem with the total lack of disclosure of the charges in the sales office – a typical failure in many builder sales offices.

The better builders are open and transparent when it comes to disclosing extra charges in the sales offices. They are a credit to the profession and help support a positive public image for the home-building industry.

The rest of them are the ones who may force the government to step in and require full written disclosure of the total purchase price and all extras in a builder offer.

Bob Aaron is a Toronto real estate lawyer and a director of the Tarion Warranty Corporation.  He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.  Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.

 

 

Come and see a wonderfully renovated end-of-row executive freehold (that means NO CONDO FEES) townhome (with private covered parking) located near the St. Lawrence Market and Distillery District.  This one won’t last long!

It has a bright open concept main floor living space with a large updated kitchen and secluded front  patio which is perfect for entertaining.  The house has a huge private third floor master bedroom with a large 4 piece ensuite bath and double closets.  There is tonnes of storage space in this condo-style home including a private garage, so there is no snow removal necessary like a condo.

Fabulously painted throughout.  Hardwood floors in most rooms.  Recent updates to the house include a roof re-done in 2009 and the furnace in 2008.  Move-in without having to do any major decorating.

Call or Text me to find out more:  Anne Marie Lorusso 416-806-3423

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Tenants pay the following rents:

Apt#1-$1650+Utilities,  Apt #2-$950+Utilities,   Apt#3-$1550+Utilities, Apt#4-$950+Utilities,  Apt#5-$1580+Utilities,  Apt#6-$1650+Utilities

Total rental income $8330 less the mortgage and have a POSTIVE CASH FLOR OF APPROX $2000 per month or live in one of the apartments and have your tenants pay all of the mortgage for you. 

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Call or Text me to find out more:  Anne Marie Lorusso 416-806-3423