By Bob Aaron
A recent decision of a discipline panel of the Real Estate Council of Ontario (RECO) could spell the end of the Seller Property Information Statement (SPIS) in Ontario.
The SPIS is a disclosure form published by the Ontario Real Estate Association (OREA). Some real estate agents swear by the form, while others are strongly opposed to it.
I have been very critical of the SPIS because in my opinion the questions are ambiguous, technical or complicated, and they require expertise in property law, building code, zoning and other issues – which most homeowners do not have.
Some agents feel the form exists to protect them from allegations of failure to disclose property defects, but it now seems that the form will only create problems for agents who fail to verify its contents.
Across Canada, the SPIS and similar forms have resulted in about 200 reported court cases since 1997. Many more have no doubt been filed and settled.
A disclaimer on the forms attempts to shield real estate agents from responsibility for the accuracy of the seller’s answers, but that disclaimer may not be effective in light of RECO’s recent discipline decision.
Dale Godfrey is a real estate broker in Sault Ste. Marie. Back in 2010, she represented both buyer and sellers in a purchase agreement for a $105,000 home. Both parties had consented to dual agency and signed a Confirmation of Co-operation and Representation.
That document stated, among other things, that the listing brokerage has a duty of full disclosure to both buyer and sellers, including a duty to disclose all factual information regarding the property.
Before the purchase agreement was signed, Godfrey provided a SPIS to the buyer. It stated there were no known problems with moisture or water infiltration. The buyer relied on that representation in deciding to buy the property. A subsequent home inspection revealed that the foundation had significant cracks and was vulnerable to basement water leakage. The inspection company estimated the cost of repair at $12,000.
The buyer’s bank would not advance funds in the face of the home inspection and the buyer was unable to complete the transaction as a result.
Godfrey was charged with breach of several sections of the RECO code of ethics. In an agreed statement of facts submitted to the discipline panel, she admitted to acting unprofessionally by failing to verify that the SPIS was accurate, and failing to promote and protect the best interests of the buyer.
Godfrey also admitted that her conduct was unprofessional or dishonourable, or both.
The panel ruled that, by failing to ensure that the SPIS was accurate, Godfrey failed to treat her clients fairly, honestly and with integrity, and that she failed to promote their best interests. As well, it found that she failed to exercise reasonable knowledge, skill, judgment and competence in providing services to her clients.
In admitting that she had an obligation to verify the contents of the SPIS, Godfrey allowed the discipline panel to find her in breach of several sections of the RECO Code of Ethics. The panel ruled she violated section 3 (fairness, honesty), section 4 (best interests), section 5 (conscientious and competent) and section 21(1) (material facts).
The panel’s reasoning seems to be based on an agent’s obligation to discover and disclose material facts relating to a property despite the disclaimer on the SPIS form that the agent is not responsible for its contents.
Godfrey was fined $6,000.
The discipline panel’s decision may well send a chill through the ranks of Ontario’s agents because it ruled that Godfrey failed in her obligation to ensure that the SPIS was accurate.
I interpret this case to mean that agents in the future will now be required to verify all the contents of an SPIS or face the consequences in a regulatory hearing. If that is now RECO’s position, it is not difficult to imagine that no agent will ever use the form again.
In the past OREA has said that it takes pride in the SPIS form because it acts as “an excellent tool” to inform buyers and protect sellers over many years of use. In 2009, OREA’s then-president emailed me to say, “The Seller Property Information Statement also has proven to be an excellent tool to inform buyers of the condition of a property they are considering. Through the use of a SPIS, a buyer has pertinent information about a property that will assist them in their decision making process.”
When asked to comment on the Godfrey decision, an OREA spokesperson emailed me to say that “the SPIS is another tool in a registrant’s tool kit which can be helpful in determining information about a property.”
In 2009 the SPIS was “excellent.” Now, it’s just “another” tool. As I read it, OREA’s enthusiasm for the SPIS is distinctly waning.
If RECO’s decision in the Godfrey case now represents its official position on the SPIS form, it seems that RECO is likely to hold that a significant misrepresentation by a seller will now be deemed a “material fact” for the purposes of the RECO Code of Ethics. Agents who personally fail to verify the statements in a SPIS run a significant risk of being ruled in violation of several sections of the code.
As I see it, the disclaimer in the SPIS may or may not protect an agent from a suit by the buyer, but it will not shield the agent from an allegation of breach of professional standards.
It’s a risk not worth taking. If OREA truly wants to keep its own agents out of trouble, it should kill the form now.
Bob Aaron is a Toronto real estate lawyer. He can be reached at [email protected], on his website aaron.ca, and on Twitter, @bobaaron2.
