As you are aware (or should be) as a professional real estate broker/salesperson, there are professional duties that must be honoured at all times. These legal obligations are not just words or hearsay, and can be illustrated by events now taking place in the United States.
It is reported that the Department of Justice is investigating the legal department of General Motors Company. The issue is whether the in-house lawyers concealed evidence from safety regulators about defective ignition switches. You may know that these switches have allegedly been linked to at least 13 deaths and some 50 crashes.
The fact that these lawyers are in-house does not exonerate them from their professional duty and obligations “to do no harm to the public”. This example is a continuing expansion on the legal obligations (in fact all professional obligations) to act honourably and “cause no harm”.
Here are three case examples of the legal duties of real estate professionals.
Confidentiality
The Divisional Court of Ontario (Superior Court of Justice) recently enforced a confidentiality clause in a settlement made between Jan Wong and The Globe and Mail.
The confidentiality clause in a settlement agreement is not unusual and there is now authority from the Superior Court of Ontario that breach of the confidentiality will lead to repayment of the portion of the settlement by the wrongdoer. Obviously, what is behind the decision is the court’s recognition that parties should be encouraged to settle matters and when they agree to confidentiality the person paying the settlement has paid for such a clause. (Wong v. The Globe & Mail, 2013 ONSC 2993)
Duty to mitigate
When the court valuates damages, it also applies a duty to take all reasonable steps (by the person claiming damages) to mitigate.
In this case the plaintiff purchased the property from the vendor and had a home inspection done. The home inspector advised that the basement should be monitored for leaks.
The purchasers took possession and noticed a musty odour and dampness in the basement. The purchaser did not investigate behind the drywall in the basement, did not make further inquiries of the vendor, did not carry on further investigations and did not negotiate a warranty or price reduction. One year later the basement flooded.
The Ontario Superior Court held that there was an actual misrepresentation by the vendor in the Agreement of Purchase and Sale. The listing stated that the property had been “gutted to the bare bones”. This had not been done so there was a latent defect. However, the damages awarded against the vendor were cut in half because the purchaser disregarded the inspection report and thereby contributed to their own loss. (Mauro v Al-Saffar, 2014 CanLII 14994)
Pre-trial procedures stick
The plaintiff was the purchaser of an apartment building. The defendant was the vendor. As part of the closing, the purchaser had a take-back mortgage of $600,000 from the vendor.
Subsequently the purchaser sued the vendor for damages of about $200,000 for breach of contract (the sale), latent defects and negligent misrepresentation. In doing this the purchaser hoped to set-off its damages against the amount that he gave to the vendor as a take-back mortgage. The problem was that at this stage, the Trial Record had been passed when the purchaser brought a motion “for leave” stopping the vendor from enforcing the take-back mortgage pending the trial.
The Ontario Superior Court dismissed the purchaser’s motion and did not give it leave. When you file a Trial Record, you are certifying that the action is ready for trial and the court must give you leave if you wish to initiate a motion. Since the vendor take-back mortgage had become due and the request for leave was simply to obtain a possible set-off in damages in advance of trial and before judgment, the court refused the trial process. (2247267 Ontario Inc. v. 2038697 Ontario Limited, 2014 ONSC 2717)
Donald Lapowich, Q.C. is a partner at the law firm of Koskie, Minsky in Toronto, where he practices civil litigation, with a particular emphasis on real estate litigation and mediation, acting for builders, real estate agents and lawyers.
