A decision from the Ontario Superior Court in July highlights the obligation of real estate agents to review home inspections with their clients.
Suzanne Powell and her mother Joyce Powell wanted to buy a property in Toronto’s west end. Their real estate agent, Barbara Kirby (now Den Ouden), introduced them to a house on Indian Grove.
When they visited the house, they were shown a summary of a home inspection report prepared for the owner, Tadeusz Lojko. It indicated, among other things, leakage of water around a skylight on the second floor.
Kirby prepared an offer for the Powells to sign. It required the seller to fix the skylight. I represented the Powells when they closed their $730,000 purchase in March 2010. After closing, a serious mould problem appeared throughout part of the house that was occupied by tenants, forcing them to move out.
A mould growth expert was called in and he reported significant contamination in several areas due to water seeping into the basement through the foundation and upstairs through leaks from the skylights.
Unknown to the Powells, two years before their purchase there had been a major flood in the basement, resulting in considerable evidence of mould and mildew.
As a result of the mould infestation, the Powells incurred damages exceeding $141,000, including repair costs and lost rent. In 2011, they sued the seller, Lojko and Kirby, their agent.
At the trial before Justice Thomas Lederer in February, a key issue turned out to be whether Kirby had an obligation to alert the Powells to the significance of the summary of the home inspection.
After hearing evidence from Barry Lebow, an expert in the duties of real estate agents, the judge wrote, “It is not as if there were no hints or indications that something was amiss. The summary of the inspection undertaken on behalf of the seller and available at the time of the inspection should have or, at least, could have raised concerns in the alert reader.
“… As seen by Barry Lebow this was a wakeup call. It should have been apparent, particularly to Barbara Kirby as an experienced agent, that, at the least, this required an examination of the full report to be assured that there were no further or unforeseen problems.”
The Powells were never shown the full report.
In ultimately assessing liability, Justice Lederer wrote: “Barbara Kirby owed the Powells more than drawing up an offer that had the best chance of success. She was required to provide advice as to the risks of doing so in order that her clients could make an informed choice as to how best to proceed. … she did not counsel Suzanne Powell and Joyce Powell as she was obliged to do.”
A reasonable agent, the judge concluded, would have obtained and reviewed the full report. Had she done so, “a great deal of the problems that ensued could have been avoided.”
In the end, Kirby was required to pay 25 per cent of the $141,105 in damages, or $35,276. She also paid $35,000 in costs. The Powells had to absorb 25 per cent of the damages themselves. For the Powells, it was a moral victory if not a financial one. Prior to trial, Lojko, the seller, signed a confidential settlement agreement with the Powells, so we will never know what share of the damages, if any, he absorbed.
But the case is a lesson for real estate agents who are now on notice of their obligation to review home inspections with their purchaser clients.