Legal Blog

This Stinks

A purchaser executes an agreement of purchase and sale. The purchaser’s solicitor ensures that the purchaser gets exactly what the purchaser bargained for in the agreement. The purchaser does not get what she thought she would get and sues the solicitor. Who wins? Read on about the case of Vaz-Oxlade v. Volkenstein, a 1998 unreported decision of the Ontario Court (General Division).

Septic System

The purchaser was buying a cottage. She was worried that the septic system was not adequate and requested her real estate agent to insert a clause in the agreement that protected her. The agent inserted the following: “We hereby warrant that the septic system has operated satisfactorily during the ownership of the property and to the best of our knowledge and belief was installed according to the provisions of the local health authority”.

The purchaser discovered after closing that the septic system was not in very good condition. It had been installed in the 1950s and did not meet the standards in effect at the date of purchase. However, the township would not require its removal unless major changes were being made to the cottage.

The purchaser sued the vendor, the real estate agent and her solicitor for fraudulent and negligent misrepresentation and negligence. One cannot ascertain from the decision the actual amount that was being claimed but we can safely assume that it was significant. The plaintiff had received an estimate of $23,000 to replace the septic system plus was claiming for economic loss and the cost of replacing a well. Allegedly, the septic system was too close to the well.

Vendor

The judge accepted the vendor’s evidence that, as far as he was concerned, the septic system worked adequately and that he had had no trouble with it. Accordingly, the judge dismissed the plaintiff’s action as against the vendor.

Real Estate Agent

The plaintiff claimed that the agent was negligent for failing to insert a warranty with more teeth. The judge decided that in view of the age of the property, it was not realistic to expect a stronger warranty. He noted that the plaintiff was well educated and that the warranty was not written in legalese and was, therefore, readily understandable by the plaintiff. She accepted it and could not subsequently complain about its limitation.

Solicitor

The solicitor made no search of the septic system’s compliance with the local health authority. He had the vendor sign a warranty on closing that was identical to the warranty set out in the agreement. He felt he had no choice but to follow the wording of the warranty in the agreement.

The judge held that the solicitor had a duty to request information about the septic system from the local health authority and breached that duty when he failed to do so. The judge relied on expert evidence to that effect.

Damages

The real fight, however, arose over the assessment of damages.

The search would have shown that the municipality had nothing on file about the septic system. The expert testified that this would have led the solicitor to request an inspection or, if he could not get one, an abatement of the purchase price. This makes no sense to us but other judges have also used this approach. As one prior judge stated: “no lawyer should presume that no rights can be negotiated”.

The judge guesstimated that the solicitor could have negotiated an abatement of $7,000 to $10,000 and then assessed the loss of the fair market value of the property at $8,500. The judge did not allow any of the other damages claimed by the purchaser, including the possible contamination of the water system if a new septic system was installed.

Who Won?

The plaintiff lost because she did not achieve a result anywhere close to what she wanted. It would not surprise us if an offer to settle was made for more than the plaintiff ultimately received. In any case, the plaintiff will have to pay the party and party costs, at least, of the vendor and real estate agent.

LPIC probably won. The degree of their success depends upon whether they delivered an offer for an amount in excess of the $8,500 awarded to the plaintiff.

The solicitor lost. There was a finding of liability as against him. The solicitor, therefore, lost his deductible and will have to pay an extra annual premium of $2,5000 for the next 5 years.

Of course, we are assuming that LPIC was involved. If it was not, the solicitor will still have lost. He will have to pay $8,500. Further, depending on the amount of any offer to settle, he also has to pay either a substantial amount or a smaller amount for legal fees. He should have done the search.