REALTORS® Duties: It Pays to be Cautious

Posted on: Tuesday, December 10th, 2013

According to the case of 11 Suntract Holdings Ltd. v. Classics Service & Hydraulics Ltd., a real estate agent has a duty to act with reasonable care and skill in reviewing the terms of a purchase agreement with his client. That duty includes obligations to specifically draw to the client’s attention, any provisions in the agreement that are contrary to the client’s interest or instructions given by the client. TO read the full court decision please refer to the link below:

http://www.canlii.org/en/on/onsc/doc/1997/1997canlii12181/1997canlii12181.html

In the case we are going to be looking at today, the agent failed to recognize and bring to the attention of his client an amendment in the Agreement of Purchase and Sale that was stressed by his client as being of primary concern to him. What transpired was a cancelled Agreement of Purchase and Sale which cost the buyer his deposit of $50,000.00.

Instead of the buyer taking the seller to court to recover his deposit, he turned around and sued his agent for breach of fiduciary duty in a real estate transaction. It was alleged by Mr. Wemyss (buyer) that Mr. Moldenhauer (agent) failed to protect his interests and, in particular failed to advise him with respect to a critical amendment to an agreement of purchase and sale, as a result of which he was unable to extricate himself from the deal and lost his deposit. The facts of the case are as follows:

Mr. Wemyss hired Mr. Moldenhauer in 1998 to be his real estate agent. In April of that year, Mr. Wemyss found a home that he liked and was prepared to put an offer on it. He decided to tour the property before making an offer. He noticed a large area in the back yard near the septic tank which was wet and soggy, even though there had not been any rain for days. Mr. Wemyss was concerned about this and discussed this with his agent. He wanted the ability to cancel the deal and have his deposit returned if the inspection revealed a problem with the property’s septic system.

The agent, Mr. Moldenhauer, drafted and presented an offer for $900,000.00. The initial offer was conditional upon the inspection of the property by the purchaser or the purchaser’s inspector as well as obtaining a satisfactory report.

After several offers and counter-offers were exchanged between the two parties, Mr. Wemyss accepted a counter-offer from the seller. The accepted offer contained several handwritten and initialed changes. The amendments made included the price, the exclusion of a rented hot water heater and a stipulation that the dimensions of the property were “as per survey”. Most importantly, the accepted offer contained the inspection clause that Mr. Moldenhauer had inserted into the April offer, but in the signback, the seller changed the inspection clause to limit its application to apply to structural defects only.

Mr. Wemyss testified at trial that when his agent brought the amended offer to him he said nothing about the amendment to the inspection condition. The agent told him to initial in various places, which he did. The only change that was discussed was the price, and Mr. Wemyss was prepared to accept the seller’s price.
During the home inspection, it was revealed that there was in fact a problem with the septic system. Mr. Wemyss tried to terminate the agreement and have returned his $50,000.00 deposit. At this point, he became aware that there was an amendment to the inspection clause. This limited the inspection clause to structural defects in the home and not to the whole of the property as per the original inspection clause.
Mr. Wemyss sued his agent for breach of duty of trust and confidence which was owed to him in his capacity as his agent.

The Court had this to say regarding Mr. Moldenhauer’s duty to his client:

“A real estate agent has a duty to act with reasonable care and skill in reviewing the terms of a purchase agreement with his client. That duty includes the obligation to specifically draw to the client’s attention, any provisions in the agreement that are contrary to the client’s interest or instructions given by the client”.
The agent was not only obliged to show his client the adjustment regarding the inspection clause, but also that the clause was fundamentally transformed.

As a result of the agents failure to meet the standard of reasonable care and skill expected of a real estate agent he was ordered to repay the full $50,000.00 deposit, plus interest to his client.

The foregoing case is a prime example of how important it is for real estate agents to keep their client’s interests & concerns at the forefront when drafting and advising on Agreements of Purchase and Sale. If it can be shown that an agent has not been diligent in this respect and cost his/her client money, it is not completely unreasonable to see the agent held liable for those lost funds, whatever they may be.

To review the full case please see the following link:

http://www.canlii.org/en/on/onsc/doc/2003/2003canlii19103/2003canlii19103.html

 

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott

Elliott & Elliott

135 Bayfield Street, Suite 101A

Barrie, Ontario, L4M 3B3

Tel.: 705-797-2672

Fax: 705-797-8445

Email: shari@elliottlawyers.com

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