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Negligence Battles Reaching Courtrooms: Negligent Misrepresentation – Part 6

Posted on 15 Oct'14 Tags: , , , , , , in Real Estate, Real Estate Blog Series

Continuing on with our Real Estate Blog Series on the Real Estate Agents’ Duty of Care: Legal Framework, part 6 focuses on how to deal with negligent misrepresentation in real estate transactions.

* Harela v. Powell, [1998] O.J. No. 2989; (Ontario Court (General Division)

Facts and Decision

Harela and Ritola, both plaintiffs in this particular case, claimed damages against the defendant Boucher for negligent misrepresentation. They also brought a claim against the defendant solicitor, Fraser, for professional negligence. Here, the combination of misrepresentation and negligence of one’s own duties as a legal or real estate professional lead to this action being started. This is how the case played out:

The plaintiffs purchased a cottage and for which the vendor had hired Boucher to act as the real estate agent. Boucher also happed to be the chief officer and senior employee of the defendant real estate agency, Boucher Ltd. Fraser, a partner in the defendant law firm, was hired to represent both plaintiffs in this matter.

While the plaintiffs claimed that Boucher presented himself as a land-use consultant, they also relied on his special knowledge and skills, as well as his evaluation during a site visit that a three-bedroom and two-bathroom cottage could be constructed at a a specific location. Due to the intrusion of a turning basin at the end of the cul-de-sac, the lot had an odd configuration. This configuration, along with a deep setback from a high water mark, resulted in a restricted building envelope for the construction of a cottage and the installation of a septic system. As a result of Boucher’s misrepresentation and Fraser’s failure to meet the requisite standard of care in representing them in the purchase of the lot, the plaintiffs claimed to have incurred the added expense of obtaining minor variances from the Committee of Adjustment. They also claimed that they were forced to pay additional building costs due to the resulting two-year delay in the construction of their cottage, as well as a loss of privacy, use and enjoyment owing to the addition of a road at the back of the property.

Their claim was allowed, with the court holding the defendant realtor liable. The Court found there was a special relationship between the plaintiffs and defendant: the defendant upheld himself as having special knowledge, and should therefore have been aware the plaintiffs would certainly rely on his observations about what site they should be building on. Boucher had left the plaintiffs with the general impression that they could build their cottage at a specific location, which was misleading. Given Boucher’s position as an exclusive sales agent for the subdivision and his knowledge of setback requirements, he was negligent when he had indicated building sites that he should have known were not available. Since the plaintiffs reasonably relied on Boucher’s misrepresentations, they suffered the aforementioned damages as a result.

Boucher’s misrepresentations had a chain reaction effect on his business. Boucher’s brokerage was held vicariously liable for the misrepresentations made by Boucher in the course of his employment. Additionally, the court held the lawyer liable; since Fraser failed to meet the standard of care obligations expected of a reasonably competent lawyer practising in the area of real estate, he was also held liable. Fraser had done nothing more than perform minimum duties and tasks, from going through the formal motions of searching title to closing the purchase and reporting to the plaintiffs as his clients, without meeting with them or reviewing the documents or plans.

As a real estate lawyer practicing in cottage country, Fraser must have been aware of zoning restrictions, including setbacks applicable to the lot in question, and yet had made no effort to convince the plaintiffs against signing the offer to purchase. As to damages, the plaintiffs were entitled to recover from Boucher and Boucher Ltd.:

  • the difference between the purchase price of the lot and the fair market value;
  • the loss of use of the lot;
  • the loss of discounts, the expenses with respect to the minor variance applications,
  • and the increased building costs.

There was a two year delay in construction, ten months of which the defendants could not be held responsible for. Similar damages resulted from the negligence of the defendant Fraser and his law firm. Based on the evidence, it was reasonable to assume that the plaintiffs would have negotiated a postponement of the closing date and applied for, and received with Fraser’s assistance, the minor variances required in order to permit construction. The damages suffered resulted from both the negligent misrepresentations of Boucher and the professional negligence of Fraser.

Disclaimer: The above article is not a legal opinion as every case is different and is only for general awareness. Please contact us for specific questions and legal advise.