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Negligence Battles Reaching Courtrooms: Overview of Case Law, Halliwell v. Lazarus – Part 5

Posted on 13 Oct'14 Tags: , , in Case Study, 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 case law with reference to negligence claims reaching the courtroom.

* Halliwell v. Lazarus, 2012 ONCA 348 (CanLII)

Facts and Decision

Earlier this year, an Ontario real estate agent managed to avoid responsibility for failing to review the results of a professional home inspection with his client, the purchaser.

In a 2011 case a real estate agent was ruled 25% responsible for the buyer’s damages for taking a “hands-off approach” with respect to the home inspection, and because the agent failed to warn his client about the implications of the home inspector’s report. The decision sent shockwaves throughout the real estate community.

Glenda Halliwell wanted to buy a home on Dufferin St. in Toronto in 2006. She made it clear to to the home inspector and her real estate agent, Joel Lazarus, that she was allergic to mould and wanted a dry house. Lazarus entered a condition in the purchase offer allowing Halliwell to terminate the transaction if the home inspection revealed a material concern, thereby making the offer conditional on a satisfactory review of the home inspection report.

On Lazarus`s recommendation, Halliwell hired Brian Edwards to conduct a home inspection. Aside from the furnace — which had been replaced by the seller before closing — no other serious problems were noted during the home inspection. There was no evidence of water penetration through the home’s foundations.

Two months after closing clear indications of moisture, mould, mildew, rot, rust and drywall deterioration were found in the home. Halliwell sued her agent, the broker, the seller and the home inspector. The parties agreed on $90,000 in damages prior to going to court but not on who should pay them.

After the trial, the judge found the home inspector liable for 50% of the damages, and the purchaser for 25% for having failed to read the inspection report. But part of the decision which upset many real estate professionals was this: the judge found the agent liable for the remaining 25% of damages.

Justice Margaret Eberhard found that Lazarus took a “hands-off approach” with respect to the home inspection report. “Had he read the report he . . . might well have concluded that the purging and driveway issue raised concerns.” The trial judge held that the agent persuaded the purchaser to rely on the home inspection and then “washed his hands of all responsibility to his client. . . . He failed to advise the purchaser of the use to be made of the report . . . (and) fell below the standard of care by failing to review the report with his client before waiving the home inspection condition.”

Halliwell, the agent and the broker all appealed. A three-judge panel of the Ontario Court of Appeal reversed Justice Eberhard’s findings of negligence against the real estate agent and the purchaser, having instead determined that the home inspector was responsible for all of the damages.

“Turning to the agent’s liability,” the appeal court wrote, “we agree with the agent’s submission that the trial judge erred in finding the agent liable on a failure to read the inspection report, review it with the (purchaser), and bring to the (purchaser’s) attention the potential for moisture problems arising from the findings in the report.”

This case is a reminder that some agent in the future may be held responsible for failing to warn a buyer about a home inspection report, or failing to review the report with the Purchaser.

The appeal decision in the case presents both good and bad news for agents and their clients. While the agent in the case may have escaped liability for the moisture damages to his client’s property, a future court in a different case could decide differently on the agent’s responsibility. Prudent agents should always be sure to review a home inspector’s report with their clients.

 

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.