LEAKY CONDOS: SELLER BEWARE

People selling their condominiums may believe their disclosure obligations are met by providing potential buyers with access to strata council and owner meeting minutes or by authorizing the property manager to disclose the strata corporation’s relevant paperwork. A recent British Columbia Supreme Court case, Cope v. Morton, suggests this may not be enough. When it comes to leaky condos, the old rule of "buyer beware" can sometimes be expanded to include "seller beware".

The building in question was built in 1977 and contained 140 units in two, eight story buildings. The building leaked since it was finished and various building envelope assessment reports throughout the 1980’s and one in 1991 recommended replacement of all cladding with a rain screen system. Instead, the strata corporation embarked on a series of limited repairs under the guidance of an owners waterproofing committee.

Mr. Morton purchased his unit in 1991. He spent some time on strata council but claimed he never read the various building envelope assessments. He was aware of the activities of the waterproofing committee and believed it was keeping the various leak problems under control.

Mr. Morton decided to sell his unit in 2001. The buyer, Mr. Cope, was concerned about leaky buildings and had included in the property disclosure statement various representations and promises by Mr. Morton. One of these representations was a declaration that any repairs to the common property over the past two years were isolated and that Mr. Cope should refer to the strata minutes for more details. Mr. Morton also promised to provide strata council and owner meeting minutes dating back two years along with a, "copy of the Building Envelope Inspection Report, or any Remediation Reports, and all related documents." All of these statements and promises were incorporated into the sales contract.

Mr. Morton provided the minutes but these only indicated ongoing but isolated leak repairs. Mr. Cope’s realtor asked the property manager for any documentation in his possession but this did not result in production of any building envelope assessments or remediation reports.

Finally, Mr. Cope commissioned his own building inspection. This indicated various isolated leak concerns but carried a warning that it was impossible for the inspector to detect the degree of dampness and structural deterioration without removing exterior and interior finishes. The inspector said that such examinations would have to be done by a building envelope specialist.

Mr. Cope bought the unit and took occupancy in November 2001. Shortly after, the strata council commissioned further investigations by other building envelope experts. Like the previous specialists, these experts also recommended total replacement of the exterior cladding. The owners subsequently voted to raise $4,500,000 for this task. Mr. Cope’s share was $52,200.

Mr. Cope sued Mr. Morton for fraudulent misrepresentation, negligent misrepresentation, and breach of contract. The court dismissed the claim for fraudulent representation because Mr. Cope could not prove Mr. Morton knew his statements were false or that he made them recklessly, without knowing if they were true or false. Mr. Cope succeeded in his claim for negligent misrepresentation. This required the court to make the following five findings:

1. Their roles as seller and buyer put Mr. Morton and Mr. Cope in a special relationship which created a duty of care owed by Mr. Morton to Mr. Cope (other cases cast some doubt on whether these roles create the necessary "special relationship");

2. Mr. Morton’s representations to Mr. Cope were untrue, inaccurate or misleading. The court found that Mr. Morton represented that any leak problems were isolated and this was untrue.
3. Mr. Morton acted negligently in making the representation to Mr. Cope. It was Mr. Morton’s duty under the sales agreement to produce the building envelope assessment reports to Mr. Cope. It was not sufficient for him to rely on the property manager to do it.
4. Mr. Cope reasonably relied upon the representations made by Mr. Morton. Mr. Morton argued that Mr. Cope relied on his own building inspector rather than Mr. Morton’s statements. The court ruled this did not allow Mr. Morton to escape liability. Because Mr. Morton promised to deliver the building envelope assessment reports and because he had been chair of the strata council, it was reasonable for Mr. Cope to rely upon Mr. Morton’s representations about leakage and un-repaired damage.
5. Mr. Cope’s reliance on Mr. Morton’s representations caused Mr. Cope to suffer damage. The court ruled the damage suffered by Mr. Cope was the difference between what a buyer would pay for a lot in a wet versus a dry building. A realtor testified the difference would be the strata lot’s share of the repairs plus a sum to compensate for the inconvenience and aggravation of living through the repairs. The total damages awarded to Mr. Cope were $54,200.

Having ruled in Mr. Cope’s favour on the negligent misrepresentation claim, the court found it unnecessary to consider the claim for breach of contract.

The lessons to be learned are that sellers should carefully consider the promises made in a sales contract and that reliance on others (e.g. property managers or the buyer’s inspector) may not allow a seller to escape liability if the promises are broken.

R. Glen Boswall, Clark Wilson