Now that I have your attention, I stand by the title of the article. But I will qualify it. While things can go very wrong when purchasing a property, it’s quite rare that it does. That said, the purchase of property gone wrong can either destroy your life savings or, at the very least, leave a significant dent in your life savings.
This came to mind when I read an article on the CBC website. A few days before taking possession of a $330,000 home on Lake Huron (with magnificent views!) the vendors advised the buyers that the home had been declared unsafe due to erosion.
The buyers state that they opted to take possession of the property because they didn’t want to be sued by the vendor for breach of contract. I can’t really comment on the legal issues because I don’t have a copy of the purchase and sale agreement. However, in Manitoba, the standard offer to purchase used by REALTORS® include clauses that I believe may have allowed the buyers to cancel the contract. I can’t say, however, that I am certain that it would. Contract law is more often shades of grey rather than black and white.
In Manitoba, there was a case where a cottage built on a river lot was deemed unsafe due to erosion, similarly to the Ontario case. In fact, the development agreement registered on title indicated that certain lots in the development were subject to erosion. In the end, the lawyer’s professional insurance fund reimbursed the buyers for their loss as the lawyer who acted for them in the purchase failed to advise the client of the problem.
I remember the case well because it sent shivers down my spine. Development agreements are very long agreements made between a municipality and a developer when the land is initially developed. These agreements stay registered against the title of all lots in the development and include items that become redundant once completed. The majority of the agreements deal with road allowances, location, sewer and water infrastructure. There are usually very few provisions that remain relevant for subsequent owners. These are usually limited to the type of dwelling that can be built and where garages can be located.
However, in this particular Manitoba case, the provision dealing with erosion was buried deep in the final pages of the agreement. As I explained in my last article, during the busy real estate season, time is precious. I can understand how a deeply buried two-line provision would have been overlooked. However, especially after hearing about that case, the thought of failing a client because I did not properly review a development agreement is motivation enough for me to remain diligent when advising my real estate clients.
Buyers may also be able to rely on title insurance. Title insurance covers certain risks. In both of the previously mentioned cases however, the buyers may not have been able to because the issue of erosion became known prior to taking possession. Insurance policies all have exclusions when the risk is known prior to possession. A buyer who takes possession of a property and later discovers that it was deemed inhabitable could find recourse under their policy. This is why we strongly encourage all our real estate purchase clients to obtain title insurance. It covers these types of risks.
According to the Ontario case, the couple attempted to remedy but were unable to get a permit for their proposal against the erosion. The municipal authority refused to issue a permit without expensive consultations. As a result, the couple opted to sue. They claim a neighbour’s retaining wall is the cause of the erosion on their property and that the municipal authority is applying different standards to them.
This is an expensive way of dealing with it. I suspect the new owners really want to keep the property. I can’t say that I blame them considering the beautiful location. However, they are taking on a significant risk, that of losing their entire investment.
Should you ever be faced with similar situations prior to taking possession, meaning that a material change has surfaced, you should immediately consult a lawyer. As discussed previously, the standard offer to purchase in Manitoba contains provisions that should guard against this type of situation. It may be possible to cancel the contract. While this means you forfeit the right to acquire the property, you also eliminate the risk of ending up in a situation like the ones mentioned above.
A second strategy is to always purchase title insurance when you acquire a property. The title insurance company only charges the premium upon your taking possession and the policy is valid for the entire time you own the property. While title insurance won’t cover all potential risks, it does offer protection in many cases.
The last thing you want to happen when you buy a house is to become a test case for a court or a headline on the CBC website.
This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer TLR law at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).