Sophisticated Clients Still Need Reasonable Care and Skill

With sophisticated clients, the temptation may be there to think that they don’t need your advice as a real estate professional as those clients know the ins and outs of agency, real estate buying and selling, and deals get done. But is that really the case?

In a recent British Columbia court case, Creswell Investments Ltd. v. Pavone, 2011 BCSC 1069, a sophisticated commercial buyer (the plaintiff) purchased a property that included a mezzanine. The mezzanine was constructed without the proper building permits, which the buyer testified he did not discover until approximately three years later when he had to spend $32,286.01 to bring the mezzanine into municipal compliance. The buyer sued the seller for non-disclosure of what he believed was a latent defect, not discoverable through a reasonable inspection.

In this case, the plaintiff’s real estate industry representative had acted as a buyer’s agent for a different buyer on the adjacent property one month earlier, which was the same as the subject project and also contained a non-compliant mezzanine. In that purchase, the contract included an addendum stating the mezzanine may or may not require City permits. The buyer in that purchase requested a standard form Property Disclosure Statement, which includes a question as to whether the vendor is aware of any additions or alterations made without a required permit. In response, the vendor checked the box “yes” and handwrote the word “mezzanine.”

However, in the purchase at issue before the Court, the plaintiff buyer did not request a Property Disclosure Statement and the defendant seller did not provide one. The buyer received permission from the seller to view the property’s file with the city, and was given the contact information of the mezzanine’s manufacturer within two days of the request, but there was no evidence provided to the court about what use, if any, was made of them. The plaintiff’s real estate industry professional did not suggest that the plaintiff request a Property Disclosure Statement nor did the industry professional advise his buyer client of the non-compliant mezzanine on the adjacent property. Ultimately, the court dismissed the plaintiff’s claim against the seller, in part, because the unauthorized status of the mezzanine was readily discoverable on reasonable inquiry and is therefore a patent defect to which the doctrine of caveat emptor (buyer beware) applies.

In Alberta, section 58 of the Real Estate Act Rules, requires that an industry professional in sole agency with a buyer exercise reasonable care and skill; take reasonable steps to discover relevant facts pertaining to any property for which the buyer is considering making an offer; and disclose, in a timely manner, to the buyer all relevant facts known to the industry member affecting a property or transaction. In this case, the buyer’s (plaintiff’s) real estate representative was not a party to the proceedings and the court dismissed the plaintiff’s claim against the vendor.

Had this case taken place in Alberta, do you think the buyer might have legal recourse regarding the lack of reasonable care and skill from his industry professional?