Couple selling home should have disclosed flooding

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Not coming clean about a flood cost a couple $25,000.

Cleaning up a flooded basement can be an expensive task. Not disclosing there’s been a flood can also be expensive, as one couple who sold their house found out.

Many readers wonder what they have to disclose when they sell their house. If the home has been damaged just before closing should they just fix it and say nothing? In most cases, it is better to come clean.

Here’s why.

In November 2011, I wrote about a London, Ont. court case where Adam and Olga Soboczynski agreed to buy a home from Don and Louise Beauchamp. The Beauchamps signed a property information statement saying there had never been a water problem in the basement. Just before closing, there was a flood that ruined the basement rug. They dried it out and replaced the underpad, but did not investigate the cause of the problem. Nor did they tell the buyers. The basement flooded again three weeks after closing and it cost the buyers almost $25,000 to fix the problem which resulted from drainage issues from neighbouring homes.

At the trial, the judge accepted the seller’s evidence that this was a one-off incident and they had no obligation to tell the buyers. The buyers appealed.

In a decision dated May 28, 2013, Judge Thea Herman, writing for the majority, decided the sellers had an obligation to say something. She noted that when the home inspection was conducted, the sellers said they had not experienced any basement water problems. The flood which occurred later was an important change to the information on the property information statement and should have been disclosed.

“Had the Soboczynskis known about the flood, they might well have retained their own expert to determine the cause of the problem,” the judge said. “If it was determined that the problem was significant and was more than a one-time event, the contractual options of recission or abatement might have been available to them.” The buyers won $25,000 in damages.

The standard agreement of purchase and sale says that the seller is responsible for the property until closing. If any substantial damage occurs before closing, then the buyer has the option of taking the insurance money and closing, or refusing to close. The difficulty is what happens if minor damages occur before closing and who determines whether they are minor or not.

Floods before closing are more problematic. Although you might be able to effect repairs, floods can later lead to mould, so this may require further investigation by the buyers.

The lesson here is that sellers should take steps to properly investigate any damage that occurs before closing and complete any necessary repairs. I also recommend that this be disclosed to any buyer so that they can satisfy themselves that the repairs were done correctly. By doing so, you avoid the time, costs and aggravation of unnecessary lawsuits after closing.

Mark Weisleder is a Toronto real estate lawyer. Contact him at [email protected]