REAL ESTATE TRANSACTIONS

MID TERM EXAMINATION

October 20th 2005. Adjunct Professor M. Lamb

ANSWER BOTH QUESTIONS

The Examination is Open Book
READ ONLY: 15 Minutes
WRITE EXAMINATION: 1 ½ HOURS.

QUESTION 1.

Anna and Bob were proud home owners and persuaded their friends Carol and Don that
they too should buy their first home while they could afford to do so. When they found a
house and wanted to present an offer to purchase Carol and Don told the realtor that they
were worried about getting into debt for repairs in the future. They asked the realtor if
there should be some kind of clause in the offer for a home inspection. The realtor told
them that they were getting a really good deal and should not risk losing the purchase by
putting in such a clause. In any event, he told them, they could see for themselves that the
property was in great condition. Carol and Don took the realtor’s advice and closed the
purchase only to find immediately that the furnace was not working properly, was in
violation of fire code regulations and would cost about $2,000.00 to fix. They also
noticed that the front door which had been working properly when they first saw the
house a month ago would no longer open and close properly. A contractor told them that
recent bad weather had caused the door to warp probably only just a few days before
closing. A new door was required at a cost of $800.00. Carol and Don are really upset
that they already have the very expenses they were worried about at the outset. They no
longer talk to Anna and Bob! In any event Carol and Don have arrived at your office and
ask if they have any recourse against the following:

a) The realtor
 As a general principle of standard of conduct, the realtor must carry out their
duties in a reasonable and careful manner. There is aduty to get all relevant info
for the purchaser, otherwise not represent themselves as knowledgeable (Bango v
Holt)
 Fiduciary duty is created where there is reliance and special knowledge by one
party on another (Bango).
 The statement by the realtor that the home was in “great condition” can be
classified as puffery since no reasonable person would rely solely on this
statement. There is no liability for more puffery.
 However, the realtor may be held to be negligent in not following up on the home
inspection clause, especially after the homeowners specifically asked for it. The
realtor has a duty to act with reasonable skill and care in going thru the closing
process (Starr v Watson) and part of this duty would consist on home inspection.
Home owers placed reliance on the realtor based on their fiduciary relationship…
home inspection may have uncovered broken furnace and door, therefore, realtor
was negligent.
 Therefore, Carol and Don may be entitled to damages.

b) The Vendors
 Vendor will argue that the furnace was a patent defect, and therefore, caveat
emptor (buyer beware) stritctly applies to patent defects. The purchaser’s failure
to inspect that the furnace was properly working was his misfortune. If that’s the
case, buyers can only rely on any contractual warranties they had with vendor
(presumably none) or any balance of the new home warranty.
 On the other hand, purchasers could make the argument that furnace is a latent
defect because there was no way they could have reasonably observed that it
would be in violation of fire code. Vendor has a duty to disclose when defect
makes the home dangerous (Carlish v Salt) or potentially unfit for human
habitation (McGrath). Failure to disclose this may constitute fraud. But this
depends on whether the vendor had knowledge about the fire code violation or
 not. If the vendor can show that he didn’t have knowledge, then there is no
liability (Hughes v Strusser). Caveat empot means the risk of latent defect falls on
the purchasher unless known to the vendor. Vendor can very likely claim he had
no knowledge of this violation and that in any event, had purchasers requested a
home inspection this information would have been readily uncovered….hence
bringing the liability back to realtor’s negligence.
 Door:
o According to the principle of equitable conversion, once the K is signed,
beneficial and equitable title is split between the vendor and purchaser
until closing. Vendor becomes trustee of the property and maintains legal
title plus physical possession until closing and purchaser becomes the
beneficial owner of the property. The vendor is not responsible for risks
beyond control (eg natural disaster) because they are at the purchaer’s risk.
The fact that door had been warped due to bad weather is caused by
natural causes and is beyond vendor’s control. This was at the purchaser’s
risk as a beneficial owner.
o Purchaser should have taken out insurance before closing, even if only
beneficial owner.

c) Their ex-friends, Anna and Bob.

QUESTION 2.

This question ONLY deals with Planning Act issues. Do not discuss any other
potential issues which seem to arise from the facts. Do not consider lands to be
whole lots on a plan of subdivision unless specifically indicated.

A friend of yours invented a new game called “Planning Act Idol” and has asked you to
provide the answers to the following questions which will be asked of the contestants in
the next round:

a) Whey have the Courts prohibited “checkerboarding” but do not consider land
assembly to be illegal ?
 Checkerboarding: ppl were giving up interests in land in diagonal portions in
order to subdivide w/o being caught by PA.

b) What is the rationale behind Section 50(12) of the Planning Act ?
 Where a parcel of land has been conveyed with consent, ss(3) and (5) do not
apply to subsequent conveyance or other transaction involving the identical parcel
of land unless otherwise stipulated.
 Once consent is given, the consent stands. “consents” to sever parcels of land
have indefinite life-spans, i.e., “once a consent, always a consent”.

c) If A owned 14 acres in 1968 could he/she sell 9 acres without a consent?

Explain your answer.
 If there is no PLCB, do not need concent. If land is subject to Part Lot Control by-
law, then consent is needed and without it its void. The only exception is if
minimum 10 acres sold and 10 acres are retained. Since exception not available
here, consent was required. It’s not forgiven because it was after 1967. Therefore,
deed is void.

d) If B owned a lot on a subdivision could he/she grant an easement to Bell

Telephone for telephone service to the newly built house without consent?
Explain your answer.
 Under s.50(3), if an interest is created for 21 years or more, consent is required.
 Under 50(3) who says you need a consent? If creating an interest for more than 21
year….50(5) applies and you would need consent.
 Yes, because interest is usually in perptiuity, qualified by s50(5).
Listing agreement- agreement to say put it on the market for me and sell it.
Vendor agreement- relationship you have with realtor in putting the transaction together,
creating nature of the relationship between vendor and realtor.

Difference between a lot and a parcel:

 If you say someone owns x, it’s a parcel. The only time you’re dealing with a lot
is when act says this is a lot part of a RPS (reference plan filed with land title
office).