In Wang v. Shao, a recent decision from the British Columbia Court of Appeal, strict limits were set on which information needs to be disclosed by sellers in real estate transactions.
This case involved the sale of a multi-million dollar home in Vancouver. In the fall of 2007, the Plaintiff, Mei Zhen Wang (the “Seller”) lived in the home with her daughter, Gui Ying Yuan (“Yuan”), Yuan’s husband and their two young children.
In November, 2007, Yuan’s husband was murdered on the sidewalk in front of the house. Police and media confirmed that he had high-level ties to organized crime and that the murder was targeted. The crime was never solved.
After the shooting, Yuan’s daughter was forced to leave her private school when the school cited safety concerns. She was enrolled in another school at the other end of the city and Yuan purchased a new house near the school. Soon after Yuan moved out of the home, the Seller listed it for sale.
In the fall of 2009, about two years after the shooting, the defendant, Feng Yun Shao (the “Buyer”) became interested in buying the home. Before putting in an offer, the Buyer instructed her real estate agent to ask why the home was being sold. The selling agent stated the reason the house was being sold was because Yuan’s daughter had enrolled in a different school. The shooting was not disclosed.
In September 2009, an agreement of purchase and sale for the property was executed between the Buyer and the Seller for a purchase price of $6,138,000. The Seller paid a $300,000 deposit and the transaction was set to close on November 17, 2009.
A few weeks prior to the closing date, the Buyer found out about the shooting from a friend of hers and confirmed it with the Seller’s agent. The Buyer then refused to close the transaction on the basis that the Seller allegedly made a misrepresentation by omission.
The Property was sold to a different buyer in December 2009 for a lesser amount.
On February 17, 2010, the Seller sued the Buyer for breach of contract, claiming damages and an entitlement to the deposit. The Buyer counterclaimed for the return of the deposit and also claimed against the selling agents and their brokerage for misrepresenting the reason the Seller decided to sell the property. The Buyer alleged that, by failing to disclose the murder, the Seller had “fraudulently misrepresented, negligently or otherwise, the state of the property and the prior incidents on the Property.”
At trial, the Seller testified that her reason for selling the home was because no one was living in it. She initially denied selling the home because of the murder, but she acknowledged a safety concern and stated that her family was scared and wanted to move.
The trial judge found that the murder was part of the reason why the Seller decided to sell the house and, when the Buyer asked about this, the Seller gave an answer that was calculated to conceal the murder, which constituted a misrepresentation by omission. It was held that the misrepresentation vitiated the contract and the Buyer was entitled to return of her deposit.
The decision was overturned on appeal on the basis that the trial judge erred in law by finding that the Seller made a misrepresentation by omission. The court also stated that the trial judge erred in fact by holding that the Seller concealed information that she knew was important to the Buyer. The court stated that if the Buyer was required to disclose detailed reasons as to why Yuan`s daughter was going to a different school, “the law relating to real estate transactions would be turned on its head”.
The court explained that when a vendor is asked a general question as to why a property is being sold, the vendor is not required to disclose all of their personal reasons and the causes for such reasons. This is especially important when the reasons do not relate to the objective value or usefulness of the property. If vendors were required to make such disclosure, it would pave the way for many claims. For instance, buyers who are unhappy with their purchases, could claim that they were duped because information was allegedly concealed or that there was a misrepresentation by omission.
In this case, the Seller was held to have given “an honest answer as far as it went”. The Seller was not required to supplement it with more information unless the Buyer specifically inquired as to why Yuan’s daughter was enrolled at a different school or whether there were any murders near the property. The court also noted that there was no reason for the Buyer to believe that the Seller would have a specific concern about the shooting, especially given the fact that it did not affect the quality or usefulness of the property.
The trial judge’s decision was therefore overturned and the Buyer was held to be liable for failing to close the transaction.
This case presents an interesting perspective on the limits of disclosure. Although the information given by the Seller was technically a half-truth, the court stressed that it was still sufficient. It was noted that if sellers were required to disclose “all possible sensitivities and superstitions buyers might have, there would be no end to the resulting litigation”.
Author: Daniel Waldman, Lawyer