[onetwo_threefour]

I actually did a bit of research on this issue a few months ago for a seminar/meeting. There have been developments in the law relating to disclosure in Ontario that affect the answer I would have given in the thread that troutman linked to above. Here's a summary of my meeting notes...

Stigmatized properties revisited

- some recent Ontario litigation has made stigmatized properties a hot topic once again, but unfortunately it's becoming less clear rather than more.

- when we talk about stigmatized properties we usually mean a property that has some history or feature that may make it undesirable to a certain set of buyers, but generally wouldn't qualify as a defect of the property itself. (e.g. someone was killed in the property, the property was a former grow op that has been fully remediated, the house contained lead paint or asbestos at one time which has since been removed)

- unfortunately, some ongoing cases in Ontario threaten to label some forms of what we would normally think of as a stigma as a latent defect actionable by a buyer in the event of non-disclosure by the Seller.

- the particular cases in Ontario both deal with situations in which Buyers (with small children) entered into a contract to purchase a house where the Sellers did not disclose that there was a person convicted of possessing child pornography living in the immediate vicinity.

- in one case it is asserted that this fact was 'common knowledge' in the neighborhood, but it is not completely clear that the Sellers did know. With this type of scenario I would have expected it to be very difficult for the buyer to get far in a lawsuit based on the principle of caveat emptor and the fact that this 'defect' wasn't a defect of the property itself that made it uninhabitable or not what the Buyers thought they were getting. There is nothing wrong with the property itself, it is a fact about the neighborhood that is alleged to be a latent defect.

- a preliminary application was made in the case to have it thrown out on the basis that the case did not have basis known to law. I would have a expected a reasonably good chance of having the case thrown out on that basis, but the judge decided that the case had enough merit to go forward.

- allowing this case to go forward is what really makes this an unknown quantity. If knowing that a sex offender lives in the community is deemed to be a latent defect of the property it becomes very difficult to predict what other circumstances of the community might be deemed to be a latent defect. What if the buyers are older people without children? What if the property itself has never been a grow op, but the house next door has been? What if a woman was killed in the house three doors down or at the other end of the block and the prospective buyer is a young single woman? It is unclear what kind of a precednet this would set for assessing the difference between a stigma and an actionable defect.

- if the principle of latent defects is actually extended to circumstances about neighbouring properties or the community, or unprovable issues about the property such as alleged hauntings, it could have a serious depressing effect on a homes value as it gives a buyer an excuse to lowball even if they personally don't care about the issue. I would prefer to see this type of thing remain a matter of buyer's due diligence. However, there is no clear answer. and if your seller does know about some kind of stigmatism relating to a nearby property or their own the best advice at the moment may be to counsel them that the law is unclear at the present time. If they disclose to prospective buyers, they certainly avoid the risk of being sued at a later date, but they also are potentially weakining their bargaining position substantially. If directly asked by a prospective buyer they are certainly obligated to disclose any potential stigma they are asked about.

- if the Seller actually a discloses a stigma to you as the Realtor it puts you in a difficult position as well. If the seller instructs you not to disclose, even if asked directly you must advise them that you have an ethical obligation to disclose once you know if you are asked.

- The second Ontario case I was referring to earlier involves a very similar set of facts. The only significant difference from what I have read is the the Sellers were actually Realtors themselves. While this case also has not been finalized, there seems to be a strong consensus that the Sellers will likely be liable for non-disclosure of the sex offender nearby because of the Realtor's disclosure obligations under the Ontario equivalent of our Real Estate Act when a realtor divests themselves pf property. When selling one of your own properties, you may have an active duty to disclose stigmas.

- counsel for the Canadian Real Estate Association takes the same view as I do, that stigma should generally be a matter for Buyer's due diligence, but remains an open question and should be dealt with carefully.