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| Harjot Atwal |
To disclose or not to disclose, that is the question? Not really.
When selling real property, it is the obligation of the seller and the listing agent to disclose latent defects. As opposed to patent defects, which are readily observable based on a visual inspection, latent defects are not visible. Instead, some investigation is required, perhaps based on signs associated with the defect in question.
This is the third in a series of articles about various ways in which my knowledge of residential real estate has been enriched by my pursuit of a realtor licence with the Real Estate Council of Ontario (RECO). The series addresses shared wells and rural real estate, condominiums and Kitec plumbing, asbestos and urea formaldehyde foam insulation (UFFI), disclosure of septic systems, and lot sizes and damages. A further series will be written when I complete the commercial real estate part of the RECO course currently offered by Humber College.
As per the RECO materials I have reviewed in my studies, for instance, UFFI resembles shaving cream in its look and consistency. On the other hand, it can be difficult to identify asbestos visually since it is usually mixed with various construction resources, such as cement sheets, insulation boards and ceiling tiles, among other things.
If your house was built in the 1950s or earlier, it is very possible you have asbestos insulation in the attic or in the walls. The problem with its presence arises if it is disturbed. This type of insulation can cause serious or fatal diseases, such as mesothelioma, if its fibres are released into the air and subsequently inhaled by a homeowner. It could be 10 years, 20 years or more before the diseases fully develop. Thus, it is critical that asbestos materials are never disturbed.
For this article, rather than choosing from an array of case law, I decided to use Bob Aaron’s article from 2008 here. The subject property was a three-bedroom bungalow, but the new buyer — Carlos Lameiro — was unaware of the presence of asbestos. Upon discovery, he asked the sellers to remove the asbestos, but they refused. Instead, they offered to encapsulate or seal the toxic materials. Lameiro was not happy with this proposal, and decided to terminate the agreement of purchase and sale (APS).
No mention is made of the consequences of this action, such as whether the buyer lost his deposit. Did the sellers act sufficiently wrongly to justify termination without any negative financial consequence to the buyer? Does the buyer lose his deposit or get it back? Was there a further lawsuit? Assuming the sellers kept the deposit, did the sellers then sell the property for such a lower value that there were damages in the tens of thousands of dollars between the purchase price minus the deposit in the original APS with Lameiro as opposed to the third-party APS purchase price?
How did Lameiro discover the problem? Well, he had the presence of mind, foresight or risk-averse nature (however you want to term it) to think to include a home inspection condition in the APS. It gave him five business days to retain an expert third-party professional to check out the home from top to bottom. As is not unusual for asbestos, it was found in the heating system, since the RECO materials mention that this toxic material is used as “insulation for hot water systems, radiators, boilers, and distribution pipes.”
Aaron’s article indicates that home inspections do not normally disclose or reveal the presence of hazardous materials, with Lameiro commenting that inspecting for asbestos is nonetheless easy to do. I am not sure this is always the case, but let’s consider this more deeply.
What are the signs? Well, I called Canadian HAZ-MAT Environmental Ltd. and asked for information directly from professionals working in the area. Contrary to my original belief, colour is not a factor in terms of determining whether asbestos is more likely to be problematic. Instead, the difference is in whether the asbestos is friable or a mastic. With the former, it is more likely to crumble, can be easily powdered or broken down by hand, thus releasing inhalable asbestos fibres into the air.
On the other hand, mastics — which are commonly black — resemble asbestos contained in a glue-like substance. There are apparently do-it-yourself testing kits. One would scrape off a section, seal it in a plastic bag, and send it to a laboratory. As previously mentioned, the goal is not to disturb such asbestos. But, activities like sanding it down or walking over the affected area repeatedly (perhaps in a forceful manner) could lead to such disturbance, and then it would be released into the air, become inhalable and lead to the aforementioned serious or fatal diseases. It may be that the best thing to do is to leave the asbestos in place or cover it with new flooring.
Before moving on to UFFI, it should be noted that demolition or renovation work can lead to asbestos being released into the air, if it is already present (such as in the walls or the attic). This seems to suggest extra care should be taken during those activities. While the ultimate answer is to simply use less toxic materials going forward in future as the above-noted quote suggests, there is still the issue of asbestos already existing in many homes at the present time and keeping its presence in mind.
And, as is repeated in the RECO materials time and time again, the Real Estate and Business Brokers Act, 2002 (now renamed the Trust in Real Estate Services Act, 2002) Code of Ethics reminds us that: “A registrant must advise a seller or a buyer to obtain services from another person, if the registrant is not able to provide the services with reasonable knowledge, skill, judgement, and competence.”
In the boilerplate APS used in Ontario, the following is the clause (s. 23) pertaining to UFFI:
“UFFI: Seller represents and warrants to Buyer that during the time Seller has owned the property, Seller has not caused any building on the property to be insulated with insulation containing urea formaldehyde, and that to the best of Seller’s knowledge no building on the property contains or has ever contained insulation that contains urea formaldehyde. This warranty shall survive and not merge on the completion of this transaction, and if the building is part of a multiple unit building, this warranty shall only apply to that part of the building which is the subject of this transaction.”
RECO explains that “Canada is still the only jurisdiction in the world where it is illegal to use UFFI.” Here, I found a bit of discrepancy. Aaron claims that available scientific evidence indicates that UFFI is not a problem. Yet, the RECO materials indicate that UFFI was associated with many health problems, including eye and skin irritations, nose bleeds, headaches and fatigue.
With all due respect to Aaron, I am tempted to rely on the information provided here by RECO.
The point, nonetheless, is moot. It is standard protocol for real estate lawyers to have their seller clients sign a UFFI warranty as one of the closing documents. On the other side, counsel representing purchasers usually requisition the UFFI warranty and it is standardly produced by conveyancing software when generating the requisition letter or other related documents.
That felt like a perfectly natural end, but I have an affinity for quotes, so here is the closing thought (by Shirley Williams) as it pertains to addressing asbestos and UFFI concerns: “There are hazards in everything one does, but there are greater hazards in doing nothing.”
This is the third part of a five-part series. Part one: Lessons from RECO: Shared wells and rural real estate; part two: Lessons from RECO: Condos and Kitec plumbing.
Harjot Atwal is a real estate lawyer. In 2023, he opened up his own shop, Atwal Law Firm. For legal matters, you can reach him via email at harjot@atwallawfirm.ca. He is also a mortgage agent (level 1) with Pineapple Financial Inc. (FSRA #12830) and currently pursuing his realtor licence with RECO. His phone number is 647-967-6548, and you can also reach him on LinkedIn.
The opinions expressed are those of the author and do not reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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