THE LAW OF HAUNTED HOUSES: A COMMENT ON STIGMATIZED PROPERTIES FOLLOWING WANG V SHAO.

• Author: Seidler, Reagan

Would you live in a murder house ? Some would. When the Amityville Horror home went on the market in 2016, the five-bedroom, six-body Dutch Colonial sold for a cool $850,000. (1) Others are less enthused--the Shao family among them. Their refusal to accept a home tainted by gang violence set off a legal battle that nearly required intervention by Canada's highest court.

In real estate law, the sites of deaths, hauntings and other traumatizing events are known as "stigmatized properties". (2) What sellers must share of these homes' pasts is a source of vexation to professionals and policymakers. It is easy to sympathize with buyers who feel uneasy at sharing a bedroom with a ghostly cotenant. Equally, one feels for the widow of a murder victim burdened by an unsellable house.

Earlier this year, a scandalized homebuyer asked the Supreme Court of Canada to resolve this question with Wang v Shao.(3) The Court declined, and with it declined an opportunity to address much deeper tensions in the law of real estate. With thousands of properties in Canada potentially affected, it is a live question for many homeowners (if not for their predecessors).

What follows is a doctrinal piece that distills the law into simple answers. It is meant to help sellers and real estate professionals in Canada but, given the issue is bound to come before appellate courts again, touches on laws in England and the United States for informative purposes. It also focuses on subjective flaws, leaving concerns around former drug houses in particular for another day. The comment begins by laying out the facts of the title case, then resolves the legal issues by answering four questions:

1. At common law, what obligations do sellers of used properties face to disclose defects in their homes ?

2. Do statutory rules change common law obligations ?

3. Is stigma a defect, and if so, is it patent or latent ?

4. Given questions #1-3, what must sellers of stigmatized properties disclose to buyers ?

WANG VSHAO: A FACTUAL PORTRAIT

To the unaware, few homes in Canada rivalled that which Mei Zhen Wang had on the market in the fall of 2009. Located in the affluent Vancouver neighbourhood of Shaughnessy, the 9000+ square foot property featured six bedrooms, ten bathrooms, and an indoor pool. Such was its appeal that, having toured the property on more than one occasion, Fen Yun Shao entered into a contract to acquire it for $6.138 million. A $300,000 deposit followed. (4)

Unknown to Ms. Shao was that roughly three years prior, on 3 November 2007, one of the home's residents was shot to death on the sidewalk just outside the front gate. The deceased, Mr. Raymond Huang, was husband to Ms. Wang's daughter, father to her grandchildren, and, it is alleged, a leading member of the notorious Chinese crime gang the Big Circle Boys. The assailant was never caught. (5)

Ms. Wang did not disclose the murder, nor did Ms. Shao ask. Ms. Shao was told the family was selling the home to live closer to the new school Ms. Wang's granddaughter would be attending--which was true, in part. Left unsaid was that the change in schools was precipitated by Mr. Huang's death and the media attention associating him with organized crime. (6) It was only some weeks later that Ms. Shao heard of the home's sordid past through a friend, which a Google search quickly confirmed: "Shooting shocks upscale Vancouver enclave", read the Globe and Mailheadline. (7)

Ms. Shao quickly repudiated her deal and refused the purchase. Ms. Wang eventually sold the property to a new buyer for $5.5 million, to whom the death was disclosed. (8)

Ms. Wang brought the title lawsuit in the BC Supreme Court, claiming Ms. Shao's breach of contract entitled the plaintiff to the deposit and an additional $338,000 in damages (making Ms. Wang whole to $6,138 million). Ms. Shao responded that the death of Raymond Huang was a defect Ms. Wang was obliged to disclose, and that the failure to do so was a fraudulent or negligent misrepresentation. Ms. Shao counterclaimed for repayment of the deposit and damages to compensate her for legal fees incurred during the purchase process. (9)

Properly determining the merits of this case, and of those of homebuyers to follow, requires a return to the first principles of conveyancing. The analysis turns there now.

1. THE GENERAL RULE: SELLERS MUST DISCLOSE ONLY KNOWN LATENT DEFECTS THAT MAKE A PROPERTY DANGEROUS OR UNFIT FOR HABITATION

   "Buyer beware" (10) is the default rule in used home sales. The common law of real property has fixed itself around this mantra since at least 1628, being found in Sir Edward Coke's statement that: "[B]y the Civil Law every man is bound to warrant the thing that he selleth or conveyeth, albeit there be no expresse Warranty, but the Common Law bindeth him not... for Caveat emptor." (11)

   That rule remains central today. In an oft-cited I960 address, Professor Bora Laskin advised that in general "risks of... certain defects of quality [are] imposed on the purchaser under the sweep of the doctrine of caveat emptor." (12) Justice Reid made the same point in Fraser-Reid, one of the few Supreme Court of Canada cases on home sales:

   [C]aveat emptor remains a force to be reckoned with by the credulous or indolent purchaser of housing property. Lacking express warranties, he may be in difficulty because there is no implied warranty of fitness for human habitation upon the purchase of a house already completed at the time of sale. The rationale stems from the laissez-faire attitudes of the eighteenth and nineteenth centuries and the notion that a purchaser must fend for himself, seeking protection by express warranty or by independent examination of the premises. If he fails to do either, he is without remedy either at law or in equity. (13) Where this doctrine applies, sellers have no obligation to disclose facts about a property and are not liable for failing to disclose them. (14) Exceptions to the rule exist, however, meaning any attempt to impose liability upon a seller requires the buyer to establish one of the exceptions applies.

   1. EXCEPTION 1: MISLEADING THE BUYER

      The main body of exceptions find their origin in Professor Laskin's aforementioned address:

      Does the vendor have any duty of disclosure in matters of quality and fitness which do not constitute defects of title? Here we deal with the classical notion of caveat emptor as applied to the physical amenities and conditions of the property... Absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug-infested or otherwise inhabitable. (15) This excerpt now has doctrinal standing. Canada's leading case on home disclosure, McGrath v MacLean, quoted the passage to dismiss a counterclaim against a seller who did not disclose that lands near their property were prone to landslides. (16) Similar endorsements can be found in most provinces, giving it strong influential value (at minimum) across Canada: see 1348623 Alberta Ltd v Choubal (structural damage), (17) Edwards v Boulderwood Development Co (soil unable to support building foundation), (18) Home Exchange Ltd v Goodyear Canada Inc (undisclosed environmental contamination), (19) and Nixon v Maclver (inaccurate description of a roof's age), (20) among others.

      Practically, Laskin's exceptions mean the same thing: a seller cannot mislead a buyer. Fraud occurs where a seller hides a problem. It requires the seller to both know of the problem and take steps to actively conceal it. (21) A misrepresentation occurs where a seller knowingly or negligently makes an untrue statement going to a material fact and the buyer relies on that false statement. (22) Such actions negate seller protections, as the Ontario Court of Appeal noted in Outaouais: "[W]here a vendor, who has no duty to speak, decides to break that silence, the doctrine of caveat emptor falls away as a defence mechanism and the vendor must speak truthfully and completely about the matters raised". (23) A critical question then arises--when does silence constitute a misrepresentation? This is so only if there exists a duty on the seller to speak up. As no duty usually exists, sellers are generally free to remain silent. (24) But even to this rule comes two exceptions.

      The first way a duty to disclose can arise is through a Seller Property Information Statement. (25) If a seller offers to answer questions but does not do so completely and honestly, their silence becomes a misrepresentation. (26)

   2. EXCEPTION 2: KNOWN LATENT DEFECTS THAT RENDER A HOME DANGEROUS OR UNFIT FOR HABITATION

      The second general exception concerns defects. Broadly defined, a defect is "something that constitutes a failing, short-coming, fault or imperfection." (27) They come in two forms: patent and latent. Patent defects are those a buyer can readily discover for themselves with reasonable diligence. (28) Latent defects are those not readily discoverable. (29) A professional home inspection is typically the line. If a proper inspection fails to identify the problem, the defect is latent. (30) As any professional knows, this distinction has important consequences.

      Sellers never have to disclose patent defects. As Hogg JA said in McCallum v Dean, "[p]atent defects are such as may be discovered by inspection and ordinary vigilance on the part of a purchaser, and with respect to them the primary rule is caveat emptor." (31)

      In contrast, sellers can have a duty to disclose latent defects. This means that silence, or a failure to disclose, can be a misrepresentation. When this duty arises is a matter of debate.

      One line of jurisprudence centered around Swayze v Robertson says that buyers must be told of any latent defect in a property. (32) These cases often merge fraud into the discussion, treating the failure to disclose a known latent defect as "equivalent to an intention to deceive." (33) This view gained traction in western Canada, in particular. (34)

      ...