Legal Ease: Homebuyers, be aware of municipal improvements

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It’s April. Spring has arrived, the crocuses are in bloom and it’s time to go hunting for that perfect house.

You find it, study the details contained in the listing and make an offer to purchase. A purchase price is negotiated, a mortgage is obtained and the date to complete the transaction at the notary’s office is set. But nowhere is there mentioned a “special tax.” No such expense has been considered when establishing the purchase price and no such expense has been included in your budget. What is the “special tax”? What can you do about it?

Here is what happened when a couple decided to look for a house that would permit the wife’s parents, including a sick father, to live with them. They found it in January 2010 and the transfer was scheduled for June. The town in which the house was located had been doing infrastructure work and in April the seller received a notice that the work was completed and he was liable for a “special tax.” He forwarded a copy of the city’s notice to the real estate agent who, in turn, forwarded it to the purchasers.

The purchasers wrote the seller, through the real estate agent, claiming a reimbursement of $8,000 on the purchase price to be paid at the notary’s office at the time of signing of the deed of transfer. They did not receive an answer. The transfer took place toward the end of May and the reimbursement was not discussed. The sellers took possession immediately and commenced the renovations needed to prepare the house for occupation by July 1.

In February 2011, the purchasers had their attorney send a demand letter to the vendors claiming the amount of $11,268, which they had been obliged to pay to the municipality as the “special tax.” The seller refused to pay saying he had told the purchasers verbally that there would be a “special tax” of an unknown amount and that they should verify that amount themselves. The purchasers denied being told and legal proceedings were started in April 2011.

The Quebec Civil Code provides that a seller is obliged to guarantee the purchaser that the property he is selling is free of all rights except for those he has declared. The “special tax” is considered to be a charge on the property that the seller must reveal to the purchaser. The judge in discussing this obligation held that if he has knowledge of relevant information of which it is impossible for the purchaser to be aware or which he has no reason to suspect exists, it is his general obligation in law to advise the purchaser.

A party to a contract must do more than just answer honestly any questions put to him. He must take the initiative to divulge all facts that would normally influence the consent of the other party to enter into that contract. Everyone must exercise his civil rights in accordance with the requirements of good faith. Good faith must govern the behaviour of the parties throughout the process.

It is common practice for municipalities to impose local improvement taxes. There is much case law holding that the failure of a seller to inform a purchaser that his taxes will increase significantly because of a special tax is justification for an action in damages. Even if the special taxes are not due at the moment of sale, the seller has an obligation to divulge all facts that might diminish the value of the property or its revenue or result in increased expenses. Where the existence of a potential tax is not revealed, this may be considered as bad faith and this reticence may give rise to a right to demand the reduction of the sale price and/or damages. Judgments awarding damages have been granted even in cases where the “special tax” has been imposed several years after the sale has taken place.

One of the elements of a contract is consent and, to be valid, that consent must be informed. A party must know to what he is agreeing. On the other hand, a contracting party has an obligation to inform himself as a prudent, diligent person and there have been cases where an action in damages by the purchaser has been rejected on the ground that a public works program was well known and the purchaser should have looked into the situation himself. Every case is considered on the basis of the particular facts involved.

The seller had known of the eventual imposition of a special tax since 2007; notice had been given during that year and the work was completed in 2009. The bylaw permitting the municipality to charge the extra tax had been passed in 2008, but the seller never mentioned it when he listed his house. Furthermore, he had signed a paragraph in the offer to purchase that stated he knew of nothing that would diminish the value or revenue of the property or increase its expenses. Given this written statement, the judge didn’t believe he had advised the purchasers.

The purchasers had been induced into error by the seller and by the time they became aware of the special tax, they had sold their condo, the wife’s parents had sold their home, they had entered into contracts for renovations and annulling the sale would have been catastrophic for them. They were awarded the full amount of $11,268.

So when you find that perfect house, ask your vendor about municipal improvements. Even inquire at city hall. And reserve your rights in the deed of sale to pursue your vendor for any unknown amounts you may be obliged to pay in the future.

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