Lawyer. Parent. Entrepreneur.
Buying a home is one of the most significant investments you’ll make. In Alberta’s competitive real estate market, buyers often rely on information provided by sellers and their realtors. But what happens if those statements that are not in the Purchase Contract turn out to be false? Can you take legal action against the seller for misrepresentation in the sale of the property? Let’s break down what the law says and what your options are.
The Scenario
Imagine this: you’re thrilled about purchasing your new home. Before signing the contract, the seller—through their realtor—tells you that the flooring was replaced four years ago and all appliances were replaced two and a half years ago. The seller claims this information came from the previous owner. You inspect the property, and everything looks modern and in good condition.
A week after moving in, your neighbor casually mentions that he personally replaced the flooring over six years ago and installed the appliances five years ago. Frustrated, you wonder: What can I do?
The Role of the Entire Agreement Clause
In Alberta, the standard Real Estate Purchase Contract includes an Entire Agreement Clause, which states:
“The seller and buyer confirm that this contract sets out all the rights and obligations they intend for the purchase and sale of the Property and that:
(a) this contract is the entire agreement between them; and
(b) unless expressly made part of this contract, in writing:
(i) verbal or written collateral or side agreements or representations or warranties made by either the seller or buyer or the seller or buyer’s brokerage or agent, have not and will not be relied on and are not part of this contract; and
(ii) any pre-contractual representations or warranties, howsoever made, that induced either the seller or the buyer into making this contract are of no legal force or effect.”
What does this mean?
Any statements or promises not written into the contract are not legally binding. In our example, even if the seller made oral representations about the flooring or appliances, the clause shields them from liability.
Why Courts Uphold Entire Agreement Clauses
Courts in Alberta generally uphold Entire Agreement Clauses because they provide clarity and certainty. These clauses are intended to distill the parties’ intentions into the written contract, avoiding disputes over prior negotiations. There are procedural difficulties in establishing the parties’ intention in a contract which is necessary for the interpretation of a contract. However, the Entire Agreement Clause, provided it is written clearly like the one above, helps the court interpret the contract.
If a warranty or representation is not included in the contract, and both parties have agreed that any representation not part of the contract has no legal effect, there is no reason for the court to intervene. Clearly, when the contract was executed, the parties intended to exclude such warranties or representations and that intention should be respected. The Entire Agreement Clause also serves as an acknowledgment by both parties that any representations not included in the contract did not influence their decision to enter into the Contract. It would likely be unfair for the parties to later disregard that acknowledgment.
Not surprisingly, the Entire Agreement Clause has been an effective defense for sellers against allegations of negligent misrepresentation and also protects realtors when the protection has been afforded to one of the parties in the real estate transaction.
Exception: Fraudulent Misrepresentation
The protection isn’t absolute. The only exception is fraudulent misrepresentation, which requires proof of:
A fraud allegation is serious as it affects the honour and good name of an individual. For this reason, although courts apply the civil standard of proof—balance of probabilities—in practice, proving fraud is challenging. The party advancing an allegation of fraud must present evidence that is compelling, persuasive, and logical. If unsuccessful, that party may face enhanced cost consequences.
Furthermore, in the context of real estate, proving a loss can be quite challenging. In the example above, the buyer might argue that the misrepresentation resulted in a loss because a house with flooring replaced two years ago is worth more than one with flooring replaced ten years ago. It is important to mention that there is case law where the seller has claimed a loss due to the house being smaller than they had anticipated. Courts typically reject these arguments, as real estate contracts are for a lump sum—the buyer pays an agreed price for the property as a whole. Courts consider that buyers purchase properties based on their inspections and the prevailing market conditions. Without specific warranties or representations regarding the longevity of the flooring or the square footage of the house making them part of the bargaining process, the buyer cannot demand a price reduction after closing.
Key Takeaway
According to Alberta real estate law, if your purchase agreement does not explicitly include representations regarding specific features of items such as flooring or appliances, the seller may have no recourse if the condition of these items does not match statements made outside of the contract by the seller or their realtor. It does not matter if these specific features are mentioned in the MLS. If these details are important to the buyer, it should be ensured that they are included in the contract as seller warranties or representations.
Conclusion
Buying a home is exciting, but it’s also complex. Protect yourself by ensuring all important details are in writing. Oral promises don’t hold up against an Entire Agreement Clause. If you suspect fraud, seek legal advice immediately—but remember, proving it is challenging. When in doubt, consult an experienced real estate lawyer before signing.