Since the mid-1990s, despite government studies, legal action and bad publicity, buyers are still unaware that homes they are buying in British Columbia have been seriously damaged by water infiltration, says a new research paper.
There are about 65,000 homes in the province that became known as "leaky condos", defined as homes that suffered catastrophic failure of the building envelope, allowing water to enter the envelope and leading to rot, rust, decay and mould. Claims from the crisis caused the collapse of B.C.'s New Home Warranty Program in 1998, and many of the leaky condo purchasers lost their life savings -- or their homes -- in the effort to make repairs.
A new study by real estate researcher and licenced agent Nancy Bain, funded by Canada Mortgage and Housing Corp. (CMHC), says, "The leaky condo crisis has been exacerbated by the sale of problem homes without full disclosure to subsequent buyers. This has occurred despite the fact that it has been customary for real estate agents to include standard clauses, recommended by the Real Estate Council of B.C., in a Contract of Purchase and Sale mandating the use of investigative tools and declarations to bring maximum transparency to the transaction."
The problem, says Bain, is that each of these "investigative tools" has shortcomings. "The tools are flawed, the contract can fail to require all the necessary documentation, and there is little assistance for buyers in understanding and analysing the information they receive."
Bain studied 40 transactions in which within one year of purchase, the buyer found a serious problem that was not revealed at the time of the purchase. The transactions took place from 1996 to 2002.
Although 33 of the 40 purchasers had heard of the leaky condo crisis, some were told a previous problem had already been fixed, some believed that concrete buildings were not subject to leaky condo problems, and some said they bought older condos because they thought they would be less likely to have undetected problems.
A Property Disclosure Statement was used in several of the purchases. Its purpose is to disclose hidden or latent defects known to the seller, but in a number of cases, it failed to do so, says the report. Bain says in one court case, minutes from the strata corporation and its strata council did reveal water ingress problems, but in the Property Disclosure Statement, the seller had answered "no" to questions about roof leakage and damages. A judge ruled that by relying only on the Property Disclosure Statement, the buyer had failed to act in a reasonable manner. The judge denied a claim for damages.
But reading through the strata corporation minutes also proved to be a challenge for buyers in the study, partly because of the amount of material included, and partly because of the way they were written. "Since 2000, the norm is to request 12 to 24 months of minutes, which in some cases is an onerous amount of material requiring careful reading within a limited period of time," says Bain. "As well, the minutes were often drafted in a manner that did not reveal the true condition of the building."
She says, "Persons knowledgeable about building envelope failure may be able to discern certain 'red flags' in the minutes, but a typical home buyer has little chance of interpreting these signs."
Even professional property inspections failed to properly warn buyers. Of the 40 cases studied, only 11 used property inspectors. "It was found that the extent to which the exterior of a building is inspected varies greatly; the checklist format of the report sometimes buried significant information; and written comments by an inspector may appear benign but closer examination by a person knowledgeable about building envelope failure would reveal ominous warnings couched in soft language. Only one inspection report gave warnings in plain, simple language, which ensured the buyer understood the risk involved in purchasing. In eight cases, the reports should have caused alarm but they failed to do so."
Bain says, "Even if the use of investigative tools is more frequent, or if the leaky condo crisis has peaked, it is clear that there will still be many condominium buyers who discover, after the fact, that 'what they got is not what they thought they bought.'"