She bore the risk of any defects under the legal principle of 'caveat emptor:' court
The BC Supreme Court upheld the principle of "caveat emptor," ruling that the investor, who waived due diligence conditions without securing financing or an environmental report, was responsible for the failed transaction and liable for $2.67 million in damages to the seller.
The case involved an investor who sought to acquire a commercial property as an income-generating asset and claimed that the seller fraudulently misrepresented the site's environmental condition by failing to disclose potential contamination. She also sued her real estate agent and brokerage for negligence and breach of contract, alleging they failed to conduct proper due diligence or warn her of environmental risks.
The court rejected the fraudulent misrepresentation claim against the seller, finding no evidence that they knowingly concealed contamination or falsely assured the buyer that no environmental reports existed. The court noted that the seller, a company based in British Columbia controlled by owners in Hong Kong, had little direct involvement with the property. Its property manager, who had received a report from ICBC in 2012 about potential contamination, never forwarded it to the seller or discussed it with them. The court ruled that this failure did not constitute fraud, as there was no evidence that the seller was aware of the report or deliberately misled the buyer.
Additionally, the Supreme Court found that the investor agreed to purchase the property on an "as is, where is" basis and had the right to conduct her environmental assessments before removing conditions from the sale. She waived those conditions without obtaining an environmental report or securing financing. The court ruled that she bore the risk of any defects under the legal principle of caveat emptor, which places the responsibility for due diligence on the buyer unless the seller actively conceals a known defect.
In the negligence lawsuit against her real estate agent and brokerage, the investor argued that her agent should have discovered the property's prior use as a gas station and warned her of potential contamination. The court dismissed this claim, citing a lack of evidence that the agent failed to meet industry standards. The agent had checked city records and a contaminated sites registry, neither of which indicated prior contamination. The court also found no proof that reviewing additional records would have revealed the site's history.
Further, the court ruled that the investor's decision to waive conditions despite lacking financing and an environmental report was her responsibility. The court emphasized that she was an experienced businessperson who had previously purchased commercial properties and had consulted a mortgage broker before removing conditions. Even if her agent had provided incorrect advice, the court found she had independent access to financing information and was ultimately responsible for her decisions.
As a result of her failure to complete the purchase, the court upheld the seller's counterclaim for breach of contract. The property was later resold for $5.58 million, resulting in a $2.67 million loss, which the investor conceded was the appropriate measure of damages. She also forfeited her $500,000 deposit.
