Written by: Andrew Powell, Partner
People often ask if there is any obligation on the part of the seller of a house to advise potential buyers that someone has died in the house; there may even be a sincerely-held belief that the house is haunted by a deceased person, or that the property is subject to a malevolent supernatural presence. If so, do you have an obligation to disclose it?
Legally, probably not.
Disclosure obligations relate to defects or qualities of a property that are fairly objective. Patent defects require no disclosure, because they are obvious; latent defects are those that are not discoverable upon a reasonable investigation by the buyer. If there are latent defects that directly relate to the intrinsic quality of the building or property which, objectively, materially affect the property’s use or value, then those must be disclosed. Material defects are those that affect whether a property is dangerous or unfit for habitation.
And therein lies the question. There can be several qualities of a property which are not immediately apparent upon investigation, but which can nevertheless possibly affect the value of the property. These qualities are called “stigma”.
Despite being subjective, stigma can be significant. In order to lessen the stigmatic effect, for instance, the house in St. Catharines, Ontario, in which Paul Bernardo committed his assaults and murders had to be demolished by its owners. A new home was constructed and was given a different street address, all in order to eradicate its association with Bernardo.
So stigma is real — but does the fact of a death, even a reported haunting, count as a latent defect, such that it must be disclosed?
The question has come under the consideration of the Courts a number of times, and the courts have usually held that stigma need not be disclosed. In 1784773 Ontario Inc. v. K-W Labour Assn Inc,  ONSC 5401, the Ontario Superior Court of Justice directly addressed the question: if a property is haunted, does that fact need to be disclosed to a purchaser? According to that court, it turns out the answer is “no”. Having a ghost in the house is not a latent defect.
The case was appealed:  ONCA 288. The Ontario Court of Appeal agreed with the Superior Court, adding: “there is no direct evidence of economic loss or damage as a result of the stigma of a haunted property, nor is there any direct evidence from anyone who observed any strange occurrences in the property.” Hence, it may just be a question of having enough evidence. If you can prove that the stigma, in that case a ghost, is actually causing or threatening harm, then you need to disclose it like any other latent defect. If on the other hand it is friendly or harmless, you don’t.
In the Real Estate Council of British Columbia’s Professional Standards manual, duties of disclosure are considered for “stigmatized” properties; these properties include (but are not limited to):
• Properties located in neighbourhoods where a sexual offender is reported to live;
• Properties formerly occupied by a member of a criminal organization or gang; and
• Properties that are reportedly haunted.
According to the manual, stigma do not affect the “appearance, function or use of the property”, but rather affect the psychological value of it based on the beliefs or background of the property owner. Stigma are therefore not material latent defects. However, the manual acknowledges that existence of certain stigma may still have serious impacts on the value of the property to certain buyers. Therefore the manual advises that although there is no direct obligation to disclose stigma, the best practice for an agent is as follows:
— When asked by their client, a buyer’s agent must make the appropriate inquiries.
— When asked about the possible existence of stigmas that might affect the property the seller, or licensees representing the seller, may:
a) answer the question directly; or
b) decline to answer the question and advise the buyer to conduct their own investigation.
Sellers and their licensees who choose to answer such questions are expected to use reasonable skill and care to ensure the accuracy and completeness of the information provided to buyers.
It seems though that despite the lack of a specific legal obligation, a safer practice and one which would avoid risky lawsuits would be to err on the side of disclosure, especially if there is any concern that the particular buyer would be sensitive to the particular stigma associated with the property