What Happens if Formaldehyde or Asbestos is Found in the Home After Closing?

If formaldehyde, asbestos or similar is found in the property after closing, do the purchasers have good grounds  to sue for damages?

The short answer – typically, yes. But, it depends (…it always does with the law).

According to Real Estate Council of Ontario (RECO), ‘UFFI’ stands for Urea Formaldehyde Foam Insulation. UFFI was commonly used as a “retrofit” insulation on existing houses. The foam was injected behind walls and in areas where installing other forms of insulation wasn’t practical.

The court has not weighed in on this issue in Ontario for some time now. The leading case on the issue appears to be Borner v Kerr* (Dist Ct), 67 OR (2d) 182, [1988] OJ No 2128. In that case, the following are the facts:

Ultimately, the court found that damages should be awarded to the purchaser for the amount of $9,747.33. However, the court found that no further damages were to be awarded notwithstanding the plaintiff’s request for more because the increase in property value over time that was hindered by the UFFI.

This case led to the legal principle that: a purchaser is entitled to the cost of the full amount of damages from the vendor for the remediation of  UFFI if a warranty with regard to UFFI is made by the vendor.

And this is good news for purchasers – in nearly all OREA standard-form agreements of purchase and sale, there exists a standardized UFFI clause whereby the seller provides a representation & warranty on the status of UFFI on the property.  Further to that, in the purchaser’s legal closing documents, the lawyer will typically request a statutory declaration signed by the seller to the same effect. In some instances, the vendor’s lawyer will attempt to remove this declaration for their seller clients because their clients are already providing this warranty in the APS directly (and part of good lawyering means not having your client promise more than they should – why risk it?). In most cases, however, and regardless of whether this statutory declaration is provided by the vendor prior to closing, the APS almost always contains this UFFI clause.

However, what is the UFFI clause is not present in the APS? Perhaps the deal is private or using a non-standard APS, or perhaps the clause is removed entirely from the standard OREA form.

In Post v Dundas, [1993] OJ No 1046, 30 RPR (2d) 214, 40 ACWS (3d) 368, it was determined that,  where the seller’s warranty was made regarding no UFFI present in the property, the court found that there had been a breach of contract, and awarded the purchaser the cost of the removal of the UFFI insulation as damages.

In addition, there is good argument that UFFI clauses survive closing and are enforceable even if the purchaser did not carry out a home inspection in advance. This, in fact, happened to one of our clients recently – she purchased a home in a hot market with no home inspection or conditions, but subsequent to the purchase discovered UFFI in the walls of the property.

Further to this, it is also possible that the cost of removing UFFI from a property is covered under title insurance, however this is not always the case and you need to consult your specific policy exclusions (in many cases, title insurance policies exclude Environmental issues such as UFFI, termites and similar.

RPL is Ontario’s leading law firm in co-ownership of residential and commercial property. We have helped hundreds of clients buy, sell & mortgage their properties. Contact us to learn more about how we can help you.

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