Pyrite or pyrrhotite: throwing rocks in the gears of a transaction

Mr. Sansouci has been working as a real estate broker for 20 years in the Québec City area. When a friend tells him that he is looking to buy a property on a lake in the Mauricie region, he agrees to help him.

In his effort to find out more about this region, he notes that some records mention pyrrhotite. He immediately notifies his friend, who is understandably concerned. Mr. Sansouci decides to talk to his agency executive officer, and then to get more information by phoning the OACIQ Into Center.

The information agent explains that like pyrite, pyrrhotite is a sulphurous stone that has the potential to swell due to oxidization, meaning that it can expand when it comes in contact with air or moisture.

Pyrite can be found in backfill stone used around foundation drains or under concrete slabs. When it becomes oxidized, it can swell and lift the slab or cause cracking in the foundation or partitions. Cases of pyrite swelling have been found in Montreal (Rivière-des-Prairies and Pointe-aux-Trembles areas) and in the Montérégie region, from Notre-Dame-de-l’Île-Perrot to Sorel. Other regions could also be affected. The broker must make proper recommendations to the parties and inform them of the consequences of the presence of pyrite in high-risk areas, as described in the article Obligations of real estate brokers  and agencies: High-risk areas for pyrite.

As for pyrrhotite, its potential oxidization can happen much more quickly than that of pyrite. This mineral is present in the aggregate originating from quarries in the Mauricie region and can potentially have been added to the concrete mix used in foundations. The chemical reaction causes the spalling and characteristic fracturing of the concrete. A petrographic analysis by a recognized laboratory is highly recommended for all properties built in the Mauricie region between 1996 and 2008.

Mr. Sansouci tells the information agent that he is preparing to carry out a real estate transaction in Mauricie. The agent informs him that brokers who wish to transact in the Mauricie region (administration region 04) must be aware of the problems associated with the presence of pyrrhotite, the same way that brokers must be aware of the high-rick areas for pyrite and the obligations deriving therefrom.

What is particular about the Mauricie region is that real estate brokers must either complete the OACIQ’s online training activity entitled Presence of pyrrhotite and real estate transactions (3 CEUs, available in French only), partner up with a broker who has the skills required to transact in the region, or refer the client to a broker authorized to do so.

The information agent also tells him about the recommendations to make to the parties when taking up the brokerage contract to sell, and at the promise to purchase stage.

Recommendations

He tells him that the seller’s broker must:

• notify the seller that he has a duty to warn any buyer about the potential presence of pyrrhotite, even if the property doesn’t seem to be affected ;
• inform the seller that he must disclose the presence or absence of pyrrhotite. This disclosure will be made using the mandatory form Declarations by the seller of the immovable in case of a residential sale by a natural person; 
• recommend that a test be conducted to determine if pyrrhotite is causing or could cause problems. If the seller does not wish to have this important test done at the outset, the broker will have to specify on the brokerage contract that the seller was informed of the risk of pyrrhotite and of the possibility of testing for its presence;
• explain that the test is not usually paid for by the buyer and cannot be carried out without the owner’s authorization;
• notify the seller that should a problem be detected, it will have to be corrected, or else the selling price will have to take this problem into account. Otherwise, the immovable could be difficult to sell;
• send a copy of the expert report (and, if applicable, of the detailed invoice for the repairs done) to any buyer, regardless of the result of the test. The proper professional practice, however, would be to attach this report to the description sheet from the information dissemination service used.

The buyer’s broker must: 

• notify his buying client that an immovable built between 1996 and 2008 may be affected by pyrrhotite, even if the property does not show any problems;
• refer to the form Declarations by the seller of the immovable to check if a concrete test was done (clause D13.2) and, if applicable, the expert report if it is attached to the description sheet from the information dissemination service;
• if the report is not attached to the listing but is available, inform the buyer that he can make his promise to purchase conditional upon a review of this report (clause 9.1 of the PP). In all cases the broker must recommend that the buyer consult his own expert to interpret the results of the test;
• if no expert report is available, strongly recommend to make the promise to purchase conditional upon a test on the foundation concrete using clause E2.1 of the Annex – Expert report.

The information agent stresses that under no circumstance may real estate brokers or their agencies conceal or omit to disclose information regarding an immovable because it could hinder the sale of the property or a transaction already in progress.

After thanking the information agent for his advice, M. Sansouci registers for and quickly completes the online training on pyrrhotite. As a precaution, he also decides to partner up with a colleague who works in the Mauricie region, Mr. Réjean Veille, since the latter is very knowledgeable about the area.

In order to make the most of their time and minimize disappointments, Mr. Sansouci has an in-depth look at the suggested listings and makes the necessary verifications in the Québec Land Register. After viewing several properties, the buyers settle on an attractive house overlooking a majestic lake.

The listing broker for this property built in 1999 has already explained to the buyers’ brokers that on his recommendation, the seller has just ordered pyrrhotite test, but the results will only be available in 6 to 8 weeks. As far as the seller knows, no other house in the area has had problems associated with pyrrhotite and nothing apparent on the building would suggest that it is affected (examples: foundation cracks, white or yellow spots on the concrete). However, he does not have any documented proof of this (concrete delivery slips or lab test).

With the help of Mr. Veille, Mr. Sansouci drafts the promise to purchase. Apart from the usual conditions (inspection and mortgage), the buyers add a condition of getting a pyrrhotite test within a period of 8 weeks. This condition is entered under clause E2.1 entitled “Expert report requested by the buyer” of Annex - Expert report, which is linked to the promise to purchase.

Mr. Veille mentions by the way that financial institutions require a pyrrhotite test before granting a mortgage loan, even with a reassuring building inspection. Consequently, a sufficient time period must be provided in clause 6.2 of the Promise to purchase to allow the lender to review the report. The promise to purchase is subsequently accepted by the seller. Apart from normal wear and tear, the inspection does not uncover anything significant. A few weeks later, the buyer declares himself fully satisfied with the results of the test after consulting his own expert, as recommended. Another successful transaction!