Dry rot: How to act in a transaction

To protect the interests of all parties to the transaction, the real estate brokerage professional should know how to recognize the presence of Serpula lacrymans in an immovable, commonly known as dry rot.

How to detect it?

Telltale signs that generally point to the presence of dry rot in an immovable include:

• a strong fungus smell;
• wood that feels cottony to the touch, is soft and fragmented;
• wood that is brownish in colour;
• fibrous, whitish cushions;
• warped walls and baseboards.

In order to carry out their ethical obligations, particularly their duty to advise, inform and disclose, brokers must “take steps, in accordance with accepted practice, to learn of any factors that may adversely affect the party represented by them or the agency for which they act, the parties to the transaction or the very object of the transaction.” (Regulation respecting brokerage requirements, professional conduct of brokers and advertising, section 84)

Therefore as soon as the broker has reason to suspect the presence of dry rot in an immovable, he must take the following steps, depending on the situation:

A) The seller’s broker already knows, or learns after signing the brokerage contract, that the property is or has in the past been affected by dry rot:

1. The broker must ask the owner to disclose this in writing on the form Declarations by the seller of the immovable, under clause D14.5 (and under D7.3 if there are traces of mould), in addition to indicating that a report to this effect is available under section D13, if such is the case. If repairs have been made since then, indicate this under section D15, with supporting invoices. If the information was learned once the contract was in effect, the broker must use an Amendments form to modify the Declarations by the seller of the immovable.
2. The broker must recommend to the seller to have the air quality tested on the property in order to detect the presence of mould, and determine the degree of air contamination and its impact on the health of the property’s residents. If the test is positive, a mould test may also be necessary.
3. The broker must inform the seller of the impacts of selling this type of property, including the major work that may be required. The broker may recommend that the seller obtain written quotes to evaluate the cost of addressing the issues identified.
4. If the seller refuses to allow the broker to disclose this fact, the broker must refuse to list or to continue to list the property, and must purely and simply terminate the brokerage contract to sell.

B) The buyer’s broker learns that the property is or has in the past been affected by dry rot before submitting a promise to purchase:

1. The buyer’s broker must inform his client in writing of the potential problems connected with the purchase of this type of property. Among other things, he must inform his client of the major renovation work that this may require.
2. He must also recommend that his client have the air quality tested as part of a more in-depth inspection, in order to detect the presence of mould, and determine the degree of air contamination and its impact on the health of the property’s residents. If the test is positive, the broker should recommend to the buyer to have a mould test done.
3. He must also recommend that his client get an expert assessment of the scope of the work needed. Clause E2.1 of the form Annex – Expert report may be used to this effect.

C) The buyer’s broker or the seller’s broker learns that the property is or has in the past been affected by dry rot once a promise to purchase is in progress or has already been accepted:

1. The broker must immediately inform all the parties, preferably in writing, of this new element in the file. If the buyer wants to go ahead with the transaction, an Amendments form indicating that the buyer has been informed that the immovable is affected by dry rot must be completed and signed by the parties. The broker must also send this form to the buyer’s mortgage lender.
2. If the promise to purchase is in progress but has not yet been accepted, the seller’s broker may, if this is possible, ask his client to submit a counter-proposal stating that the property is affected by dry rot.
3. If the promise has already been accepted, the broker must, as in the previous scenario, inform the parties in writing of potential problems and the options available to them with regards to the transaction in progress.
4. If the buyer learns before the signing of the deed of sale of the existence of a dry rot problem of which he had not previously been informed, he may avail himself of the mechanism provided under clause 10.5 of the various promise to purchase forms (10.7 in the case of a divided co-ownership property). For more details, read this article.

Financial aid to fight dry rot

When tabling the last budget of the Québec Government in spring 2018, the Minister responsible for Consumer Protection and for Housing, Lise Thériault, announced a financial aid of $5.6 million to fight dry rot and support homeowners who are struggling with this fungus that has damaged several homes in Québec.

If you have any questions, do not hesitate to contact Info OACIQ.