Property concerns: be an honest seller and a cautious buyer

Joyce Blond Frank B.A. B.C.L. LL.M

The time has come to sell your house. You find a real-estate agent, she finds a buyer, you negotiate price, decide on the date of transferring possession, and finally the offer to purchase is signed. Now only the appointment at the notary’s office remains and all will be done – or so you believe. However, this may not be so.

As a seller, you are bound to guarantee the buyer that the property is free of latent defects. A latent defect is one that is not apparent to a prudent and diligent purchaser and is such that the buyer would not have bought or paid the price had he been aware of its existence.

In a case where potential purchasers noticed some window repairs and the seller told them there had been water leakage but everything had been fixed and there were no more problems, the sale took place. After moving in, they noticed a smell in the house. An expert was hired, a few holes were drilled and evidence of animal excrement, insulation deterioration, and mould was found. Also, water leakage was noticed near the roof and exposed wires were discovered between the garage and the house.

The buyers went to court claiming a diminution of the sale price equal to the cost of effecting repairs, the cost of their expert, and $10,000 for their trouble and inconvenience. The court held that the pre-purchase visual examination of the property did not permit one to see inside the walls. Moreover, there was no obligation to open the walls. The existence of rodents in the walls constituted a latent defect. Furthermore, because the seller had created a false sense of security for the buyers by telling them that the problem of water infiltration had been remedied, the judge held that this reassurance had the effect of changing an otherwise apparent defect into a latent defect. The buyers were granted damages to repair the water leakage, the situation inside the walls, and their expert’s fees. They were also granted $4,000 in damages for trouble and inconvenience on the ground that the seller could not possibly have been unaware of the existence of the rodents.

In another case, the seller advised the potential buyers that he had experienced sewer backup a couple of years earlier and had installed a pump and trap. He also told them that he had noticed a small trickle of water in the basement and bathrooms when it rained and when the snow melted. He also said that the property had never been flooded.

The buyers had the property inspected by an expert twice before signing the deed of purchase early in the summer and neither expert found any significant defect. A week after moving in, they noticed water coming in through the drain in the room with the hot-water heater. About a month later, they noticed mould and moisture between the floor and the wall of a bedroom in the basement.

A specialist was called in and concluded that the basement drain had to be replaced and that underground water flowed toward the floor. It was now late summer and the buyers wrote the seller, putting him in default to make the necessary repairs. Between the spring of the following year and the beginning of January of the next year, the new owners experienced four water infiltrations in the basement when there was heavy rain or melting snow. They claimed a substantial reduction in the purchase price for the property as well as damages on the ground that they had been misled by the seller, who had given them false information to reassure them. The seller said they had failed to act as prudent and diligent buyers.

The court accepted that the basement had important water infiltration and flooding problems, which could not have been discerned even by diligent inspection of the property. Furthermore, there was proof that the seller knew the main drain in the basement needed to be replaced and that there was a problem with water flowing toward the house. He also knew that water infiltration occurred regularly.

The judge stated that the seller is obliged to reveal completely and exhaustively to the buyer all the facts of which he is aware that pose a risk to the buyer’s peaceful or useful enjoyment of the property. The lack of a system of drainage under the floor, the ineffectiveness of the pump and the flow of underground water, which caused humidity and mould, constituted latent defects sufficiently serious to validate the buyer’s action against the seller. The buyers were awarded a substantial sum for repairs, an amount to pay their expert’s fees and the sum of $5,000 as damages for trouble and inconvenience.

In the two cases presented above, the seller was obliged to pay damages for trouble and inconvenience as well as for repairs. These extra damage awards are given when a seller is aware or could not have been unaware of the defects. Where a seller had effected aesthetic repairs that had the effect of blocking access to the attic and camouflaging rot marks, she was ordered to reimburse part of the sale price as well as for experts and a portion of the buyer’s extra-judicial legal fees.

So we see that failure to be completely open and honest about problems concerning the house you are selling can lead to headaches in the future.

Quebec law does not contain a “buyer beware” provision, at least with regard to latent defects, and a seller can find himself responsible for latent defects that exist at the time of the sale even when he knew nothing about them prior to the sale. However, the purchaser also has certain responsibilities. We will look at those next month.