Imagine buying a new home, moving in, and then finding a problem you did not know about before closing, which leaves you without use of some or all of the property, and is very expensive to fix.
Can you sue the seller to recover the cost to repair the defect and other damage caused? And if you are selling a home, what obligation do you have to disclose defects to a buyer?
As a general rule, the principle of caveat emptor, that is, let the buyer beware, applies to the purchase of real estate. This means that, subject to the express terms of the purchase contract, you take the property as-is and are stuck with problems you didn’t notice before you bought the house.
This principle has some exceptions. A well-established exception is where there is a latent defect that the seller is aware of but does not disclose, and the defect renders the property dangerous or potentially dangerous or unfit for habitation.
This exception is contained in the standard real estate purchase contract used by realtors in Alberta, which includes a warranty that the seller is not aware of any defects in the property that are not visible and that render the property dangerous or potentially dangerous or unfit for habitation. If a seller signs this contract and sells the house but is aware of the existence of such a defect, then the seller has made a false representation to the purchaser. This contractual warranty puts the onus on a seller to disclose such defects prior to sale.
A seller can be liable even where there is no such express warranty in the contract. In some cases, the seller actively conceals a defect. In other cases, the purchaser or purchaser’s realtor inquires regarding problems or particular defects, and the seller lies or fails to answer accurately. Both instances are a species of fraud for which the seller is liable, regardless of whether the contract contains an express warranty regarding latent defects. Simply failing to disclose such defects may even lead to liability for a seller in certain circumstances.
For this exception to apply, the defect must be latent, as opposed to patent. This means that the defect is not visible upon reasonable inspection. Note that a pre purchase home inspection is important for a purchaser, as some cases have held that the seller is not liable where a home inspection is not obtained but would have disclosed the defect. Secondly, this exception only applies to latent defects that render the property or some significant part of it unfit for habitation or dangerous or potentially dangerous. For instance, a stain on a carpet that the buyer did not notice prior to taking possession will not come within this exception, whereas a defect that leads to significant flooding of a basement will. Faulty wiring that leads to a fire would be a defect that renders the property dangerous. Third, the seller must be aware of the defect and not disclose it to the purchaser before the closing of the purchase and sale transaction.
In summary, a buyer can sue a seller where all of the above requirements are met. Damages are awarded for the cost of the repairing the defect and any damage caused by it, and possibly for loss of enjoyment or use of the property.
Consequently, if you are selling a house, and know of a latent defect, you should seek legal advice to avoid liability down the road. If you have bought a house and have discovered a problem, you should seek legal advice to assess your case.
Legally Speaking appears every second week in LIFE. It is intended for information purposes only. Readers with a specific legal problem should consult a lawyer. This week’s column was written by James Cawsey, of the Red Deer law firm Duhamel Manning Feehan Warrender Glass. Cawsey can be reached at 343-0812 or at www.reddeeraltalaw.com.