Must a Seller Tell a Buyer About Major Defects?

Generally, Defects That Are Patent, Meaning Discoverable During Inspection Are Without Need of Disclosure. A Seller Only Needs to Avoid Concealing a Patent Defect. A Latent Defect, Meaning Hidden, Such As a Water Leak, Must Be Disclosed If Potentially Dangerous or Could Make the Property Uninhabitable.

Similar Questions About Defect Disclosure Requirements Include:

  • Must a Seller Tell a Buyer About a Water Leak?
  • Does a Seller Need to Tell a Buyer About a Water Leak?
  • If a Seller Conceals a Water Leak, Can the Buyer Sue?
  • Can a Buyer Sue a Seller For Failing to Disclose Details of a Water Leak?
  • What Can a Buyer Do If a Seller Fails to Disclose Details About a Water Leak?

Understanding When Sellers of Property Are Legally Required to Disclose Certain Defects Within Realty Dealings

Lawsuit Document A common legal issue that arises subsequent to a real estate sale involves allegations against the seller for failing to disclose details of a pre-existing latent defect, or for the concealment of a patent defect during showings or inspection.  These issues may permit the buyer of a property to sue for the cost of corrective restorations and repairs, the cost of substitute accommodations such as hotel, as well as for general damages arising from emotional distress.

Latent Defect and Patent Defect

A latent defect is a defect that is unavailable for inspection, being visibly unobservable or otherwise unnoticeable and therefore a buyer would be, generally, unable to discover a latent defect.  Contrarily, a patent defect is a defect that is capable of observation and is within sight for discovery by a reasonable observer.  The difference between a latent defect and a patent defect was well defined within the case of Krawchuk v. Scherbak, 2009 CanLII 40556 where it was said:

[34]  Defects in property may be either “patent” or “latent”.  A defect which is readily apparent to someone exercising reasonable care in their inspection of a property is said to be patent.  A defect which is not readily apparent on such an inspection is said to be latent.  Patent defects need never be disclosed to purchasers because they are there for the purchasers to see for themselves.  Latent defects, however, are treated somewhat differently.  Latent defects cannot be concealed by the Vendors so as to prevent their discovery by purchasers.  In addition, even if not concealed by the vendor, if a latent defect is known to the vendor and is such that it makes the property uninhabitable, dangerous, or potentially dangerous, it must be disclosed to purchasers (See McGrath v MacLean (1979) 1979 CanLII 1691 (ON CA), 22 O.R.  (2d) 784). 

Duty Upon a Seller to Disclose a Dangerous Latent Defect

Generally, the doctrine of caveat emptor (buyer beware) applies to the sale of various objects, including realty such as homes, and it is necessary for the buyer to inspect for defects (usually via a qualified home inspector).  However, where a home contains a defect that is dangerous or otherwise makes the home uninhabitable, and this defect is known to the seller, the seller is legally required to provide details of the defect to the prospective buyer.  This requirement was explained by the Court of Appeal as obitur dicta in the case of McGrath v. MacLean, 1979 CanLII 1691 and within judicial reasoning in the case of Barbieri v. Mastronardi, 2014 ONCA 416 wherein each is was stated:

As I have observed, the cause of action asserted was that the vendor, having knowledge of a latent defect in the lands being purchased rendering the lands unfit for habitation, was under a duty to make such a disclosure and the failure to do so gave rise to a cause of action in damages. Whether such a cause of action exists and the basis for it was canvassed in a lecture by Professor Bora Laskin in "Defects of Title and Quality: Caveat Emptor and the Vendor's Duty of Disclosure" (1960), Law Society of Upper Canada, Special Lectures, p. 389 at pp. 403-4, where the learned author makes the following observations:

Does the vendor have any duty of disclosure in matters of quality and fitness which do not constitute defects of title?  Here we deal with the classical notion of caveat emptor as applied to the physical amenities and condition of the property unrelated to any outstanding claims of third parties or public authorities such as would impinge on the title. Absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug-infested or otherwise uninhabitable or deficient in expected amenities, unless he protects himself by contract terms. In contracts for the sale of goods, a purchaser is today protected not only by such express terms as may be stipulated therein but also by implied terms--for example, there is an implied condition of merchantability in case of a sale of goods by description and an implied condition of reasonable fitness for a particular purpose made known to the seller. Does this in any way hold true in the case of a sale of land?  To the extent to which implied obligations of the vendor are involved in contracts for the sale of land, to that extent is caveat emptor in its full rigour abated.

I do not propose to dwell on fraud, mistake or misrepresentation save to make a few observations about the way in which, if established, they relieve a purchaser from the binding effect of caveat emptor. Fraud can be a rather elastic conception, and there are cases which show a tendency to find fraud when there has been concealment by the vendor of latent defects. Rowley v. Isley, 1951 CanLII 244 (BC SC), [1951] 3 D.L.R. 766, a British Columbia decision entitling a purchaser to rescind (even after paying the price and taking possession) where there was a failure to disclose infestation by roaches, illustrates the proposition, and goes quite far in allowing rescission after the transaction had been closed. On the other hand, a latent defect of quality going to fitness for habitation and which is either unknown to the vendor or such as not to make him chargeable with concealment or reckless disregard of its truth or falsity will not support any claim of redress by the purchaser. He must find his protection in warranty.

(Emphasis added.)

It is to be observed that Coady, J., in the case of Rowley v. Isley et al., 1951 CanLII 244 (BC SC), [1951] 3 D.L.R. 766 at p. 767, 3 W.W.R. (N.S.) 173, found against the vendor in the following language:

The failure to disclose to the plaintiff, however, the true condition of the house, as to the infestation by cockroaches and to the prior fumigation, rendered necessary by reason of the prior excessive cockroach infestation, was, I think, a fraudulent misrepresentation arising from a suppression of the truth. This condition, under the circumstances, it was the agent's duty to disclose.

(Emphasis added.)

I am prepared to assume that, in an appropriate case, a vendor may be liable to a purchaser with respect to premises which are not new if he knows of a latent defect which renders the premises unfit for habitation. But, as is pointed out in the lecture above referred to, in such a case it is incumbent upon the purchaser to establish that the latent defect was known to the vendor, or that the circumstances were such that it could be said that the vendor was guilty of concealment or a reckless disregard of the truth or falsity of any representations made by him. It is to be observed that that is quite a different case than the one founded on the principle of M'Alister (or Donoghue) v. Stevenson, supra.

Similarly, I am prepared to assume that there is a duty on the vendor to disclose a latent defect which renders the premises dangerous in themselves, or that the circumstances are such as to disclose the likelihood of such danger, e.g., the premises being sold being subject to radioactivity. Again, however, under such circumstances the cause of action is not dependent on the principles enacted in M'Alister (or Donoghue) v. Stevenson.

[17]  In Ontario a vendor may be liable to the purchaser of a property which is not new if he knows of a latent defect which renders the premises unfit for habitation or dangerous in itself and does not disclose it to the purchaser: McGrath v. MacLean (1979), 1979 CanLII 1691 (ON CA), 22 O.R. (2d) 784 (C.A.); and Dennis v. Gray, 2011 ONSC 1567, 105 O.R. (3d) 546.

Sellers of homes often come under attack from the buyer following a sale whereas the buyer alleges that the seller failed to advise of a defect (eg. leaky basement with mold, asbestos, etc.).  Unfortunately, in these cases as in most legal matters, the burden of proof upon the Plaintiff (the suing buyer) is difficult to overcome especially the burden to prove that the seller had knowledge of the defect.  The requirement to prove that the seller was aware of the defect was well stated in the case of Crone v. Kilmer, 2013 CanLII 55833 where it was said that more than speculation or simply a "feeling" that the seller was aware of a defect is needed for the Plaintiff to successfully prove a case:

[12]  Kilmer may or may not have known that there was a problem with the furnace.  Unfortunately, the trial process does not allow me to go back in time and read her mind.  Rather, it requires me to make a finding of fact based upon credible evidence given at trial and the onus is on Crone and Cichewicz to persuade me that it is more likely than not that Kilmer knew of the problem.  In this case, while I fully understand why they are convinced that she knew, there was insufficient evidence to allow me to conclude that it is more likely than not that she did.  In particular, there was no direct evidence challenging Kilmer’s credibility and no facts proven that would be inconsistent with a lack of knowledge.  The reasons given by Crone for their “feeling” that she knew unfortunately (for them) amount to little more than speculation.

Duty Upon Seller to Refrain From Concealing a Patent Defect

Additionally, the doctrine of caveat emptor fails to apply in situations where the seller has actively taken steps to conceal a defect from discovery by buyer prior to, and at the time of, sale.  The caveat emptor doctrine also fails to apply where a material misrepresentation was made by the seller where but for the misrepresentation the buyer would have avoided dealings with the seller and avoided the transaction completely.  This rule applies even in the circumstances where an object was sold on an As Is basis as was decided in Mautner v. Metcalf2008 CanLII 3969 where it was stated that:

[6]  In summary, these are the extracted principles I intend to apply:

(a)  the vendor is not bound to call attention to patent defects; the rule is 'caveat emptor';

(b)  where there is active concealment of an otherwise patent defect, the general rule of ‘caveat emptor will not apply’;

(c)  if a vendor actively conceals a latent defect, the rule of caveat emptor no longer applies and the purchaser is entitled, at their option, to ask for a rescission of the contract or compensation for damages;

(d)  a vendor may be liable to a purchaser with respect to premises which are not new if he knows of a latent defect which renders the premises unfit for habitation.  But, as is pointed out in the lecture above referred to, in such a case it is incumbent upon the purchaser to establish that the latent defect was known to the vendor, or that the circumstances were such that it could be said that the vendor was guilty of concealment or a reckless disregard of the truth or falsity of any representations made by him; and

(e)  where there are no "clues" and no reasonable means of testing for defects that liability for actively concealing defects, whether patent or latent, actively not disclosing latent defects, or fraudulently misrepresenting facts relating to latent defects, remains with the seller, subject to the requirement with respect to active concealment or active non-disclosure that the same constitute a fraud on the purchaser the same as a fraudulent misrepresentation would.

The concealment exception to the caveat emptor principle was specifically stated as applicable to realty dealings by the Divisional Court within the case of Meaghan v. Bolahood, 2021 ONSC 4469 where it was said:

[5]  The principle of caveat emptor applies to the purchase of a house.  The buyer must satisfy herself of the condition of the house before the sale closes.  A problem she discovers after closing is her problem.  There are exceptions to this principle, however.  One exception is where there is a known material defect.  This the vendor may have to disclose.  The vendor may not conceal a material defect and hope that it remains undiscovered until after the sale closes.

General Damages
Compensation For Inconvenience

In addition to the cost of correcting the defect, or diminuition of value if the defect is unremediable or unreasonably remediable, courts now recognize that where inconvenience and annoyances as well as other distress occurs, an award of general damages may be available, even without medical evidence.  This availability of general damages, even without medical evidence, was explained within, among other cases, Wesley v. Geneau, 2020 ONSC 868, Bowman v. Martineau, 2019 ONSC 1468, and Kelly, et al v. Pires, et al, 2015 ONSC 2871, wherein each case it was respectively said:

[203]  I find the Wesleys’ use of their home (they moved there permanently in 2016) was limited during repairs and they incurred needless distress, inconvenience, and frustration associated with this loss and with the required repairs.

[204]  At trial, Mr. Wesley testified that the cost of repairs was paid from their retirement funds, altering their income, and affecting their ability to enjoy their retirement as planned.  The repair work, which proceeded between September 2015 (temporary shoring), and July 2017, meant a lot of noise, and heavy machinery on their property which affected their use and enjoyment.  Mr. Wesley could not use his boat.  As Mrs. Wesley testified, they lost 2 years.  Their family did not come up to visit as it was not enjoyable with all the construction outside and there was a time when scaffolding inside limited their access to parts of the interior of their home.

[205]  Mr. and Mrs. Wesley both testified as to the distress, inconvenience and frustration and loss of use of their home.  Their uncontroverted evidence was that for an extended period of time their home and property was a construction site.  I accept the credible evidence of both Mr. and Mrs. Wesley regarding their claims for general damages.  Their testimony was not overstated.  If anything, it was the opposite.  In the circumstances of this case, I award general damages to Mr. and Mrs. Wesley jointly in the amount of $5000.

[229]  Mr. Bowman claims general damages for the loss of use and enjoyment, as well as inconvenience and stress experienced as a result of Ms. Martineau’s professional negligence.  He also claims general damages for the inability to live in the home the Bowmans purchased.  The Bowman children continue to live in rented accommodation and Mr. Bowman testified he experiences substantial ongoing financial pressure.  Mr. Bowman has found himself not reducing his housing costs as initially intended.  Rather, his housing costs have increased with the burden of paying rent and mortgage payments.  In cross-examination, Mr. Bowman testified that he has not gone to a medical doctor for his stress.  Neither has he obtained any prescriptions.  He coped as best as he could.  In all of these circumstances, I find Mr. Bowman did suffer stress from the negligence of both Ms. Martineau, Re/Max and the Emonds.  Mr. Bowman and his family did suffer the loss of use and enjoyment, being unable to live in the house they purchased.  I find Mr. Bowman is entitled to general damages, which I assess in the amount of $5,000.

[60]   The plaintiffs claim general damages in the amount of $200,000.  In his submissions, Mr Ion suggested the more appropriate range for general damages would be between $30,000 and $50,000.

[61]   They did not call any medical evidence to support their claim that they suffered from the stressful situation in which they lived.  They called no supporting evidence to their claim that the living circumstances caused a strain on their marriage.

[62]   I have no doubt that the plaintiffs’ living circumstances created substantial stress and anxiety in their lives.  Their living conditions were unsafe for their children.  The children had to stay at their grandparent’s home for a period of time.  The family had to live in very small quarters upstairs while the remediation was taking place.  Ms.  Kelly was reasonably in constant fear that her children might open the door and be subjected to a serious fall as the deck had to be removed in order to put a proper drainage system in.  the parties lost the use and enjoyment of their4 property for an extended period.  However, without any substantiating evidence or professional opinion, quantifying the extent of their stress and anxiety for the purpose of determining appropriate damages is difficult.

[63]   Given my finding on liability and my findings related to the inconvenience, and stressful living situation, I set the general damages at $30,000.

Summary Comment

A seller of realty must disclose to a buyer the details of known latent defects that are dangerous and may make the premises unoccupiable or unfit for use.  A seller of realty must also refrain from knowingly concealing patent defects in such a way as to impair discovery by a diligent buyer.  If otherwise, a seller may be liable for actual damages suffered by a buyer for the cost of correcting the defects as well as general damages for inconvenience, distress, among other sufferings.

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