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For many years, buyers have generally borne the risk when purchasing property. In real estate, the principle of Caveat Emptor— “buyer beware”—applies. This means the buyer is responsible for checking the quality and suitability of the property before completing the purchase. However, the law has evolved to create a fairer approach, introducing exceptions that protect buyers in certain situations.
The Scenario
You’re excited about buying a house and finally moving from a condo to a bigger place. The home was built twelve years ago by a small builder in Alberta. One of its best features is the fully developed basement—a perfect spot to watch movies with family and friends.
A week after closing, after a long day at work, you and your family are enjoying a movie in the basement. It’s raining cats and dogs outside, but you feel safe and cozy inside. Suddenly, you notice water pooling on the floor. You quickly unplug the electronics, but the water keeps rising—soon it’s about ten centimeters deep.
You call an expert to investigate. The verdict: there’s a crack in the foundation in the basement’s storage room. The expert also notices that the drywall in that area was recently replaced and looks newer than the rest. After speaking with a colleague, the expert confirms that the sellers were aware of this crack but took no steps to fix it.
Repairing the foundation will be expensive. Frustrated and concerned, you decide to contact a lawyer to understand your options.
Patent vs. Latent Defects
The seller must disclose any material latent defects they are aware of. According to the Real Estate Purchase Contract, Material Latent Defect means a defect in the property that is not discoverable through a reasonable inspection and that affects the use or value of the property.
In the contract, the seller also represents and warrants that any known material latent defects have been disclosed in writing in the contract.
What Does “Material” Mean?
As indicated before, latent defect is considered material if it affects the use or value of the property. Recent case law suggests that this generally occurs when the defect causes a loss of use, occupation, or enjoyment of a significant part of the property, resulting in the loss of enjoyment of the property as a whole.
Examples from Case Law
Courts have found the following to be material latent defects:
Seller’s Obligation
Sellers are not required to disclose material latent defects they do not know about. However, in some cases, knowledge can be legally imputed to the seller. In the determination of liability for the seller, the Court will consider if the defect was:
Each case is fact-specific, and as such, you need to discuss the particularities of a case with a lawyer. Knowledge is difficult to prove but if for example, a seller renovates a bedroom before selling and a material latent defect is later found, the buyer may argue concealment.
Practical Tips
Litigation in Alberta is expensive and so far, no one has been sued for too much disclosure. Hence, if there is doubt as to whether you should disclose a defect or not, it makes sense to disclose that defect and to write it in the contract.
For Sellers: Disclose any defects that affect the property’s enjoyment. If a technician says your furnace needs replacing, don’t shop for a second opinion—replace it or negotiate the price and put it on the contract. If water enters into your property when it rains, fix the issue by a professional contractor or negotiate the price and put that issue in the contract.
For Buyers: Consider the property’s age and pay attention to the home inspector’s recommendations. While you may sue for damages, if the seller fails to disclose material latent defects, you might not be able to cancel the contract.
If you are selling a property and you have questions about your disclosure obligations, it is a good idea to speak with a lawyer to obtain proper legal advice. Our lawyers are ready to attend your legal inquires.