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Legal Ease: Beware of latent defects when listing your home for sale

We are told that March is the best time to list our house for sale.

If you are one of those putting your house on the market, here are some things to think about. Once you have accepted an offer to purchase you will have to provide the notary your deed of purchase, the location certificate and any other documents you have pertaining to your property. Be sure to keep all such documents available.

If you are selling a condo in a building with more than 10 units, information pertaining to the budget, management and facilities of the building itself must also be provided.

Keep in mind that all mortgages or liens registered against your property will have to be paid at the time of the sale as will any municipal or school tax owing. The real estate agent’s fee will also be deducted from the sale price. These deductions may leave you with a net amount significantly less than the sale price paid by the purchaser.

In Quebec, a vendor can find himself responsible for “latent defects” even many months after the sale of his property and the new owners have moved in. These defects are defined by the law as those which cannot be perceived by a prudent buyer. The “buyer beware” situation found in other provinces does not exist in Quebec. Even if you were not aware of such defects, a purchaser can cancel the sale or obtain a reduction of the purchase price if they are discovered at a later date. If you were aware of defects or could not have been unaware of them, you may be obliged to return the money obtained from the buyer and also pay for any damages he may have incurred.

Here are some examples of what can happen and has happened to others:

The vendor had purchased the house from a succession without warranty and had never lived there. He also was selling without warranty. When he listed the house for sale, he was aware of a suicide pact that had taken place in the house a few years earlier but failed to divulge that fact to the purchasers, even though he’d been told by real estate agents that he had an obligation to do so.

The purchasers, aged 24 and 28 years old, hoped to start a family in the house. The wife learned of the suicide pact from a neighbour while visiting the house prior to moving in. She said she would not have purchased had she known of the suicide. The couple was unable to afford to purchase another house and lived with parents for a year until they could recover their money.

The judge found the property represented misfortune, death and sadness whereas the young couple wanted a place of joy and happiness. He annulled the sale and awarded damages.

Even though there was no latent defect in the property itself there had been no real consent to the purchase. It was not the property that was defective but the consent to purchase it. Silence can constitute an act of fault and there is an obligation to inform. Good faith must prevail at the time of entering into an agreement and when carrying out any obligations under that agreement.

In another case, the court held that a vendor must only reveal such information as may alter the value of a property and a death, murder or suicide is not such a factor. Such events may influence a purchaser’s consent to purchase but they don’t change the value of the property itself. The judge added that the situation would be different if the purchaser had told the vendor of any fears and concerns that might prevent his enjoyment of the property.

In this particular case, two years following the purchase of a house, the buyers learned from a neighbour that the son of a former owner had died in the house of an overdose. Because there had been no violent death or suicide the judge held that the occurrence of a death had not been considered as material for the vendor. The purchaser had not asked any questions about such an incident and the vendor had not committed any act of fault by not mentioning it.

Facts that might subjectively affect the value of a property for a particular purchaser need not be divulged.

Another recent case concerned the existence of vermiculite, a discontinued insulation material, in the walls of a recently purchased house. In his judgment the judge considered what constitutes a “latent defect.”

First of all, it must be serious. It must so diminish the utility or value of the property that the purchaser would not have purchased or would not have paid so high a price had he known of it. It must to some extent prevent or affect the normal use for which it is intended. It must also be latent or hidden, that is, not discernible by a prudent and diligent purchaser in spite of a reasonable examination of the object in question. A defect is not necessarily hidden just because the purchaser did not see it if it could have been seen by a conscientious purchaser.

Although the Civil Code does not specify that an expert should be hired, it is prudent to do so. Every case is different.

In this one the judge decided that use of the material was permitted and acceptable at the time the house had been built and the existence of the vermiculite was due to the age of the house and could not be considered a “latent defect.” Moreover it had not been shown to be a serious risk to the health of the occupants.

When the vendor knows or should know of a defect and hides the problem, tries to minimize it or provides incomplete information, the sale can be annulled or the sale price reduced. The vendor may also be ordered to pay moral and/or punitive damages in addition to material damages.

It pays to be safe. Have your property checked for latent defects before you sell. That way you can advise prospective purchasers or have the needed repairs done yourself. And if there is any information related to the property that might subjectively affect a prospective purchaser, reveal it. Chances of future litigation with regard to the sale will be minimized.

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One Comment

  1. James Bouchard says:

    You cannot really inspect for latent defects. By nature they are hidden and not seen on a visual inspection. A home inspection is a good idea, though, since it may turn up things that are visible to a knowledgeable person that you can then declare ( or get fixed before selling ) and avoid a problem. Often latent defects are found when people start doing renovation work and remove things like paneling, plaster, flooring, siding or open up walls. Obviously a home inspector is not going to do this unless he has other reason to suspect something.

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