Disclosure and latent defects in Sale Agreements
On the issue of disclosure and latent defects, an Ontario Small Claims Court judge recently awarded a ruling in favor of a buyer who alleged that the seller had not disclosed a defect that had repeatedly occurred over many years prior to the seller selling the property.
The buyer purchased a three-storey 40-year-old apartment building in Durham Region in April 2011 from the seller. In January 2014, tenants reported substantial deterioration of in-suite walls. Water had entered into the plaster walls and swelled like boils.
The buyer also found several areas of uncharacteristic white stains on the external brick walls. As water moves through brick, it can pick up salt that is not bound as part of the brick. The salty water that evaporates at the brick’s surface leaves behind a white flakey-looking deposit called efflorescence.
Specialists determined that the cause was condensation forming between the walls, a problem common with buildings built before vapor barriers were mandated in the building code. The buyer then learned from a long-term tenant that the wall problems were a regularly recurring event. The tenant swore an affidavit that was admitted into evidence in the trial.
The Agreement of Purchase and Sale included a clause, “The seller states that, to the best of the seller’s knowledge and belief, there is no known damage to the basement, roof, or elsewhere in or on the property caused by water seepage or flooding.”
The Ontario Limitations Act (2002) generally states caveat emptor – “buyer beware.” A buyer can only file a claim of defect within two years from the date of purchase, with generally no recourse after that. However, the act differentiates between two types of defects:
A “patent” defect is one that can be discovered by observation (“obviousness”) or inspection using generally accepted industry-standard practices.
A “latent” defect is one that is present but is not obvious, visible, apparent or actualized and can’t be discovered by industry-standard inspection practices.
A seller has no obligation to disclose a defect that is obvious, such as a clearly-visible water-soaked crack in a foundation wall. The buyer must also be able to prove that the seller knew about the latent defect. If the defect is proved to have existed prior to selling the property but the seller didn’t know about it (perhaps the defect didn’t appear while the seller owned the property), then the seller can’t be held liable, even innocently.
In the trial discussed above, the tenant’s affidavit strengthened the buyer’s case. The judge determined the seller knew, or ought to have known, that there was recurring water damage caused by an untreated defect in the property. The judge stated he “sympathized with the defendant” but the defendant clearly breached the “no water damage” clause in the sale agreement.
