Canada’s larger cities have experienced competitive housing markets for years, and Canada’s smaller markets have recently experienced similar levels of competitiveness following COVID-19. An article published by CBC in early 2022 stated that tens of thousands of people moved out of larger urban centres such as Toronto and Montreal for more rural areas. As a result, people in smaller markets have begun to purchase homes in a way that would help better secure their chances of making a successful offer, including foregoing inspections on the property before purchasing. Of course, one of the risks of not carrying out a home inspection before purchasing a home is that there may be issues not obvious to the purchases that could impact the value or habitability of the property. 

The Provincial Court of Appeal was recently tasked with addressing an issue where the purchasers of a condominium opted out of an inspection but later uncovered serious issues with the condo. Did their opt-out mean that any issues could not be addressed?

Condo is purchased unconditionally

The plaintiff involved purchased a condo which closed on July 15, 2021, after making an unconditional offer without a home inspection. The court did not specify why the offer was made but did say that it could have been because of a competitive housing market and multiple offers.  

Despite there not being a home inspection performed, the contract for the purchase did include the following terms:

3.1 (f) the ‘seller will disclose Material Latent Defects.  Material Latent Defects means a defect in the property that is not discoverable through a reasonable inspection and that will affect the use or value of the property.

3.1(g) The seller and buyer are each responsible for completing their own due diligence and will assume all risks if they do not.

6.1 The seller represents and warrants to the buyer that

(f) known Material Latent Defects, if any, had been disclosed in writing in this contract.

Purchaser claims breach of contract

Following the completed purchase of the unit, the purchaser claimed that there were two significant breaches of the contract. The first was that the gas fireplace could not be operated safely because parts needed to repair it were no longer available. In addition, she claimed that leaks in a downstairs bathroom had caused extensive damage to the home. 

The court noted that property purchase is governed by a doctrine known as caveat emptor, similar to the phrase “let the buyer beware.” In terms of home purchasing, this means that without an implied warranty of fitness for human habitation upon purchasing a home, buyers may be unable to recover damages. However, the court also pointed out that the defence of caveat emptor is not without limitation and that it ceases to be an effective defence in cases of fraud or misrepresentation. 

The court then stated that the defendant’s liability depends largely upon determining whether the problem could be considered a “latent” or “patent” defect. The former are problems which would not have been revealed through an inspection or ordinary vigilance on the part of the purchaser, while a patent defect could be discoverable. When it comes to patent defects, the law states that there is a “fairly high” onus on a purchaser to inspect and discover such defects, even if the defect is not visible to a layperson but would be noticed by a specialist or professional (such as a home inspector). 

Case law in Alberta found that a seller was liable for a latent defect in a basement even though the seller was unaware of its existence but knew that a flood had previously brought water in the basement. Mould was later discovered, which the seller did not know about. The purchaser had planned to use the basement for living space, and mould harms people’s health. In that case, the court found that the sellers should have been aware that mould could have been in the basement.

Another case, this time in Ontario, held that water problems experienced two weeks after a property was purchased also constituted a latent defect after the purchases showed visible signs of water damage before the closing. 

Were the problems with the condo latent or patent?

The court first addressed the issue of water in the basement. The defendant told the plaintiff that there had been a small leak in the drywall, but a search did not identify the source of the leak and that no leak had occurred following the search. Eventually, the plaintiffs hired a plumber who found a “substantial plug of hair” in the shower drain, leading to a backup and water damage. It cost more than $11,000 to fix. 

In this case, the court found that the home sellers had been upfront about the signs indicating there was a leak and had taken measures to try to address it. The court also found that had the purchaser hired an inspector to look into it; they could have discovered the source of the problem before the closing. This meant the sellers were not responsible for the water damage. 

In turning to the fireplace, the court found that the seller was aware that the fireplace was not safely operational and that various companies had presented ways to address the issues with the fireplace, with some suggestions from these companies being that the fireplace should be replaced at the cost of just over $23,000.

The court determined the sellers should have disclosed that and ordered that the parties split the costs associated with replacing the fireplace, leaving the sellers with a bill for $11,642.97.

HMC Lawyers help Calgarians on construction law and condominium law matters

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