Buying or Selling a Resale Home? What You Need to Know About the Disclosure of Defects

June 5th, 2019 by Robert Adourian and Steven Huryn

You have recently closed the deal on what you thought was your perfect dream home. After moving in you discover that the house is in need of many more significant repairs than you expected. Had you known about some of the issues, you would not have offered the price that you did, or perhaps you would not have made an offer on that particular property at all.

Did the seller have an obligation to disclose the defects to you? If the seller failed to disclose, do you have any recourse against them? The answer depends on the nature of the defect, and whether or not it is something you could have discovered on your own with reasonable efforts.

 

The principle of caveat emptor, or “let the buyer beware,” applies to patent defects. For example, roof shingles in need of repair, aging HVAC equipment and water damage in the basement are items that a prospective buyer should be able to discover before an Agreement of Purchase and Sale becomes firm. The seller has no obligation to disclose these types of defects. The buyer is responsible for being duly diligent and performing any necessary inspections of the property.

 

On the other hand, the seller must not actively attempt to conceal defects, for example by installing paneling over water damage (see, for example, McQueen v Kelly, [1999] OJ No 2481 (Sup Ct J)).  The seller must also alert the buyer to any material latent defects that the seller is aware of. A material latent defect is a defect that (1) is not easily discoverable by a buyer in the timeframe of a home purchase transaction and (2) renders a property uninhabitable, dangerous or potentially dangerous (see, for example, Krawchuk v Scherbak, 2011 ONCA 352). Such a defect may not even be discoverable through a normal professional home inspection.

 

There are disclosure rules that apply to Realtors as well. A seller’s agent that is aware of material latent defects must disclose them to the buyer or buyer’s agent. The duties of a buyer’s agent toward a buyer are more comprehensive. According to the Real Estate and Business Brokers Act (SO 2002, c 30, Schedule C) Code of Ethics (O Reg 580/05) at s21:

 

  1. (1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.

 

A material fact is defined in Section 1 of the Code of Ethics as “a fact that would affect a reasonable person’s decision to acquire or dispose of [an] interest [in real property].” Therefore, a buyer’s agent should alert a prospective buyer client to anything that the agent is aware of that may affect the client’s decision to purchase the property.

 

If you have further questions about the disclosure of defects in real property transactions or for experienced assistance with both commercial and residential real estate, please contact:

Louis Gasbarre at 416-446-3318 or by email at louis.gasbarre@devrylaw.ca or

Robert Adourian at 416-446-3303 or by email at robert.adourian@devrylaw.ca


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