January 2016
PFD | Real estate

Hidden defects: The ABCs of liability

By Charlotte Deslauriers-Goulet

While the purchase of a new home often holds the promise of happy memories, a hidden defect can unfortunately mark the beginning of a series of disappointments and doubts than may lead a buyer to take the seller to court.

The seller of a property must guarantee to the purchaser that the premises are free of any hidden defects. Should a defect arise, the buyer may take action against the seller and possibly also against any previous sellers. Depending on the circumstances and conditions set out in the sales contract, a claim may seek the cancellation of the sale or a reduction in the selling price. In addition, in cases in which the seller was aware of the defect or could not have ignored it, he or she may be required to repair the consequences in addition to refunding the purchase price.

For an action against a seller to be allowed, the defect must meet four legal requirements:

1- The defect existed at the time of the sale. 2- The defect was not known to the buyer at the time of sale. 3- The defect is serious. 4- The defect was not apparent at the time of sale (latency).

While the first two conditions are based on established facts, the last two require subjective analysis.

With regards to the seriousness of the defect, a minor fault will not render the seller liable. This would be the case, for example, of a simple flaw with respect to current building standards or those in effect during construction if the defect does not result in any actual loss of use. The courts rely on several criteria to determine the seriousness of a defect, specifically those pertaining to the cost or extent of any work that may be required as well as to the decrease in the building's value and magnitude of the harms for the buyer.

With regards to the latency of the hidden defect, the law expressly states that a hidden defect is not one that can be "perceived by a prudent and diligent buyer without the need to resort to an expert." In this sense, theoretically, a buyer is not legally bound to retain the services of an expert when purchasing a building.

Still, it is strongly recommended that buyers call upon a home inspector before making a purchase, especially when there is evidence that could suggest the presence of a hidden defect or when the asking price seems high. In such cases, the courts tend to raise the level of caution required of the buyer. In fact, the Court of Appeal of Québec affirmed that when there is an indication that raises the suspicion of a potential hidden defect, a prudent and diligent buyer who does not call upon the services of an expert must use other satisfactory means to inspect the potential defect (St-Louis v. Morin, 2006 QCCA 1643). Should the buyer fail to do so, the defect may be deemed apparent and the buyer's action against the seller may be denied.

It is important to note that retaining the services of an inspector before making a purchase does not guarantee that there are no hidden defects in the building. A pre-purchase home inspector has only an obligation of means: the inspector is not required to detect every defect but must take reasonable means to identify flaws that are apparent. In this sense, prior to the purchase, the inspector simply takes the place of the buyer to carry out a general inspection, which is subject to the same standards as the buyer. The Court of Appeal recognized that the pre-purchase inspector is not an expert and, therefore, the inspection must be careful and serious though rather quick and not thorough. When there are no telltale signs, neither the buyer nor the inspector is required to tear down walls or dig around foundations (Marcoux v. Picard, 2008 QCCA 259).

That being said, a pre-purchase inspector has certain obligations and could incur his or her civil liability. This liability may be cumulative or subsidiary with regards to the seller's. These obligations include the general inspection of the building in accordance with accepted practices (art. 2100 CCQ), consistent with the standards of practice adopted by pre-purchase inspector associations. Furthermore, an inspector must provide a sufficiently specific report that is adapted to each case and which realistically considers the seriousness of any apparent signs of a potential hidden defect and, if necessary, refer the buyer to an expert for a more exhaustive inspection. In addition, should an inspector rely on the seller's representations without investigating or unduly assure the buyer, he or she may incur liability. In fact, the caselaw is replete with rulings on the liability of pre-purchase inspectors.

For more information, contact the real estate law group at Prévost Fortin D'Aoust. Our experts are available to guide you in your hidden defect claim.