Buying or Selling: How to Avoid Litigation Related to Hidden Defects

By Emily R. Erhardt

 1. Obligations of Parties/ Factors Considered by the Courts

Saskatchewan courts have noted that the long-applied principle of caveat emptor, the doctrine holding that purchasers buy at their own risk[1], is the starting point in the law regarding the sale of land.[2] This places an onus on the purchaser of a property to conduct reasonable inspections in order to identify defects.

However, there are exceptions to this doctrine, including if the seller either misrepresented the existence or extent of a defect or acted to conceal a patent defect, meaning a defect which can be discovered by conducting a reasonable inspection and making reasonable inquiries about the property.[3]

The seller’s act of concealment must be such as to turn the defect from a patent one to a latent one,[4] i.e. a defect which a routine home inspection wouldn’t readily reveal.

There is typically a high onus on the buyer to inspect and discover patent defects, which involves conducting a “reasonable inspection by a qualified person.[5] Although a seller does not have a duty to show the buyer any patent defects, the seller may be liable for concealing latent defects or making negligent misrepresentations about latent defects.

2. Ensuring Compliance with Obligations

 i. Sellers/ Vendors

 As mentioned, sellers must not misrepresent or conceal defects in a property. Concealment has been found to include wilful blindness of defects.[6] An example of this may be if you had knowledge of cracking in the basement walls but refused to remove drywall for fear of being proven correct.

A seller may also be held liable in the following situations:

  • Where they know of a latent defect rendering a house unfit for habitation;
  • Where they are reckless as to the truth or falsity of statements relating to the fitness of the house for habitation;
  • Where they breach their duty to disclose a latent defect that renders the premises dangerous.[7]

To avoid liability, sellers should be honest in their dealings and take appropriate measures to ensure that the property is safe and that any potentially dangerous defects have been disclosed.

 ii. Purchasers

In order to take reasonable steps to identify defects in a property, it is recommended that a potential purchaser obtain a home inspection by a qualified individual. It would also be prudent to obtain a disclosure statement from the seller, which would identify issues including defects known to the seller.

It is also important to note that where a buyer relies on his or her own inspections (or those of people he has hired for such purpose) to decide whether to complete a land purchase, he cannot later claim to have relied on the seller.[8]

Before assuming that a seller has concealed or negligently misrepresented certain aspects of a property, a purchaser should consider whether or not they can establish that the latent defect was known to the seller, or whether it can be proven that the seller was guilty of concealment or a reckless disregard of the truth or falsity of any representations made.

3. The Court’s Assessment of Damages (rectifying the undisclosed issues)

 Many claims for remedying defects are dismissed because purchasers are unable to lead evidence or establish that the seller was aware of defects associated with a property. Cases wherein purchasers are able to establish knowledge and concealment of defects often give rise to awards for damages. In determining an appropriate amount of damages, courts consider the amount required to remedy the defect. For example, in Paton v. Little [2003 SKQB 43], the purchasers of a home were awarded damages after it was determined that the seller knew and concealed that the foundation of the home had to be largely replaced. After obtaining a report from a contractor, it was determined that it would cost $60,000.00 to repair the foundation. The purchasers were permitted to enter judgment for $60,000.00.

Similarly, in Reeves v. Taylor [2013 MBQB 125], the purchaser of a home was awarded $18,758.72 in damages for costs to repair his home after the seller was found to have made several misrepresentations on a condition statement. The purchaser led an abundance of evidence establishing that the seller had made representations in relation to the stability of the foundation and status of the heating system which he knew were false. The purchaser was also found to have been induced to make the offer to purchase on the basis of the seller’s representations.

It is important to note that the court’s objective in this context is to make the purchaser whole, or put them in the position that they would have been in but for the misrepresentations of the seller. To receive damages, a purchaser must have suffered a detriment or incurred actual costs flowing from the misrepresentations of the seller. The writer is unaware of cases wherein the courts have ordered damages above and beyond costs for repairs associated with a seller’s misrepresentations.

 4. Conclusion

As a seller, it is important to fully and honestly disclose all known defects about a property upon listing it for sale. Conversely, purchasers must take reasonable steps to identify defects, including requesting a disclosure statement and obtaining an inspection of the property. If a purchaser is considering making a claim, he or she should ensure that they have enough evidence to establish that the seller knowingly concealed defects associated with the purchased property. If you have questions associated with this evidentiary threshold, or are seeking advice regarding a potential claim, we encourage you to contact us and would be happy to refer you to one of our real estate or litigation specialists.

September 2020

Disclaimer:  This article contains general information only as of the indicated date.  It relates to Saskatchewan, Canada and may not be applicable in your jurisdiction.  It does not constitute legal advice to you and no solicitor client relationship will be established by reading this article.  Specific legal advice should be obtained by the reader on any topics discussed above from a lawyer entitled to practise law in your jurisdiction.

© Copyright 2020 Olive Waller Zinkhan & Waller LLP. All rights reserved. No part of this publication may be transmitted or reproduced without the written permission of the copyright holder.

[1] Garner, Bryan A., Black’s Law Dictionary (4th Ed) pg 102 “caveat emptor”.

[2] Britt v. Klimczak, 2010 SKQB 407 at para 41.

[3] 1348623 Alberta Ltd. v. Choubal, [2016 SKQB 129] at para 185, citing Cardwell v. Perthen [2006 BCSC 333] at para 122.

[4] Rose and Whitefly v. Overs, [2008 SKPC 63] at para 33.

[5] 44601 B.C. Ltd. v. Ashcroft (Village), [1998] B.C.J. No. 1964(S.C.); Bernstein v. James Dobney & Associates, 2003 BCSC 9856.

[6] 1348623 Alberta Ltd. v. Choubal [2016 SKQB] 129 at para 223.

[7] Ibid at para 183.

[8] Stann v. Lukan [2007 SKQB 366] at paragraph 93.

Whether you are a seasoned homebuyer or in the process of purchasing your first home, it can be a stressful experience. Having a lawyer assist you with the home buying process can ease a great deal of that stress. On a basic level a lawyer will guide you through a real estate transaction with neat checklists and arrange for the land to be transferred to the buyer. However, there are many other important tasks the lawyer assists with in a real estate transaction. Read on to learn more.

1.  Due Diligence Searches

A lawyer will conduct a series of due diligence searches for you. These serve a variety of purposes, but generally ensure that you are aware of what exactly you are buying, that there are no unknown interests on the property and that each party pays their respective costs.

One such search is search of the Land Titles Registry. This search will reveal if there are any unexpected parties with a claim against the property. Additionally, this will reveal the amount of the mortgage that the current owner’s lender has secured against the land, which will need to be paid out in the course of the transaction.

Another search the lawyer will perform is for municipal taxes on the property. Conducting this search allows your lawyer to ensure that there are no arrears in taxes on the property accrued by the seller. Having this information also allows your lawyer to calculate the taxes due on closing. This will ensure that you, as the buyer, are not paying for taxes on the property accrued prior to closing on the sale.

2.  Review Contracts

Lawyer may not become involved until after the agreement for sale has been completed and conditions are removed. At this point financing may already be in place and the sale is ready to move ahead. Your lawyer will receive all required pieces of information, such as the address of the property, the names of the parties, purchase price and possession date. This enables the lawyer to start working on the file.

The lawyer will review the contracts and ensure that all conditions are completed and will ensure that all necessary aspects of the sale are accounted for. The lawyer will also review the offer and confirm what exactly it is you are purchasing. For example, they will ensure you understand what appliances are included in the sale of the home, whether there are any rented appliances which need to be contracted for and if there are any moveables, such as outdoor storage sheds, that are not included in the terms of the sale.

3.  Secure you against fraud

Lawyers are able to give and accept trust conditions. A trust condition is a promise undertaken by a lawyer, which, if accepted, binds the lawyer personally to ensure that this promise is followed through on. It is important to note that only a lawyer can give trust conditions to another lawyer. Having a lawyer on both sides of a transaction ensures that both parties follow through with the sale as planned. Both the buyer’s and seller’s lawyers will give and undertake trust conditions in a transaction. For example, the seller’s lawyer will be undertake to transfer the title into the name of the buyer and pay out any current mortgage on the property, upon receiving funds. The buyer’s lawyer will undertake to forward the mortgage funds as soon as they have access to them. Buying a property without a lawyer can leave you vulnerable to being defrauded. You do not want to find yourself in the position of having forwarded funds to a seller, if there is no trust condition in place binding them to transfer the land to you in return.

4.  Advise on title insurance

Your lawyer can answer any questions and advise you on the benefits of title insurance and real property reports, or if they are required in a transaction. Title insurance is an alternative to ordering a real property report. A real property report will tell you where your property lines are and if there are any easements or encroachments on the property. Ordering a real property report allows a buyer to know exactly what they are purchasing and if there are any contractual issues to be dealt with prior to furthering the transaction. Ordering a real property report can be quite costly and in some circumstances arranging for title insurance can be an appropriate, and less expensive, alternative to doing so. Title insurance covers specific loss on damage that results from certain defects to the title or ownership of the property.

Sometimes a lender will require that you obtain title insurance, and your lawyer can advise you if this is the case. Title insurance, depending on your policy, can protect you from financial losses that may occur as a result of dealing with unexpected easements or encroachments. It can also protect you if you discover that a structure on the property is in violation of a municipal bylaw, after the closing of the sale.

5.  Ensure you have title after transaction closes

After the closing of the transaction, your lawyer will provide you with a copy of the title to your new property. Any interests against the land registered against the land on behalf of the seller will usually have been dealt with by this point, yet may still appear on title for a short period of time. Your lawyer will advise you as to what these interests are, why they are still there, and provide you with an updated title once those interests have been discharged. This title should be free and clear of any registered interests against the land at the time of the transfer. After the sale, your lender, if one was involved, will have its mortgage registered on the title.

If you have any questions about the role of a lawyer in a real estate transaction or require assistance in an upcoming property purchase, contact us today.