Litigation

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.