(no, that is not an april fool’s joke.)
The real estate market has fluctuated in recent years between very hot and much less active. Every year in Quebec, there are still thousands of transactions whether for single-family dwellings, duplexes, triplexes, multi-unit buildings, or condominiums.
In each case, the seller of a property may not see the end of his involvement with the property just because he signs the deed of sale at the notary’s office and then moves out or hands the keys over to somebody else.
Under Quebec law, every seller of real estate is presumed to warrant that the property he is selling is, at the time of the sale, free of latent defects which render it unfit for the use for which it was intended or which so diminishes its usefulness that the buyer would not have bought it or paid so high a price if the buyer had been aware of those defects.
This does not mean that the seller is liable for all defects. The seller is not liable for any defect that could be apparent to a prudent and diligent buyer. Furthermore, if the seller informs the buyer of any defect of which he was aware, then the seller cannot be responsible for those defects that he had disclosed to the buyer.
Furthermore, certain things that may, at first glance, appear to be latent defects, are not in fact latent defects and the seller will not be responsible for them. So, for example, if a property was built 100 years ago using outmoded construction techniques and today must be renovated or repaired with new techniques and materials, the buyer cannot claim that the property suffers from a latent defect. The immovable that was properly built using the proper techniques at the time it was built does not suffer from a latent defect. If anything, it suffers from obsolescence, which is not a latent defect. Another example could be that a property needs to have its French drain replaced. If the French drain was installed 50 years ago and functioned beyond the normal expected life span of a French drain (say, between 25 and 35 years) the fact that the French drain would no longer function might be considered latent defect, but the concept of depreciation would be applied. Since the depreciation in this case could very well be 100%, then the buyer would not be entitled to expect the seller to repair the alleged defect and in essence give him a brand new French drain.
However, where there exist latent defects, there are essentially three broad possibilities for a seller:
a) If the seller sells with the usual legal warranty and later on there appear latent defects which existed at the time that he sold, but of which he was not aware, he can be held to compensate the buyer for an amount which will, in most cases, be the equivalent of the repair price of the latent defect;
b) If, in addition to the existence of a latent defect, the seller was aware of the defect and did not disclose it to the buyer, and if the buyer can prove that the seller was aware of the latent defect, then the buyer can claim not only the equivalent of the repair costs for the latent defect but also any consequential damages. So, for example, if the latent defect in question was a fissure in the foundation, then the buyer could claim the costs of repairing the fissure. If, in addition, water enters the home and damages the basement floor, then, if the seller was aware of the latent defect but did not inform the buyer, the seller could also be held to repay the costs of the damaged floor;
c) It is also possible in your sales contract to sell a property without legal warranty at the buyer’s own risk from a seller who is not a professional seller. In this way, even if the seller was aware of defects, he could not be held liable to do repairs for any such latent defect that would be discovered by the buyer at a later date. You should also be aware that banks and other finance companies which foreclose on hypothecs (mortgages) are held by law to sell properties in this manner, that is, at the risk of the buyer, so that if a buyer purchases a property that was foreclosed by the bank, then he has no remedy for latent defects. This is perfectly logical, as the bank’s only role was to lend money. Nobody from the bank lived in the property nor did any detailed inspection or inventory of possible defects. When you buy a foreclosed property from a bank, you may get a much better price, but you are accepting all the risks of any defects that might exist.
From the buyer’s point of view, it is very important to decide how you wish to purchase a property and to build in contingencies for possible latent defects that you may discover in the future. It is very well to consider that you can sue the seller, but if in future the seller goes bankrupt, then the buyer may not have an effective remedy to try to recover the costs of repairing latent defects.
Furthermore, the seller must decide how he wishes to proceed. He should be able to get a higher price for his property by selling with the legal warranty. Down the road, however, his liability remains a possibility if, at some later date, his purchaser discovers latent defects. To limit his liability, he should always disclose any latent defects of which he was aware. He should never presume that the buyer would be unable to prove that he was aware of latent defects.
He may also wish to consider selling without warranty, at the buyer’s own risk. This is bound to reduce the purchase price and thus the amount he will net on the property, but it may give him peace of mind in knowing that he may be protected from lawsuits in the future.
If you have any questions regarding latent defects following the sale or the purchase of an immovable property, do not hesitate to consult with a lawyer or a notary.
Franco Tamburro, Attorney-at-Law
Alepin Gauthier Avocats Inc.
This text contains legal information of a general nature and should not replace legal advice with a lawyer or notary who will take into account the particularities of your situation.