In a real estate transaction, the purchaser's and seller's respective rights and obligations are set out in the contract for the sale of the property. However, despite the terms of the contract, a seller must usually disclose certain defects in relation to the land.
There are two types of defects in this context; patent defects and latent defects.
- A patent defect is discoverable upon a normal inspection of the property and/or upon the making of reasonable inquiries. An example of a patent defect is an uneven floor.
- A latent defect is:
- not discoverable by a normal inspection and/or by making reasonable inquiries;
- renders the property dangerous and/or unfit for habitation; and
- is known by the vendor.
Examples of a latent defect include radioactive contamination or a buried leaky oil tank. The failure by a vendor to disclose a latent defect will typically allow the purchaser to rescind an agreement of purchase and sale and/or sue the vendor for damages depending upon when the purchaser discovers the latent defect.
Apart from a latent defect (and subject to any terms in the contract), the purchaser takes a property as is, and the seller is not liable for any defects. This is legal doctrine known as caveat emptor or "buyer beware".
Whether something is a latent defect is determined on an objective basis. However, it is not always clear what constitutes a latent defect. There have been a number of cases brought by purchasers in relation to the sale of land in which certain things occurred or were alleged to have occurred at a property which the purchaser has claimed to be a latent defect.
Here are some examples:
In the Québec case of Knight c. Dionne, 2006 QCCQ 1260, the vendor of a residential property failed to disclose to the purchaser that his son had committed suicide in the property ten years prior. The purchaser brought an action for damages on the basis that the suicide should have been disclosed under certain articles of the Civil Code of Québec.
The court dismissed the action. Absent specific inquiries about a particular incident, there is no requirement for a seller to disclose the occurrence of a suicide. The court states: "A death, suicide, or even a murder in a house cannot be considered to be something the seller is obliged to disclose to the buyer, just as there is no obligation to disclose domestic violence, trespasses, births, marriages, baptisms, or other life events, whether happy or sad, that may have occurred there."
In Wang v Shao, 2018 BCSC 377, Shao and Wang entered into an agreement of purchase and sale for a property in the Shaughnessy neighbourhood of Vancouver. Wang, the vendor, agreed to sell a luxury residential property to Shao, the purchaser, for over $6 million. The agreement of purchase and sale was entered into on September 3, 2009 with a closing date of November 17, 2009. Approximately two years prior, Wang's son-in-law, who resided at the property, was murdered at or near the front gates of the property. The son-in-law was alleged to have been the head of the "Big Circle Boys"; a Chinese gang. Prior to closing, Shao learned of the murder and refused to close the deal.
Wang sued Shao for forfeiture of the deposit and for damages. Shao advanced two arguments in her defence: first, the murder at the property was a latent defect which Wang was obliged to disclose; and second, Wang fraudulently advised of the reason she was selling the property. During negotiations, Shao was told that the reason Wang was selling the property was because her granddaughter had switched schools. This was not fully accurate, as the murder at the property was also a reason why Wang was selling the property.
The trial judge found that the murder at the property was not a latent defect, and Wang was therefore under no obligation to disclose it. However, the trial judge found that the failure to mention the murder when an inquiry was made as to why the property was being sold amounted to fraudulent misrepresentation. The agreement was therefore rescinded, and Shao was allowed out of the agreement. Wang appealed.
The British Columbia Court of Appeal (2019 BCCA 130) reversed the trial judge and ruled that a vendor is not required to provide every personal reason for selling a property when asked by a purchaser. On that basis, Shao breached the agreement by refusing to close and was liable to Wang for damages.
The case of 1784773 Ont. Inc. v K-W Labour Association et al., 2013 ONSC 5401 concerned a claim by the purchaser of a commercial property in Kitchener, Ontario. After the deal had closed, a director of the seller was quoted in a local newspaper as saying (facetiously) that the subject property was haunted. The purchaser commenced an action claiming that the vendor failed to disclose a latent defect; namely a murder or death at the property.
The claim was summarily dismissed. There was no evidence that the property was unfit for its intended purpose or dangerous, and the court notes that there is no basis to require the vendor of a commercial building to advise a purchaser that a person has died in a building, how the person died, or of a rumour that a building may be haunted. The court also notes that there was no evidence as to how the purchaser might prove the existence of a ghost.
In general, Canadian courts have showed reluctance to expand what constitutes a latent defect beyond an objective standard by which the subject property is made dangerous and/or unfit for habitation.
Take Away for Purchasers
Purchasers who wish to better protect themselves should carefully consider what sorts of occurrences or incidents they find undesirable regarding a prospective property. They should make inquiries of the vendor and negotiate terms to provide as much protection as possible to meet their specific concerns and preferences.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.