Jan 01, 2008

Buyer Beware of Patent Defects #415

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By Brian Taylor,
Norton Rose Fulbright LLP

A seller has a duty to disclose material latent defects, but not patent defects, and the doctrine of caveat emptor (buyer beware) continues to apply to real estate transactions in BC.

A seller spent four years renovating their residence, including constructing several retaining walls, relocating the kitchen, adding a bathroom and bar, moving an interior wall, adding a beam to the dining room and enclosing an outdoor patio. Upon completion of the renovations, the buyers agreed to purchase the property, which they viewed twice. The Contract of Purchase and Sale was an all-cash offer, not made subject to the buyers completing an inspection.

Before moving in, the buyers discovered numerous problems including leaking, the presence of mould and deficiencies in the retaining walls. They hired an engineering firm to inspect the property. The resulting report strongly condemned the construction quality of practically the entire residence, every outbuilding and the retaining walls. It painted a picture of a flawed residence with massive leaking or potential for significant water ingress, mould, structural defects and settlement concerns. The buyers never moved in and sold the property on an “as is, where is” basis at a loss of more than $700,000.

In considering the buyers’ claim against the seller, the trial judge distinguished between patent defects—for which the buyers were not compensated—and latent defects—for which they were. The judge articulated the following test for distinguishing between the two:

Patent defects are those that can be discovered by conducting a reasonable inspection and making reasonable inquiries about the property . . . In general, there is a fairly high onus on the purchaser to inspect and discover patent defects. This means that a defect which might not be observable on a casual inspection may nonetheless be patent if it would have been discoverable upon a reasonable inspection by a qualified person. In some cases, it necessitates a purchaser retaining the appropriate experts to inspect the property.(1)

The trial judge concluded some problems arising from the construction of the subfloors and a small leak in the living room were latent defects, which couldn’t have been discovered by a reasonable inspection. The seller was found to have known about them and, as such, was bound to disclose. The remaining problems were found to be patent defects, which would have been discoverable upon inspection by a qualified person. The court awarded the buyers less than $40,000 for the seller’s failure to disclose the material latent defects.

The buyers appealed and argued that the trial judge shouldn’t have imposed the standard of “an inspection by a qualified professional.” The BC Court of Appeal dismissed the appeal and stated:

. . . a purchaser who has no knowledge of house construction may not recognize that he or she has observed evidence of defects or deficiencies. In that case, the purchaser’s obligation is to make reasonable inquiries of someone who is capable of providing the necessary information and answers. A purchaser who does not see defects that are obvious, visible, and readily observable, or does not understand the implications of what he or she sees, cannot impose the responsibility—and liability—on the vendor to bring those things to his or her attention.(2)

The principle of caveat emptor requires buyers to satisfy themselves as to the condition of the property they acquire. The only exception is the requirement that sellers disclose material latent defects of which they are aware. Buyers can best protect themselves by engaging qualified professionals to inspect and advise them on the condition of the property. 

 1. Cardwell et al v. Perthen et al, 2006 BCSC 333.
 2. Cardwell v. Perthen, 2007 BCCA 313.

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By Brian Taylor,
Norton Rose Fulbright LLP

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