Buyers Must Beware #465

Oct 01, 2013

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Posted by
Brian Taylor
Bull Housser LLP

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A recent Provincial Court decision1 was an excellent example of how BC higher court judgments are applied to the factual problems that arise between buyers and sellers.

In February 2005, the defendant, Montpetit, purchased a fire-damaged house. He undertook extensive renovations and in February 2006, listed the renovated property for sale with Coast Realty. Montpetit signed a Property Disclosure Statement (PDS) which, by way of a line drawn through all of the various sections, made no disclosure about the property. Coast Realty and the listing REALTOR® acted as limited dual agents for the seller, as well as the claimants who bought the property.

The buyers' offer to purchase was made subject to inspection. The inspection report listed deficiencies, most of which were dealt with by the seller prior to closing, but also recommended that a crawlspace be further inspected; this was not done prior to closing. After the purchase, the buyers experienced flooding in the basement from the uninspected crawlspace and a second inspection uncovered additional problems.

The buyers sued the seller for failing to disclose the deficiencies, as well as the brokerage and REALTOR®, alleging that they knew or ought to have known about the deficiencies and the seller's misrepresentations.

The court analyzed the property deficiencies within the context of the caveat emptor ("buyer beware") doctrine, which necessitates that the buyer must "fend for himself, seeking protection by express warranty or by independent examination" and if the buyer fails to do so, then "he is without remedy either at law or in equity."2

An exception to this doctrine is a seller's requirement to disclose a property's latent defects which could not be discovered upon reasonable inspection by a qualified person. The court followed the BC Court of Appeal decision in Cardwell v. Perthen3 and concluded that as the deficiencies could have been discovered upon inspection, they were NOT latent defects and the buyers' failure to discover them left no recourse against the seller.

As against the brokerage and REALTOR®, the court found that they had a principal/agent relationship with, and a duty of care to, the buyers which was modified by the Limited Dual Agency Agreement which required them to disclose to the buyer "defects about the physical condition of the property" known to them.

The court found that they did not have any direct knowledge of the deficiencies and misrepresentations and nothing in a REALTOR®'s standard of care to a client set out in the BC Supreme Court decision of Brown v. Douglas4 suggested they should have known. They did not have a duty to warn a client of obvious risks (patent defects) and were not held to possess the skills of building inspectors.

The court also rejected the argument that the REALTOR® failed to verify the completeness of the PDS, concluding that it is only a "starting point" and that once a buyer obtained a home inspection then, "absent fraud or concealment, reliance shifts [from the PDS] to the home inspector."

The court dismissed all claims against the brokerage and REALTOR® and concluded that the buyers had "misconceived the nature of the duty of the brokerage and the REALTOR® as agents in the matter ... by viewing the brokerage and the REALTOR®'s duty as providing them a source of compensation for any breaches committed by the seller."

This case highlights a common dispute: the post-closing discovery by buyers of property defects. It once again emphasizes the strength of the caveat emptor doctrine and the limitations of the PDS. A buyer is responsible to discover all property defects which could be discovered upon a reasonable inspection by a qualified person. A buyer who chooses to purchase a used property without first having it inspected by a qualified person takes a significant risk and may have no recourse against the seller or REALTORS® involved.

  1. Potter and Paragallo v. Montpetit et al., 2013 BCPC 129.
  2. Fraser-Reid v. Reynolds, 1980 SCR 720.
  3. Cardwell v. Perthen, 2007 BCCA 313. See also Legally Speaking 415: Buyer Beware of Patent Defects and Legally Speaking 430: Defects, Disclosure and Caveat Emptor.
  4. Brown v. Douglas, 2010 BCSC 1059.

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