Oct 01, 1994

Implied Warranty - Purchase of an Incomplete New Residence #226

Oct 01, 1994

Implied Warranty - Purchase of an Incomplete New Residence #226

By Gerry Neely
B.A., LL.B.

When a buyer contracts to purchase a residence before construction of it is complete, the law implies a warranty in favour of the buyer that the work will be done in a good and workmanlike manner, the materials will be suitable and the building will be fit for habitation.

The warranty will apply if the buyer is able to establish that the residence was incomplete at the time of purchase, the warranty wasn't excluded by the terms of the contract and that further work was to be done by the seller to complete it. The implied warranty does not apply to work done before the contract was signed, if that work was visible upon inspection.1


Builders who now limit or do not provide for deficiency repair warranties will be taking a closer look at the warranty statements required in the disclosure statement, or any they may insert in the Contract of Purchase and Sale, as a result of a B.C. Court of Appeal decision which contains a lengthy examination of when a new residence is complete. An action for the cost of repair of water damage was brought against the builder four years after the sale of a five unit strata development. The contract for the sale of the first unit was dated September 16th, the building inspector issued an occupancy permit on November 7th, and between then and December 20th the four remaining units were sold. All units were occupied by the end of the following January, and in February the builder received complaints of rain water seeping through the stucco walls into units. Over the next three years the builder made unsuccessful attempts to solve the problem, and gave up.

In the fourth year the strata corporation hired engineers who correctly concluded that caulking and the application of sealant was the solution to the problem. When the strata corporation sued to recover the cost of the work, the builder's first defense was that the building was complete when these sales took place.

The court rejected the notion that a building inspector, or a builder, could determine when completion occurred and said further that completion and not substantial completion was the standard. The court concluded that a new residence will not be considered to be complete until the deficiencies, which one can expect to find following occupation and exposure to the elements, have been corrected.

The builder's second defense was that the implied warranty was excluded by the terms of the contract and the warranty in the disclosure statement. Paragraph six of the Contract of Purchase and Sale states that the agreement contains no warranties other than those contained in the contract. The disclosure statement, under the heading "construction warranty", stated that there was no warranty in respect of the development.

This argument was rejected because the attempt to either exclude the implied warranty, or substitute for it a warranty in different terms, was neither clear nor clearly brought to the attention of the buyer.

The builder could have excluded the implied warranty if it had stated in the disclosure statement that the buyer would be responsible for any work required to complete the building, or to correct defects, and that the builder did not warrant the premises to be fit for habitation.

Since this might repel prospective purchasers, the judge acknowledged that a builder who was prepared to complete construction and correct deficiencies could limit the life of the warranty to cover only those breaches disclosed within a year, a period covering reasonable use and exposure to the elements.2

  1. Liddell v. Van-City Electric Ltd., 91 B.C.L.R. (2) 331.
  2. The Owners, Strata Plan NW 2294 v. Oak Tree Construction Inc., B.C.C.A., #CA014677, Vancouver Registry.

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