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Who is liable for the defects in your new house?

Imagine you have recently purchased a new home and now you find that the foundation is crumbling and the basement is flooded. Or it is infested with termites and bedbugs. Or, apparently, the seller has hastily painted over a growth of black mold. You are going to have to sink thousands of dollars into the house just to make it livable. You feel cheated and want to know if there is any way to hold the seller legally responsible?

When buying a house, the principle of “caveat emptor” – or “buyer beware” – is supreme. However, this principle is only absolute when we are dealing with patent defects. Patent defects are problems that are ascertainable through a reasonable inspection of the house. If a problem is in plain sight, then the purchaser cannot complain about it after the deal is closed or expect the courts to do anything about it. As long as the seller did not make fraudulent claims, it will be difficult to hold him responsible for defects that are in plain view. So, when it comes to obvious problems, silence is golden as far as the seller is concerned. This is why a professional home inspection is important before completing a purchase.

The situation is somewhat different with latent defects, or those defects which are not easily ascertained through an inspection. In these cases, merely remaining silent is likely not enough for the seller to absolve himself of problems that materialize after the closing date. In fact, when a seller conceals a latent defect or merely remains silent about it, the purchaser may have legal recourse to damages and legal costs.

This longstanding principle of real estate law is supplemented by a clause contained in the standard form purchase agreement that is typically used by Alberta Real Estate Association (AREA) realtors. Clause 6.1 (f) & (g) of that form provides that “known Material Latent Defects, if any have been disclosed in writing in this contract" and "any government and local authority notices, regarding the Property, and lack of permits for any development on the Property, known to the seller have been disclosed in writing in this contract."

Some may question the usefulness of this clause given that in real estate transactions, the conditions and warranties of the purchase contract are extinguished by the conveyancing document. This is true. However the standard form purchase agreement also contains Clause 6.2 (b) which provides that “the representations and warranties in this contract will survive completion and may be enforced after the Completion Day as long as any legal action is commenced within the time limits set by the Limitations Act (Alberta).” That is, the conditions in the purchase agreement are contractually preserved and enforceable.

This brings us to the question of what “unfit for habitation” means. The Provincial Court of Alberta has followed the Ontario courts in extending the meaning to include “any loss of use, occupation or enjoyment of any meaningful portion of the premises or residence that results in the loss of the enjoyment of the residence as a whole.”  What this means is that it is not necessary that it be entirely impossible to live in the house. A basement apartment rendered unlivable would likely result in the court deeming the entire house “unfit for habitation.” Being unable to use specific rooms for their intended purposes could also qualify. In any case, before you write off your misfortune as bad luck, get the professional opinion of a lawyer.

Article written by Jame Young as an articling student with Kobewka & Associates


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