Every used residential property will have some kind of issue or defect – this is to be expected as a property ages, and is one of the risks any Buyer takes in purchasing a used residence from a private owner. From the perspective of the Seller, it can often be tempting to fail to disclose issues with a property, as it may lead to losing a deal, or not getting the price the Seller is expecting. Non-disclosure of defects can carry significant risk, however, and it is advisable to err on the side of caution.
The standard Alberta Real Estate Association contract for residential properties, which is used for the vast majority of transactions in Alberta, contains the following clause at paragraph 3.1(f):
“the seller will disclose known Material Latent Defects. Material Latent Defect means a defect in the Property that is not discoverable through a reasonable inspection and that will affect the use or value of the Property”
This is reflective of the general common law regarding real estate transactions.
The term “Caveat Emptor” or “Buyer Beware” applies, and it is up to the Buyer to ensure they conduct their own due diligence and proper inspection of any property before they complete a purchase. The Seller is under no obligation to point out defects to a Buyer that are otherwise obviously plain to see. This could include items such as damage to countertops, wear on carpet and flooring, gaps or repairs needed to windows, and other items that are visually available to be inspected.
However, there could be major issues with the property of which the Seller may be aware, but the Buyer cannot discover. This could include issues with plumbing, water damage or leaks, and structural deficiencies which cannot be determined without tearing open walls or otherwise damaging the property, which would not be part of a “reasonable inspection”. This could also include issues with appliances, which on first glance seem fine, but in actual extended use have defects. Pursuant to the standard contract, and at common law, the Seller is required to disclose any such issues to the Buyer.
This requirement to disclose only applies to issues with the property of which the Seller has actual knowledge. It is quite common for an issue to arise after possession, of which the Seller had no idea. So liability for defects, only extends to those problems with a property, that the Seller knew were there, which the Buyer could not discover for themselves, and the Seller failed to disclose to the Buyer. You are also not required to disclose prior issues that have been resolved. If a broken bathtub led to a major water leak and damage, but has since been repaired and totally rectified, the Seller is not require to disclose this to a Buyer, as it is fixed and therefore is no longer a defect.
Failure to disclose one of these “Material Latent Defects” can result in a lawsuit and liability, both at common law and for breach of the contract with the Buyer. In order to avoid the headache and significant cost of a lawsuit, best practise for a Seller is to consider the issues with the property, and ask the following questions:
- Is the defect obvious to see? If so, it does not need to be formally disclosed. If the defect is not obvious, then;
- Is the defect something serious with the property? An issue with the wiring on a light fixture that just needs tightening and would cost very little, if anything to fix, would not be considered something that could affect the value of the property. Meanwhile an ongoing water leak or issue with the foundation, could lead to significant cost, and should be disclosed. Put yourself in the Buyer’s shoes – if you were purchasing the house, is it something you would definitely want to be aware of? If so, then chances are it should be disclosed.
If a Seller is unclear about their liabilities and requirements to disclose a particular issue, a conversation with your Realtor® or your lawyer would be advisable.
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A Partner at Beaumont Church LLP in Calgary, Dan Hawkwood comes from a long line of farmers and ranchers in the Calgary area and brings the experience of his rural upbringing to his practice.
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