Caveat Emptor in Real Estate Transactions

As lawyers practicing in the area of real estate litigation, we often find ourselves advising clients who have purchased a home, only to discover after moving in that the home is full of many problems and defects that they weren’t made aware of.  Faced with expensive repairs and renovations, disappointed home buyers will often turn to the seller of the property for these costs.  This article deals with the types of circumstances in which a vendor of real estate can be held responsible for defects discovered by the seller after purchase.

Caveat emptor is the principle governing the liability of a vendor for defects in property they have sold.  Caveat emptor means “buyer beware”; generally, unless the purchaser is protected by a provision in the contract, the purchaser will bear responsibility for any defects in the property.

The vendor has no duty to disclose any “patent defects” that they are aware of.  A patent defect is the type of defect that a home inspector would be able to find on a reasonable inspection.  It is there to be found, and so the buyer is responsible.  There are also what are called “latent defects”.  These are defects that a home inspector would not be able to find.  A vendor does not have any obligation to disclose a “latent defect” to a purchaser unless it falls within one of the exceptions set out below.

As set out in the case of Cardwell v. Perthen, 2007 BCCA 313 [ http://canlii.ca/t/1rq9f ], there are four exceptions to the rule of Caveat Emptor,

  1. Where the vendor fraudulently misrepresents or conceals;
  2. Where the vendor knows of a latent defect rendering the house unfit for habitation;
  3. Where the vendor is reckless as to the truth or falsity of statements relating to the fitness of the house for habitation;
  4. Where the vendor has breached his or her duty to disclose a latent defect that renders the premises dangerous.

In short, the purchaser of real property bears all risk of patent defects, unless they are fraudulently misrepresented or concealed, and all latent defects that the vendor is unaware of.  A purchaser can only sue the vendor for latent defects if the vendor was aware of the defect, and the defect rendered the property dangerous or unfit for human habitation.

That said, a vendor can be held responsible if they negligently or fraudulently misrepresent the property.  The standard residential real estate contract in British Columbia will usually contain a provision limiting the representations that can be relied on to those that are found in a “Property Disclosure Statement”.  However, many of the questions on the typical Property Disclosure Statement are subjective in nature, and only require the vendor to state whether or not they are aware of a given problem.  In Arsenault v. Pedersen, 1996 CanLII 3519 (BC SC), [ http://canlii.ca/t/1f2b4 ]  at para 12, Justice Boyle found that answers given on a PDS are simply a statement as to the vendors awareness of potential defects:

The disclosure statement does not call upon a vendor to warrant a certain state of affairs.  It requires the vendor to say no more than that he or she is or is not aware of problems.

This means that in most cases, in order to prove negligent misrepresentation, the seller must prove that the vendor was aware of the defect at the time they completed the Property Disclosure Statement.

In summary, although the law places most of the burden on the purchaser with respect to defects in the property, the vendor can be held responsible in some cases for misrepresentations made regarding the property.  As every case is unique, it is important that you consult a lawyer to discuss the facts specific to your case, and whether you may have such a claim.