Latent defects, also commonly known as hidden defects is an issue in real estate transactions that is rearing its ugly head more and more often in real estate transactions, as the inventory of homes for sale in the most desirable neighborhoods is aging its an issue that all home sellers and buyers should be aware of.
It can have a huge impact on the time and money it takes to buy, sell and own a property. Unfortunately there is a lot of misinformation and myths surrounding latent defects. If you’re a homebuyer or home seller, find out what hidden defects are and how to handle them if they do come up.
While this should not be considered legal advice, I think it’s important to understand what are and what aren’t hidden/latent defects.
Under the Civil Code of Quebec, in order for a defect to be considered latent, it must:
Unless specified otherwise in the promise to purchase, all real estate in Quebec is sold with what we call a legal warranty from the seller. This warranty is given at the time of sale and basically protects the buyer against these defects. The buyer can seek financial compensation from the seller should he discover a defect in the home that meets the criteria above.
What many buyers and sellers believe is that hidden defects are specifically defects that the seller consciously hid from the buyer for his own financial gain. Perhaps there was a foundation crack that the seller knew about but could not be seen behind the gyprock and he consciously didn’t notify the buyer.
“…latent defects do include those that the seller knew about and didn’t disclose, they also include all the defects the seller did not know about…
While latent defects do include those that the seller knew about and didn’t disclose, they also include all the defects that the seller did not know about but were discovered by the buyer after purchasing (and meet the criteria of the Civil Code). In other words, you have sold your home and the buyer finds out while redoing his basement that there is a significant foundation issue after tearing down the walls, even if you knew nothing about it, as a seller, you can be held financially responsible.
In the case where a home is sold without the legal warranty from the seller, the seller can still be held responsible for the latent defect had he known about it and failed to notify the buyer before the sale. Also professional sellers (developers, etc.) cannot sell their properties without the legal warranty.
Many sellers believe that because most buyers will have a home inspection before purchasing, the responsibility for finding defects will fall on the inspector’s shoulders. While the inspector could be held responsible in a court of law for defects that he found but failed to disclose, it is important to know that most home inspections are visual and non-destructive in nature. Meaning the inspector makes it clear that he will not be opening up walls and tearing down ceilings in order to find what could be hidden behind them. In these cases generally the seller bears the burden of warranting against the latent defects to the buyer.
All real estate brokers in Quebec are required to have their seller clients fill out what is called a Declarations by the Seller of the Immovable form. This legal form will ask the seller a series of questions about their knowledge of the home, its repairs, defects, renovations and history. It is an important part of the selling process because it offers some protection to the seller in terms of notifying the buyer of all known defects in the home so that the buyer can determine whether they will indeed purchase and what price they wish to pay with a good understanding of what they are buying. The buyer cannot then claim that the seller did not disclose a particular defect that they knew about.
A competent home inspector will also know what to look for (beyond what a typical buyer is aware of) and can advise the buyer if they should seek further evaluations by a specialist (electrician, plumber, architect, engineer, etc.) before taking a decision on the purchase.
When a buyer discovers what they believe to be a hidden defect, they have 6 months post-discovery to notify the seller in writing and allow the seller time to determine if the defect was hidden. Any repairs that may be necessary can be undertaken by the buyer if they are urgent. If they are not, the seller must be allowed to evaluate before work can proceed.
Should the buyer and seller not agree on a satisfactory solution within a prescribed deadline, the buyer can seek legal remedies in order to be compensated financially from the seller or inspector, or can attempt to annul the sale if the defect is sufficiently serious.
“…the buyer can pursue the last seller, and the last seller can pursue the previous seller he purchased the home from. And on and on.”
It is important to know that a latent defect that can be accurately identified to have been present (while meeting all the criteria in the Civil Code) at the time the seller purchased the home, even the previous owners can be held financially responsible. Meaning the buyer can pursue the last seller, and the last seller can pursue the previous seller he purchased the home from. And on and on.
As a new homeowner if you discover a hidden defect, it is important to document it accurately (bring in an expert if needed), and to notify the seller in writing quickly, allowing them the time to also assess the situation. If you cannot find a satisfactory solution between buyer and seller speak to a lawyer who can advise you on how to proceed.
I’m Andrew Mitchell, Chartered Real Estate Broker, Owner and Agency Executive Officer of Mitchell Group Real Estate Agency. I consult and work for buyers, sellers and investors in Vaudreuil-Soulanges, the West Island and the Greater Montreal area. My goal is to provide you with useful, straightforward insights and relevant real estate market updates. Contact me with any questions. Follow me on Facebook.