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Claim for Latent Defects: Reminders of the Buyer’s Obligation of Prudence, Misleading Representations and Disclosure of Defects

By Caroline Cassagnabère, from our Insurance Law Practice Group

March 14, 2022 — On January 12, 2022, in Crooks c. Nguyen, 2022 QCCS 55, the Superior Court awarded a $115,000 reduction of the purchase price and granted $14,600 in moral damages to the buyers of a house affected by several defects. This case reminds us of several important points on the seller’s warranty of quality.

The claim relates to a single-family dwelling built in 1967, which the buyers acquired in the fall of 2015. In the weeks following the purchase, the buyers began renovation work, during which numerous problems affecting the integrity of the house were discovered: water infiltration, contamination of the basement, non-compliant electrical and plumbing systems, and structural problems. That prompted the buyer to file a claim for latent defects against the sellers.

Among the elements that led the judge to condemn the sellers, we shall focus on the following.

Buyers’ Obligation of Prudence

The behavior of the buyers is analyzed in deciding whether the defects are apparent as they are bound by an obligation of prudence when they examine the property prior to the sale. The judge reminds us that, although a pre-purchase inspection is not always required, clues of the existence of a defect should lead a careful buyer to ask an expert to conduct a more thorough examination (Leroux c. Gravano, 2016 QCCA 79, par 44, 46; Paulin c. Gauthier,  2014 QCCA 1897, par 4).

However, in this case, not only did the buyers conduct a pre-purchase inspection, but they also retained the services of a general contractor to assess the cost of the remedial work. Neither the inspector nor the contractor noticed the defects. The inspector did notice cracks in the basement, but his only recommendations were to seal them and monitor their development. He also recommended that the French drain be inspected, which the buyers did. Nothing in the inspection report could lead the buyers to suspect the presence of defects of the magnitude that they found.

Still, the sellers argued that the mere mention of cracks, in the inspection report, suggested that there might be a water infiltration problem that the buyers should have taken into account. They also maintained that the contractor should have noticed that the electrical system was not compliant.

The judge rejected those arguments and ruled that the buyers had been cautious when they inspected the house.

He also points out that the inspector’s mandate should not be confused with the buyers’ obligation of prudence. In other words, buyers cannot be blamed for the fact that the professionals that they mandated had not detected the defects.

Sellers’ misrepresentations

The sellers were aware of the water infiltration problems. Not only did they fail to disclose the problem to the buyers, but they seem to have attempted to conceal them. The judgment mentions several camouflage attempts and tactics by the sellers, who knowingly stated to the buyers that there were never any infiltration problems in the house whereas they were aware of numerous problems that had happened over the years.

The judge applied the theory of “defects juridically hidden“: when a seller omits to disclose certain facts or makes misrepresentations that reassure the buyer, even if the defect is apparent, it will be legally considered as latent. Therefore, even if there had been visible traces of a water infiltration problem, the sellers’ fraudulent tactics would have prevented a finding that the defect was apparent to the buyers.

In addition to this, because of those misrepresentations, the judge awarded $14,600 in moral damages to the buyers.

Notice of the defects

Finally, the decision is a reminder of the scope of a buyer’s obligation to report defects 1739 CCQ. The notice is meant to not only allow a seller to verify the existence and scope of the defects and the damages, but also to allow him the possibility to correct the defect or to control the costs of the repair.

In this case, a total of four written notices had been sent to the sellers along with the discovery of new defects, as required by law. However, the first notice raised a specific consideration from the judge.

As soon as they discovered the water infiltrations in the basement, in September 2015, the buyers sent the sellers the first written notice giving them seven days to come and see the scope and severity of the defect. However, the sellers were abroad, and the buyers refused to wait for their return. They proceeded to repair the cracks and the French drain barely ten days after sending the notice. The buyers did not mention any outstanding emergency other than the expert they had hired recommended that the repair be done before winter. Neither did they incur additional prejudice by waiting for the sellers to be back.

The judge ruled that by carrying out the repair work before allowing the sellers to inspect the defects, the buyers deprived them of their right to verify the cause of the water infiltrations. Doing so, they breached their obligation to provide a notice.

Still, the judge concluded that, given the nature of the defect, the water infiltrations predated the sale, and that the sellers — who were aware of the infiltrations prior to the sale — had already been able to determine the scope and cost of the infiltrations.

As a result, the buyers’ hastiness in carrying out the repairs after this first notice had no impact on their claim. However, in other circumstances, their impetuosity could have been costly: the judge reminded us that failure to give the sellers proper notice of a defect can compromise the whole claim for latent defects.