HIDDEN DEFECTS AND THE WARRANTY OF QUALITY: WHAT YOU NEED TO KNOW AS BUYER, SELLER, INVESTOR OR BROKER

HIDDEN DEFECTS AND THE WARRANTY OF QUALITY: WHAT YOU NEED TO KNOW AS BUYER, SELLER, INVESTOR OR BROKER


Written by Jamie Benizri

Source: Legal Logik

This article comes from our partners Legal Logik, our dear partners who are also behind the Sutton Secur program. 

In our trainings for real estate brokers, we often tell the story of a TV commercial run by Realtor.

A couple is peacefully sleeping in their new home. All of a sudden the SWAT team bursts in, guns drawn, waking the couple and scaring them half to death. When it turns out to be a case of mistaken identity, one of the officers asks the couple straight out: “Didn’t your realtor tell you about this place?” to which the new homeowner responds,

“We didn’t use a realtor.”

The story always gets a few laughs, and besides the sudden clarity regarding the value of hiring a realtor, participants get the message about hidden defects: If this couple had known that the property they wanted to buy had criminal ties, would they have paid as much as they did or even purchased it at all? Probably not.

Hidden Defects and the Warranty of Quality

Buyers of property in Quebec are protected by what is called the Warranty of Quality. The Warranty of Quality is like a legal promise from the seller to the buyer that the property being sold is free of any undisclosed “defects”. This warranty applies to the property purchased and any extension of it, such as pool, chimney, deck, shed, and/or garage.

In practical terms, what this Warranty of Quality means is that in Quebec, when selling a property, the seller is bound by law to disclose to the buyer any latent (hidden) defect(s) in the property which might negatively impact its use or value. If the seller doesn’t do so and knowingly sells a property without disclosing defects of which he is aware, he can be held liable and obliged by the court to compensate the buyer.

What Is A Hidden Defect?

When you buy a property, you hope of course that you’ll be able to turn it into your home sweet home. The last thing you want is an unpleasant surprise… and that’s precisely what a hidden defect is.

The most common examples of hidden defects include:

  • Cracks in the foundation
  • Mould in the walls or ceiling (or anywhere that might not have been visible to the inspector)
  • A clogged drainage system
  • An infestation
  • Inadequate wiring, plumbing, heating or cooling
  • Leaks or drainage problems with the plumbing
  • Violent death or suicide having occurred in the property
  • Criminal activity at the property, or mob or gang ties

To be clear, the above examples are defects, but they’re not necessarily hidden or covered under the Warranty of Quality.

When Is A Hidden Defect A Hidden Defect?

If you buy a property and then discover one of the above defects, can you sue the seller and get money back or have the transaction cancelled altogether? Well, it depends. For the Warranty of Quality to apply, a defect must meet 4 criteria. It must be:

  • Pre-existing: It existed at the time of the transaction.
  • Hidden and not apparent: It is not obvious or easily visible and cannot be noticed by a simple inspection.
  • Detrimental: It affects the quality and value of the property and/or prevents the buyer from normal use or enjoyment of the property.
  • Unknown: The buyer does not know about the defect and could not have reasonably suspected its presence prior to the transaction.

So what is a hidden defect? A hidden defect is any flaw or defect in an immovable property resulting from inferior design, deterioration, or a construction mistake made prior to sale, whether intentional or not, and had the buyer known of the defect, he or she would not have bought the affected property or, if he had, would have paid significantly less.

Who’s Liable?

One of the stickiest issues that come up when hidden defects are uncovered is the question of responsibility. If you just discovered a cracked foundation in your newly purchased home, who’s liable? Is it the seller? Is it the building inspector you hired to inspect the property? Or is it the realtor who brokered the sale?

While real estate brokers do have legal obligations they must follow, in most cases they cannot be held responsible for hidden defects.

Building inspectors also have legal obligations, but their job is to perform a visual inspection to uncover apparent defects. They are not responsible for finding hidden defects, but are responsible for detecting visual signs that could indicate the presence of a hidden defect.

If the building inspector notices something that could be a sign of a hidden defect, he’ll recommend in the inspection report that further investigation be done by another professional, such as an electrician or plumber. It’s important to note that if a building inspector reports signs of what could be a hidden defect, the defect is no longer considered hidden because the buyer was alerted to the possibility of its existence before the purchase.

In most cases of hidden defects, it is the seller who is held responsible and against whom legal action is taken if the matter could not be settled amicably.

What If You Discover A Hidden Defect?

If you purchase a property and then discover a hidden defect that was not disclosed by the seller prior to the purchase, the law is often on your side. As result of the Warranty of Quality, you may have legal recourse to obtain one or more of the following:

  • A reduction in the price paid
  • Reimbursement of the cost of repairs done or that must be done to repair the defect(s)
  • Compensation for damages or inconveniences suffered from loss of enjoyment and use of the property
  • Exceptionally, cancellation of the purchase, return of the property to the seller and a reimbursement of the purchase price

In the case of a hidden defect, compensation isn’t granted automatically however. You’ll first need to prove your case to a judge. To cover your legal bases, there are number of steps you should follow immediately upon discovering a hidden defect. To help you out, we’ve put together a free 9 step guide, What to Do in the Case of a Hidden Defect.

Have you uncovered a hidden defect ?

The law in Quebec is specific on what a buyer must do if a hidden defect is uncovered after the purchase of a property. To ensure the warranty of quality will apply and to increase the chances of finding a solution to the matter that is favorable to you, follow this guide. Get it here.