A recent case has confirmed that “caveat emptor” which is commonly known as “buyer beware” remains the rule in real estate transactions in Ontario. This rule in general terms means that a purchaser takes an existing property in the condition he or she finds it, absent fraud or misrepresentation.
In the 2017 case Lippa v. Colletta, the plaintiff bought a house and discovered that it had a leaky basement after taking possession. The plaintiff sued the vendors of the home on the basis that the leaking cracks in the foundation were latent defects, known to them, which they had an obligation to disclose to her.
The court held that caveat emptor continues to be the presumptive rule in real estate transactions and remains an effective defence for vendors with respect to both patent and latent defects, so long as there is no attempt at concealment. Caveat emptor ceases to be an effective defence in cases of fraud or misrepresentation. The court further held that there is generally no obligation on the part of a vendor to bring known, non-concealed defects to the attention of a purchaser (with the exception of latent defects that render the property unfit for habitation or that render the premises dangerous).
The court found that the vendors had no obligation to make the plaintiff aware of any cracks in the foundation walls in that this defect did not render the property unfit for habitation or dangerous. On the evidence presented, the court found that the plaintiff did not establish that the vendors actively concealed the cracks in the basement. Therefore, the court held that the rule of caveat emptor applied and the plaintiff’s claim against the vendors failed and was dismissed.
In that case, the plaintiff also made a claim against her home inspector on the basis of negligence and breach of contract for failing to report the cracks in the basement foundation. While the court found that the home inspection was conducted negligently and in breach of the inspection agreement, the court limited the damages awarded to $325, the cost of obtaining the report, due to an exclusion clause contained in the inspection agreement which purported to limit the liability of the home inspector. This decision demonstrates that it is important for a purchaser to carefully review the terms of a home inspection agreement before signing it.
With caveat emptor as the rule in real estate transactions, a purchaser must rely on contractual terms in a purchase agreement to protect him or her from undisclosed defects in a property. If you are purchasing a home, contact Daniel & Partners early in the process to ensure that you have an opportunity to understand the contract terms in your purchase agreement.
Blog post written by Associate Lawyer Robert Di Lallo.