I am often asked by sellers to advise how much (or how little) information they must provide to potential buyers. It’s never an easy answer.
Although the time-honoured saying “buyer beware”’ still holds, in law the seller has a legal obligation to disclose what are considered “latent” defects in the property that are related to certain physical conditions or amenities. These latent defects cover two categories: defects that render the property unfit for habitation; and defects that make the property inherently dangerous.
But applying this conceptual legal obligation to the real world can be difficult, especially when it’s applied to unique facts. Here’s a sampling of some interesting decisions from across Canada.
In Sevidal v Chopra, the seller had failed to disclose the existence of radioactive material that was discovered prior to the closing date. At the time the agreement was signed, the seller was aware that neighbouring properties were contaminated, but had no proof that his own was also affected until just prior to closing. The court held in the buyer’s favour, finding that the seller had fraudulently concealed the hazard.
In contrast, a case called Godin v. Jenovac featured buyers who were astonished to learn after closing that their dream home was located next to what was formerly a garbage dump, a fact they confirmed with the seller. Their suit against the seller failed. Although the seller would have had a duty to discuss the proximity to the former dump if it had been an actual health hazard, the mere fact that it might affect property values (and not the homeowners’ health) did not give rise to such a duty.
In McGrath v. McLean, the buyer was unsuccessful in suing a seller who had failed to disclose the history of landslides on the property. The court ruled that the buyer had failed to establish that they were caused by a defect in the land itself, rather than due to the activities of the neighbours.
In Summach v. Allen, the buyer had agreed to purchase beachfront property but then refused to close after finding out there was a nude beach next door. (This had not been immediately evident because the agreement to purchase had been reached in November, when there was no one on the beach.) The court found that the presence of nearby nudists may or may not be a defect; it would depend on the buyer. The test was therefore too subjective to impose a disclosure obligation on sellers in these (admittedly unusual) circumstances.
In Knight v. Dionne, the buyer wanted to rescind the deal because the seller failed to disclose that there had been a suicide on the property – by the seller’s own son. The court found that in light of the reality that there are “happy, unhappy and sometimes even tragic”’ events that occur in everyone’s life, these events would not have an impact on the intrinsic value of a house in which they occurred unless the buyer could prove otherwise.
Convicts as neighbours
In an interesting case, Dennis v. Gray, the court was asked to determine whether a family with young children should be allowed to go ahead with their damages claim against the seller who failed to tell them one of the neighbours had been convicted of child pornography offences. Although the matter eventually settled out-of-court, it is an intriguing glimpse into how far a claim against a seller might conceivably go in terms of allegations of non-disclosure.
Even allegations that a house is haunted can give rise to legal questions around a duty to disclose. In one case, the seller had been quoted in a local newspaper saying that the property was haunted, even though he admitted he had never seen a ghost, did not believe in them, and that any such comments on his part were never intended to be serious.
Still, the buyer sued on the basis that the seller had failed to disclose that the property was haunted. Both trial and appeal courts dismissed the case, finding that the buyer would not be able to prove the existence of the ghosts that he relied on to claim there was a ”defect” in the property he had purchased.
As these cases show, when it comes to determining what is or is not a latent defect, there are some “grey area” outcomes that are hard to predict. This is why it’s important to consult with a lawyer prior to listing a property for sale. It’s also wise to do so whether you are the buyer, the seller or the agent representing the seller – long before the ink is dry on the agreement of purchase and sale.