Buying a home is the biggest purchase you will ever make. This applies not just in terms of the price but also in ensuring the property meets your expectations. When purchasing property, buyers want their new space to feel comfortable and safe. However, defects can sometimes remain hidden, appearing months after moving in.

These are known as latent defects, and they are common in real estate transactions. Understanding how these defects impact liability is key for both purchasers and vendors.

Defining Latent Defects

The universally-accepted definition of latent defects is that they are defects “which an ordinary purchaser would not be expected to unearth in a routine inspection”.[i]

In Costa v Wimalasekera, the Ontario Superior Court of Justice (“ONSC”) explained that the due diligence expected of a “prudent solicitor” is not what the courts expect of the ordinary purchaser.[ii] The ordinary purchaser is just that – an average person, without any additional qualifications or special knowledge, looking to buy real property.

The notion of the ordinary purchaser is inextricably linked to what constitutes a routine inspection. What would that ordinary purchaser do upon inspection of a home? Activities like opening up the drywall or digging around in the yard are certainly not included. Generally, a routine inspection is an examination of what is “readily observable”.[iii]

Any defect that is readily observable upon a routine inspection is known as a patent defect.

Liability for Repairing Defects

The law is clear that vendors are liable for latent defects of a property. Liability of vendors for latent defects is a well-established notion in Ontario law, dating back to no later than 1979 in the case of McGrath v. MacLean.

More recently, the ONSC explained in Vieira v. Dawson that damages for latent defects
will arise if the purchaser can establish one of the following:

1. That the vendor was aware of and concealed the defect so as to prevent discovery by
   the purchaser; or
2. Although he did not deliberately conceal the damage so as to prevent discovery by the
   purchaser, the defect was known to the vendor and was such that it rendered the property
   uninhabitable or dangerous or potentially dangerous.[iv]

The first scenario is self-evident: if a vendor intends to mask the problem or otherwise prevent its discovery, then they would be liable. The second scenario is somewhat trickier. Number two does not necessitate that the vendor knew something about the property was defective, but it does say that they ought to have known that some part of the property could potentially cause danger.

For example: section 8(1) of the Building Code Act requires individuals to obtain a permit in order to construct, demolish, or modify a building. Permits under the Building Code Act ensure compliance with minimum safety standards. So, if a vendor has done such work without a permit and does not inform the purchaser of this fact, the second scenario from Vieira v. Dawson has been satisfied because they have created a potentially dangerous situation.

If the purchaser can satisfy the court that the vendor behaved according to one of the above scenarios, then the vendor will be liable to pay damages. In cases of latent defects, the damages are “the cost of repair or replacement of the defect in such a way that the [purchaser] receives what [they] contracted for”.[v] Put another way, if a purchaser bargained for a property to be in good working order, then that purchaser should not be liable for paying out of pocket when they find out the property is not what they bargained for.

Importantly, if a vendor was in fact unaware of the defects such that they do not meet either of the above criteria, then they will not be liable to pay for repairs.

Conclusion

Buying a home really is the most significant transaction the average person will make in their lifetime. That is why it is crucial for vendors to do their part by repairing defects before they become a problem for purchasers, and also by informing purchasers of the property’s history of defects. On the other hand, purchasers should exercise caution when examining a home and should make sure to pose plenty of questions about a property to avoid future disputes.

This article was co-authored by articling student Rachel Weitz.

This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations

[i] Costa v Wimalasekera, 2012 ONSC 6056 (CanLII) at para 21, quoting Real Estate Law (3 ed) by Barry J Reiter et al, p 281.

[ii] Ibid at para 22.

[iii] Gallagher v Pettinger, 2003 CanLII 21844 (ON SC) at paras 38-40.

[iv] Vieira v Dawson, 2018 ONSC 413 (CanLII) at para 19.

[v] Ibid at para 32.