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Real Estate

REAL ESTATE: Latent & Patent Defects when purchasing a home. Need a home inspection?

Latent defects in the eyes of the law applicable at the time when administering the sale of a real estate property (land, buildings and fixtures or chattels), are faults or shortcomings in the property not ordinarily found even though the inspection was reasonably thorough. For instance, there could be a disused underground fuel tank in the property, its filling line, vent, etc. removed or gone. It would be very difficult to locate the tank without digging up the soil or unless the seller volunteered the information. Perhaps, for this reason there is an inspection clause in the agreement offering the buyer the opportunity to inspect the property more than once before closing the sale.  Another instance of a latent defect is the UFFI clause or a warranty against the use of Urea Formaldehyde for insulation in the property.  Such a clause or warranty can also be regarded as an example of abundant caution or due diligence, because UFFI would not be visible unless the wall is demolished or the wood paneling torn down. Continuing with the example of the underground tank, in the event of a voluntary disclosure by the seller, the buyer’s lawyer has to ask for registration details of the tank so as to enable her/his client to get heating oil from the distributor. If the tank is abandoned or unserviceable, the buyer’s lawyer is to ask for its removal and restoration of the soil contaminated by any oil leakage. It is thus not uncommon to find the term “latent defect” often used in guarantee clauses in a sales contract enabling the buyer to recover damages from the seller if defects are found in the property after the sale. In that event, the seller would be required to pay for repairs of any such damages as a result of latent defects discovered after closing.
Caveat Emptor: “Buyer Beware

It means let the buyer beware, and insurance companies, particularly those dealing in health insurance, often repudiate claims by citing its opposite; the obligation of good faith in a business transaction. For instance, the insured might have stated in the proposal form that he suffered from gall stones. His subsequent development of colon cancer and  insurance claim for the cost of treatment thereof may be turned down on the plea that he did not act in good faith, rather than the insurance company conducting a cancer test. In other words, he suppressed the information that he was already afflicted with colon cancer while insuring himself.

A parallel of this can be drawn if the seller in a real estate transaction did not on his own mention the aforesaid underground fuel tank to the buyer, and left it to the buyer to discover it. If the seller knew all along, the buyer may have a case. Actually, the general understanding is that the seller for his own best interest disclose all discoverable and relevant details. If, however, the seller can prove that he really did not know about the fuel tank, that should have been discovered by the buyer, then he is not liable to pay for the rectification of what is known as a patent defect. A patent defect is an ordinarily discoverable defect. Likewise, it is for the buyer to find out all that is relevant or to engage someone who can do so for him by inspecting the property carefully and asking questions whenever there is any doubt.

It is, however, important to stress that not all defects can be found by inspection so if you’re buying a property, you may consider buying structural defects insurance. There are instances when destructive testing is necessary to detect certain deficiencies. An instance of this is a fire resisting wall of certain time duration necessary in obtaining certain fire or property insurance. Such a wall has to be of solid construction, and not of hollow bricks. On a visual inspection this will not be apparent, unless specifically disclosed or a brick removed from the wall.

Generally, there is no recourse for a buyer to receive compensation for latent defects, unless it is specifically mentioned in the agreement, or the seller maliciously or negligently hid or disguised the defect from being ordinarily discoverable. In regards to patent defects, if it can be proved that a reasonably competent inspection would have exposed the fault, the buyer has very little chance of receiving a favourable award. It is for this reason, the buyer should get the property inspected by a qualified home inspector before finalizing the deal.

There are instances when the seller has willfully obstructed inspection of the property by the buyer’s agent or deliberately lied about certain problems. In these instances the buyer is certain to be compensated. The exception is the situation when it is proved that the buyer knew or ought to have known about the deficiency, but still decided to go ahead with the purchase.

Proper Inspection

It is quite difficult to state what a proper inspection is, but one carried out by a specialized home inspector is likely to take care of all eventualities. However, latent defects are regarded as deficiencies which remain undetected, and may under certain conditions receive compensation. The patent defect, apparently has to be suppressed by the seller, in order to be eligible for some monetary benefit. It is also probable that in exceptional instances, the authorities with a view to lessen the high cost of a patent defect will define it as a latent one and give a beneficial award based on the facts of the entire case. That being said, the Buyer Beware principle still supersedes; however, there are instances where a buyer may have a case even though she or he was not able to discover what should have been discoverable, but yet the defect is so extremely detrimental that the seller should have pointed it out in either case.

As the City of Toronto ages, the need to ensure that your next real estate property purchase is inspected by qualified and regulated authorities is of most importance.  What seems to be the biggest growing problem is that there is no regulatory regime over home inspectors and the home inspection industry.  Contact the lawyers at Levy Zavet PC to advise you on how best to search and discover all the issues of your potential real estate property purchase.  Our list of qualified and licensed engineers in every field including electrical, plumbing and building are just a few of the benefits our clients have access to when considering investing in their most precious and possibly expensive asset.  A million dollar home purchase warrants the need to make sure that licensed engineers are inspecting rather than someone who read a book and does it on the side.