This question often comes up with clients: Are we required to disclose latent defects in the property we are selling?
A latent defect is a defect that is not obvious to the naked eye and generally, the doctrine of Caveat Emptor (Buyer Beware) applies, however, it is not without qualifications.
When assessing whether or not to disclose a vendor or purchaser has to consider the following fact scenarios. Does the vendor know of the latent defect? Does the vendor try to conceal the latent defect? Can the latent defect render the property inhabitable or create danger? Did the purchaser conduct an independent inspection? What were the terms of the agreement of purchase and sale? Below we assess some of the general fact scenerios and whether the vendor would be liable to the purchaser in those general instances.
1) The Vendor has No Knowledge
Vendor is not liable to the purchaser for latent defects discovered in the property after closing.
2) The Vendor has Knowledge
Again, the vendor is not liable to the purchaser for latent defects discovered in the property after closing.
3) The Vendor has Knowledge and the Property is potentially dangerous and/or hazardous
Here the Vendor would be liable to the Purchaser. The courts have held that not disclosing a potential danger or hazard is the same as fraud.
4) The Vendor has Knowledge and Actively Conceals the Defect
Oh the stories lawyers hear about active concealment. In one case, the purchasers went to do their final inspection of the property and in doing so asked the vendors to go to the basement. The vendors claimed that their child was in the basement and was extremely sick. Turns out, the basement was flooded! Active concealment of a latent defect is considered fraud and the vendor will be held liable for damages.
5) Other considerations
Another qualification to the above scenarios is whether a purchaser either conducted an inspection by an inspector. If a purchaser hires an inspector and then later discovers that the inspection did not reveal the latent defect that could have been discovered by the inspector, the purchaser will only have recourse against the inspector, even if the vendor actively concealed the defect and even if the property is potentially hazardous.
Further, the courts will always look at the agreement of purchase and sale to see whether a vendor has made any express representations or warranties with respect to the quality or fitness of the property. If a vendor does make misrepresentations or false warranties, a purchaser will almost always have recourse against the vendor.
The law in this area of real estate is in constant flux and every fact scenario can produce a different outcome and therefore it is important to consult a real estate lawyer in order to advise on a proper course of action. Contact Levy Zavet PC today for information or assistance.