Safeguarding Against Post-Closing Defects Posted onOctober 16, 2023October 13, 2023 Jonathan Dippolito and Jaimin Panesar Before placing an offer on a property, it is important to understand the principle of “caveat emptor”, which is also known as “buyer beware”. While purchasing a new home can be an exciting time, it is crucial to conduct your own due diligence in seeking out any potential issues prior to firming up your transaction. A quick walk-through of the property may not reveal certain defects that could have been discovered through a reasonable inspection of the premises. The Principle of “Caveat Emptor” in relation to Patent and Latent Defects The principle of caveat emptor is one of the governing principles in determining who is financially responsible for defects that are discovered after closing. Essentially, this principle states that potential purchasers are to buy a property at their own risk and if they wish to investigate about potential defects, they are to satisfy themselves in relation to same. Defects that are discovered by the purchaser after closing are thus usually their own responsibility. The principle of caveat emptor applies to patent defects. Patent defects are defined as defects that could have been discovered through ordinary diligence or a reasonable inspection. Examples may include holes in the wall, broken windows, damaged floors etc. They are effectively defects that are either visible to the naked eye or can be reasonably discovered. It is important to note that a vendor has no obligation to disclose of any patent defects, however, they may not knowingly conceal or hide same. Alternatively, latent defects are defects that could not have been discovered by ordinary due diligence or a reasonable inspection of the property. One key difference between the two types of defects is that vendors have a duty to disclose to purchasers of any latent defects that they have knowledge of. While the principle of caveat emptor also applies to latent defects as well, if the vendor fails to disclose of a latent defect that they had knowledge of, they will be liable for same. It is important to note that if a purchaser has knowledge of a defect and fails to raise same prior to closing, they will likely have no claim for any damages relating to the defect. Potential Issues that may Arise Not all post-closing issues can be classified as either patent or latent defect, as some may be related to contractual issues or warranties. The following is a non-exhaustive list of common issues that purchasers experience past closing: Property is left in a messy state, with the vendor’s unwanted personal items left behind There is damage/leaks/defects to various parts of the property (i.e patent or latent defects) The chattels included in the agreement are not operating properly The pool or hot tub is not in working order The septic or well is not in working order The vendor has failed to provide vacant possession There are arrears in taxes for the property Equipment was not disclosed as a rental item in the Agreement of Purchase and Sale (i.e a hot water tank) Addressing Defects Throughout the Transaction It is best to address potential defects and issues prior to firming up your Agreement of Purchase and Sale. The most common safeguard for purchasers is to require the transaction to be conditional upon an inspection from a certified inspector. Professional inspectors are most suitable for identifying any defects with the property and will produce a report listing same. Another common safeguard available to purchasers is to have the vendor agree to certain written warranties and representations that will be included in the Agreement of Purchase and Sale (often in Schedule A). For rural and cottage properties, it is best to consult with a real estate lawyer prior to signing an Agreement of Purchase and Sale, as it may be advisable to insert conditions in relation to a potential well and/or septic system. If any issues are to arise or be discovered after closing, it is best to contact your realtor and/or lawyer so that the other side can be put on notice. Your realtor or lawyer may try to negotiate some form of compensation on your behalf, without the need to immediately litigate the matter. Note that post-closing issues are often outside of retainer agreements with real estate lawyers, so they may be unwilling or unable to negotiate on your behalf. If your realtor or lawyer is unable to successfully negotiate with the vendor or their counsel, your next recourse may be to file a claim with the Small Claims Court, or, if the amount of your claim is greater than $35,000.00, the Superior Court of Justice. If you elect to litigate any post-closing issues, you may wish to speak with a litigation lawyer. Importance of Making Your Agreement Conditional on Your Lawyer’s Review Making your Agreement of Purchase and Sale conditional on your lawyer’s review can be extremely beneficial in the future. A competent real estate lawyer will be able to recommend, draft, and insert certain provisions that specifically relate to your transaction. These provisions may be able to protect you from defects that are discovered in the future. Moreover, after your agreement becomes firm, your lawyer may be able to request an abatement of the purchase price in relation to defects raised prior to closing (i.e. defects discovered through your last walk-through of the property). If you are looking for a lawyer to act on your behalf in a real estate transaction or have any questions, please do not hesitate to contact Jonathan Dippolito, lawyer at Woitzik Polsinelli LLP at 905-668-4486 ext. 229 or at jonathan@durhamlawyer.ca. “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 situation and needs.” This blog was co-authored by Articling Student, Jaimin Panesar. Authors Jonathan Dippolito 289-220-3229 (905) 668-9737 jonathan@durhamlawyer.ca Jaimin Panesar 289-220-3281 289-220-3281 Jaimin@durhamlawyer.ca