Material Latent Defects
Lawyers, real estate agents and home owners find it a challenge to define a material latent defect. Primarily this occurs because several definitions of material latent defects exist. The definition used ultimately depends on the context, even within the real estate industry. When buying or selling a home, the default principal is Caveat Emptor. This means buyer beware in Latin. However, some exemptions exist. Keep reading for a better understanding of the differences in definitions and how they apply to various situations. Facing an issue with any type of defect in a home you bought or plan to sell, give us a call. With law offices in both Calgary and Edmonton, Alberta, Kahane Law Office helps across the province.
Types Of Defects
For the purpose of a real estate transaction in Alberta, we break defects down into two categories. In essence, the differentiating factor is how easy the problem is to find on a reasonable inspection of a property. Specifically, these issues are:
A patent defect is one that a person, on doing a reasonable inspection of the property, would find that specific problem. For example, a home with an unfinished basement with a foundation that included a large crack or hole in it. If, in order to discover the crack, you merely need to walk past it and look, the law considers that crack to be a patent defect. Other examples of patent defects include, a broken window, an impossible to close jammed door, stains on carpet and an attic without any insulation. The responsibility rests with buyers to notice these types of problems when completing their due diligence. We include a whole page with suggestions for home buyers with respect to due diligence inspections to contemplate before buying a home. No obligation exists for a seller to bring this type of problem to a buyers attention.
Whereas a patent defect is one easily discovered, a patent one is not discernible on a reasonable inspection. Using the above example, a foundation crack in a finished basement, where seeing the crack is impossible is a latent defect. Of note, that this example becomes patent again, if it is possible to see the crack from the outside of the home (above ground and easy to see).
Other examples of latent defects include, a basement that leaks only in the summer when a person sells the home in the winter (assuming no clear signs of the leak exist), any problem that requires damage to the home to discover, a storm damages roof covered in snow that if impossible to inspect in winter and any problem a homeowner failed to fix and that a renovation or repair covered up. Varying obligations exist for a seller to disclose these problems if considered a Material Latent Defect.
Is a Latent Defect A Material Latent Defect?
The common law supports the requirement for a seller to disclose material latent defect. In addition, the Real Estate Council of Alberta requires that a real estate agent disclose known material latent defects. Lastly, the purchase contract most often used in Alberta by real estate agents, requires the disclosure of material latent defects. The problem is that each of these requirements uses a different definition of a material latent defect. To further complicate things, the change to the residential real estate purchase contract used by Alberta real estate agents, changed in 2017 and created a brand new definition of these types of problems. We now look at the three definitions of these issues.
The RECA Definition Of A Material Latent Defect
This definition comes into play with real estate agents’ obligation to disclose a defect. For example, a seller tells them of a problem and then asks the agent to withhold that information. If the problem falls within the definition, the agent either discloses the information with client consent or the withdraw the listing from the market. The definition states that a defect makes the home:
- unfit for a buyer to live in;
- potentially dangerous or actually dangerous for the person to use, enter or live in the home; or
- unfit for any purpose a buyer discloses to the seller.
In some instances, the definition of material also includes latent defects with a very high cost to repair, if a work order or government obligation exists to repair a part of the home, or if the seller lacks appropriate permits.
Common Law Definition
The common law definition of what makes a latent defect material differs from RECA’s. Contracts used by real estate agents prior to 2017 contained no definitions of these types of defects. This means that a buyer alleging non-disclosure, replied on the common law for protection. The common law is the law handed down by the courts. In the legal world we also use the term precedent. The courts, over decade rule in favour or against people suing for damages. Damages include the costs in fixing a problem a seller failed to disclose, if the court rules for a requirement of disclosure in that specific situation.
Over the decades the courts look at many (thousands) of specific situations. The courts act as a court of equity. They decide, in the absence of a legislated or contractual obligation, based on what is equitable or fair. The common law definition is similar to RECA’s definition. However, the court lowered the bar on what a seller should disclose. This means that more defects required disclosure under the common law than the rules governing real estate agents.
AREA Contract Definition
Since 2017, real estate agents now use a contract that specifically defines a material latent defect. Specifically, the definition is: “a defect in the Property that is not discoverable through a reasonable inspection and that will affect the use or value of the Property”. Since the definition now includes a reference to defects affecting the value of the property, a lot more problems require disclosure. The problem now, is that with the new definition, the courts, in coming years, need to hand down written decisions addressing the issue of what constitutes “affecting the value of the property”. This catches a very broad range of problems.
With most lawsuits settling, lawsuits not commencing for up to 24 months after the sale of a property (or longer in some instances), the courts taking 18-20 months to set trials, and not all court rulings coming in the form of a written decision, we expect it to take decades for the courts to address the full range of defects that buyers’ suffer damage from.
Should You Disclose A Real Estate Defect
The answer to this questions rest on both the type of problem, and a person’s risk tolerance. If the problem falls under the RECA definition, all sellers must always disclose those material latent defects. Alternatively, if the defect is less severe, but maybe affects value, then the seller decides on what to do. However, if they disclose the problem, in writing and in the contract (as is required under the contract), then a buyer’s chances of winning a lawsuit for that defect is very very low (normally zero but some weird exemptions may exist depending on the problem and the detail of disclosure). If a seller fails to disclose the issue, then a buyer, on discovering the problem, has a better chance at succeeding at trial. Lastly, if unsure of the pros and cons in disclosing or it a requirement exists to disclose, please call or email us for help.
Requirements To Win If Suing For A Material Latent Defect
No guarantees exist when anyone enters the courtroom for a lawsuit. A wide range of variable come into play in the court reaching its decisions. As a basic tenant, a buyer suing for a seller failing to disclose a material latent defect, has the obligation to prove several things in order to win. For example, these things include proving that:
- the buyer suffered damages due to the problem. For example, the defect affected the value of the home or the paid a cost to repair the problem;
- alleged damages existed at the time of possession (the Completion Date in the contract);
- the seller was aware of the problem and failed to disclose it in writing, in the contract;
- defects claimed were latent in nature;
- the defects in question were material; and lastly
- the buyer, if the seller disclosed what they knew, would not have bought the home or would have paid less for it.
Real Estate Lawyers Who Help With Material Latent Defects
Kahane Law Office has both real estate lawyers and litigation lawyers. This means we help clients with all aspects of material latent defects. If buying or selling, or if you face a lawsuit due to these issues, we provide the help you need. With offices located centrally in both Calgary and Edmonton, Alberta, we offer our services in both these cities and surrounding areas. Let us provide you with information about our services quickly by emailing us at this email address. Alternatively, call us in Edmonton at (780) 571-8463 or in Calgary at (403) 225-8810.