Relevant court decisions when a seller is sued for problems with property which are discovered after buyers take possession of a home.In the context of real estate transactions it generally is accepted that the closing of the transaction extinguishes contractual rights which may exist prior to closing and the principle of caveat emptor, or ‘let the buyer beware’ applies. Recent court cases show some exceptions to this rule.
Temple v. Thomas Alberta Court of Queen’s Bench
Mr. Thomas listed his property as newly renovated. The renovations were not performed by a skilled tradesperson. It was shown that 99% of the plumbing had been completed by someone who had no qualifications whatsoever in plumbing, heating or gas fitting. Most of these defects were easily visible to a trained inspector or tradesperson. The renovation had been completed without any regard for building codes and without any of the necessary municipal permits.
Mr. Thomas was obliged to disclose that the renovation had been completed without the necessary permits. These defects were considered latent since the ordinary layperson would not notice improper wiring and plumbing. Mr. Thomas did not say that the renovations were up to code, he was silent on the issue. The law is clear that silence can amount to a fraudulent misrepresentation and it was so decided in this case.
The nature of the defects resulted in the property being unfit for habitation. Mr. Temple could not live normally in his newly purchased house due to the extensive repairs needed to bring the house up to acceptable and legal standards. These factors create an exception to the principle of caveat emptor and Mr. Thomas was held liable for the repair bill of $22,621.57.
Calder v. Martin Alberta Provincial Court
Renovations that fail to meet building codes requirements and lack of appropriate permits and/or approvals can result in a vendor not being able to rely on the protection of caveat emptor. If a term in the purchase contract stipulates that the vendor will provide evidence of municipal permits and inspection, this is a covenant. This covenant cannot be fulfilled or waived by a home inspection service or an electrician. To comply with such a covenant a municipal permit or inspection must be provided to the purchaser.
Whighton v. Integrity Inspections Inc. Alberta Court of Queen’s Bench
Home inspection services have a duty of care to real estate purchasers. This is a duty to ensure that not only is the inspection accurate but also any opinions of the inspector. This broadens the duty that is outlined in the contract between the inspection service and the client. Home inspection services and its inspectors must exercise such reasonable care as the circumstances require to ensure that the representations made are accurate and not misleading.
House inspection services must meet the standard of care expected of reasonably prudent home inspectors in similar circumstances at the time of inspection. The reason for a high standard being applied to home inspections is the fact that purchasers consistently rely on the reports in considering purchasing the property.
A home inspection report that is revealed to be unreasonable is a fundamental breach in the contract for services. This will result in the home inspection service not being able to rely on a contract clause limiting liability. Integrity Inspections, operating as HouseMaster Inspections, was ordered to pay the purchaser almost $40,000 due to a negligent inspection report. The contract had a clause limiting liability to the cost of the inspection and a guarantee that the service would cover up to $10,000 for repairs that the inspection failed to note. The case substantially turned on the inspector’s verbal statement that the home was “a great house”. Evidence at trial proved the house to be in very rough shape.