The doctrine of caveat emptor, meaning "let the buyer
beware", is generally understood to operate in real property
transactions, absent fraud. However, there are important exceptions
to this general rule: a vendor will be held liable for undisclosed
latent defects that render a property dangerous, or unfit for its
intended usage. Defects are understood to be latent if they would
not be discovered by conducting a reasonable inspection and making
reasonable inquiries about the property.
It is the responsibility of the purchaser to investigate the
real property they are buying or protect themselves through
contract. Nonetheless, there are several decisions that suggest
that a responsible vendor should consider whether to disclose
latent defects to a purchaser. Cresswell Investments Ltd. v. Pavone, 2011 BCSC 1069
("Cresswell") is one such case.
Cresswell considered the sale of a commercial strata
unit that contained a steel mezzanine structure which had been
installed without the necessary building permits and did not comply
with the B.C. Building Code. The purchaser became aware of
the need to bring the mezzanine structure into compliance (which
would cost over $30,000.00) three years after the purchase of the
unit. The court stated that "[l]iability arises only if [a]
latent defect is such as to render the property dangerous or unfit
for its intended purpose". The court decided that the status
of the mezzanine was a patent defect, and therefore caveat emptor
A vendor only has a duty to disclose latent defects that make a
property unfit for its intended use when the vendor has knowledge
of the intended use of the property. In Tony's Broadloom & Floor Covering Ltd. (Trustee of) v.
NMC Canada Inc., 1996 CanLII 680 (ON CA)
("Tony") a commercial party purchased land that
had previously been used for industrial purposes. The purchaser
intended to use the property to build a condominium complex.
The court in Tony found that the vendor was under no
obligation to disclose contamination that would prevent a
residential usage of the land, because:
"[T]he respondents agreed to sell, and the appellants
agreed to buy industrial property [...] The respondents had no
reason to believe that the appellants would use the property for
any purpose other than an industrial one. The question of whether
the contaminant constituted a defect in the property must be
considered in this context".
A vendor of real property can only have a duty to disclose a
latent defect that they know about or recklessly disregard. In
Home Exchange (Alberta) Ltd. v. Goodyear Canada Inc., 2007
ABQB 371 (CanLII), the court stated that "liability is founded
on situations where the hazards are known as such by the vendor at
the time of the sale". A commercial vendor's
sophistication or specialized knowledge may be of some significance
to this point, in that it may be easier to establish that such a
party either had knowledge of a specific latent defect or was
reckless in its lack of attention to the same.
The court in Cresswell suggested that a
purchaser's sophistication could diminish the substance of a
vendor's duty to disclose. This is because it would be
reasonably understood that a sophisticated purchaser's
reasonable inquiries could be considered more likely to reveal
defects than the inquiry of a non-sophisticated purchaser;
therefore, more defects would be considered patent (instead of
latent) when a sophisticated purchaser is involved.
We disagree with this suggestion. The court in Cardwell v.
Perthen, 2007 BCCA 313 (CanLII) noted that "in general,
there is a fairly high onus on the purchaser to inspect and
discover patent defects" and "a defect [may] be patent if
it would have been discoverable upon a reasonable inspection by a
qualified person". These points contextualize the applicable
standard of reasonable inquiry by reference to the high standard of
reasonable inspection by a hypothetical qualified person. To
categorize a defect as patent or latent depending on the
characteristics and knowledge of a particular purchaser would run
contrary to the current trajectory of the law, and inject potential
uncertainty and unfairness into its application.
Authored by Max Collett with the assistance of Articled Student, Niles Bond.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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