The residential housing market in some areas of Ontario—especially urban settings—seems to remain strong. Anecdotally, houses that are on good streets, in good neighbourhoods, and priced well still have competitive offer processes. The inventory of "good" homes remains very low and demand for them is very high. Multiple offers remain a phenomenon and bidding wars are common. Unfortunately, this creates an ecosystem that fosters rash and risky decisions. Buyers not wanting to miss out on a house might take financially dangerous chances. A common example is failing to include or waiving a condition for a home inspection in an agreement of purchase and sale. People also over-bid and/or ignore red flags. Home inspections or other investigations/inquiries might (although not always) uncover problems. A buyer who fails to protect themselves through due diligence could end up owning a dream home filled with expensive headaches. That outcome could give rise to litigation.
Buyers who discover their newly acquired house has one or more major defects might—rightly or wrongly—seek to recover their losses from the seller(s). There are legal causes of action (i.e., mechanisms or principles organized around facts) by which buyers may claim recovery against sellers depending on the circumstances. Examples include claims for negligent and/or fraudulent misrepresentation (see Krawchuk v. Scherbak, 2011 ONCA 352 (CanLII)) and failure to disclose a known latent defect rendering a premises unfit for habitation (see 1000425140 Ontario Inc. v. 1000176653 Ontario Inc., 2023 ONSC 6688 (CanLII). Each pose their own legal test and evidentiary challenges. Each have received plenty of treatment in Ontario case law. They are the 'usual suspects' when it comes to residential real estate disputes where buyers have found defects post-purchase.
But there is another, less known, avenue that buyers may use to pursue recovery for a certain brand of defect they discover after taking possession: negligent construction. Such a claim can be brought against the seller (1) if the seller was the builder of the house and (2) if the defect renders the house dangerous. (If the seller was not the builder, the buyer could instead pursue whoever was.)
The Supreme Court of Canada has confirmed that a builder owes a duty of care not only to the initial but also to subsequent purchasers (Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., 1995 CanLII 146 (SCC) ("Winnipeg")). That principle was applied to the residential house sale setting by the Ontario Court of Appeal in Mariani v. Lemstra, 2004 CanLII 50592 (ON CA) ("Mariani").
In Mariani, the defendant sellers had built their home, acting as their own general contractor. Four years later, they sold the house to the plaintiff buyer. After closing, the plaintiff discovered several problems with the house. The most serious were cracking along a load-bearing wall and substantial dampness in the basement due to a defective building envelope. The plaintiff started a court action against the sellers (as well as the township and two subcontractors). The causes of action against the sellers were fraudulent and negligent misrepresentation, failure to disclose defects, and negligent construction. The plaintiff only succeeded in negligent construction.
The legal basis of negligent construction as a cause of action is that it is reasonably foreseeable to builders that, if they construct a building negligently resulting in a building with latent (hidden) defects, subsequent purchasers of the building could suffer personal injury or loss when those defects emerge. Just because there might be no building contract between the builder and inhabitants at the time the defect appears doesn't make the potential for injury/loss any less foreseeable. Buildings are permanent and are regularly inhabited by different people over their lifespan (Mariani at para. 25, quoting Winnipeg at para. 35). Furthermore, the injury or loss contemplated by the danger of the defect does not need to have occurred. This is because it makes good public policy sense to motivate plaintiffs to resolve and mitigate potential injuries or losses before they occur—instead of sitting on a dangerous defect until something bad happens (Mariani at para. 32 quoting Winnipeg at para. 37).
Importantly, the court in Mariani confirmed that it doesn't matter whether the sellers are not commercial builders. The liability could apply to any person responsible for the design and construction of a building. A seller who is also a builder assumes the same responsibilities as a third party builder (P.M. Perell & B.H. Engell, Remedies and the Sale of Land, 2d ed., Toronto: Butterworths, 1998 at 102).
While the forgoing rationale behind negligent construction as a basis for a claim might appear wide open, there are important constraints. The structure must be rendered dangerous by the defect(s)—not simply poor quality or second-class workmanship. Expert evidence of engineers etc. would be required. In Mariani, the compromised wall was not in danger of imminent collapse, but certain circumstances could have resulted in a catastrophic loss. Similarly, the entry of water to the basement, if not corrected, could have led to a condition hazardous to health, such as mold (Mariani at para. 31).
It is also important to note that because a claim in negligent construction is purely for economic loss, a successful plaintiff's recovery is limited to the cost of repairing the structure and restoring it to a non-dangerous state (Mariani at para. 26). That would exclude other types of losses, such as loss of value to the property, replacement, etc. Therefore, depending on the case, damages awarded under this cause of action would likely be less than if the plaintiff was successful in, say, negligent misrepresentation.
Depending on the case, negligent construction could provide a plaintiff with an additional legal tool to advance a claim for losses associated with the discovery of defects that render their new house dangerous. This is only a snapshot into the complexity and considerations related to claims by buyers against vendors in a civil action related to real estate disputes over building defects. We recommend you consult a lawyer regarding this subject and other matters.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
