This is OREA’s recently released summary and recommendations:
“Proposal
Enhanced Transparency and Disclosures for Latent Defects: Amend TRESA to introduce new rules regarding latent defects and disclosure obligations to ensure consumers have access to all the information they need to make an informed decision when purchasing a home.
LATENT DEFECTS RECOMMENDATION #2: Enhance consumer protection and confidence by introducing new rules and strict disclosure obligations around latent defects for sellers and their representatives.
Explanation
Consumers should be confident that they have access to all the information they need to make an informed decision when purchasing a home. After all, it is the largest purchase they will ever make. Perhaps the basement leaks in the spring, or an addition was built without the appropriate permits; these defects should be disclosed.
ڱ Patent Defect: A visible defect that is easy to see or observe.
ڱ Latent Defect: Any physical defect hidden and not evident through a reasonable inspection that makes a property unsafe or uninhabitable.
There are two types of defects: patent and latent. A patent defect is a visible defect that is easy to see or observe. This might be a crack in the drywall or a broken window. A latent defect is a non-visible defect. Sellers are under no obligation to disclose patent defects. Courts have consistently ruled that it is “buyer beware” in real estate transactions, except for misrepresentation or fraud.
When it comes to latent defects, the Ontario Court of Appeal established legal precedent in 1979 with the case of McGrath v. McLean. The ruling stated that a seller was only required to disclose a latent defect if they were aware that they were hidden, if they rendered the house unsound, made it unfit for living, and if the defects existed. The caveat with this ruling is that the seller has no obligation to disclose the defect unless all exceptions outlined in the McGrath ruling are present. This is particularly concerning for consumers. Based on the McGrath precedent, sellers have no obligation to disclose defects or potential defects unless all exceptions are met.
Think about a first-time buyer who has done everything right. They saved for years and bought their dream home, only to find out a few months into owning the property that the foundation is cracked, and water enters the house whenever it rains. It will cost them $20,000 to repair the foundation, money they do not have. Their opinion on the property would have changed had they known about the defect. To make matters worse, even if the sellers knew about the crack, they could have made the case that they were not obligated to disclose it because the house was still sound and habitable. This is wrong.
Ontario consumers are entering into one of the largest financial transactions of their lifetime, and it is important there be legislative protections in place, shielding them from unscrupulous parties. TRESA must be amended to include new rules regarding latent defects and disclosure obligations for sellers and their representatives. OREA believes that this should be addressed in Phase 3.
In Quebec, the Province’s Civil Code includes disclosure requirements for latent defects, if they meet the criteria as outlined within the code. In addition, other jurisdictions have supplemented the courts’ guidance on disclosure rules. For instance, the New York legislature introduced the Property Condition Disclosure Act (PCDA), which requires sellers to make certain disclosures about the property before signing the purchase contract.
The PCDA requires a seller to complete a standard form disclosure statement that contains questions about the property, including: ڱ General information (ex. age, shared driveways or borders, easements, etc). ڱ Environmental (ex. flood plain, landfill, toxic spills, contains asbestos or lead pipes, etc). ڱ Structural (ex. water, fire, smoke, or insect damage, and the condition of the roof, beams, and other such elements). ڱ Mechanical systems and services (ex. utilities, water source and quality, sewers, drainage, flooding).
The disclosure statement also requires the seller to complete a checklist of systems or property components with known material defects. The legislation clearly states that this is only about known issues and is not a substitute for any inspections or tests by the buyer.
DEFECT VS. STIGMA
There is a substantial difference between a defect and stigma. A defect is something that makes a home unsafe or uninhabitable, whereas a stigma is a matter of personal opinion. Stigmas should not be included in any disclosure requirements.
FACT: Tarion defect claims for new builds do not need to be disclosed to prospective buyers. A September 2024 CBC Investigates story recently exposed this loophole.”
Comment
What do you think?
The law regarding caveat emptor goes back centuries. The obligation is placed upon the Buyer to investigate, determine and verify the material facts. Once they have knowledge they can proceed. These matters are all quite clear with decisions made by the Ontario Court of Appeal (McGrath v. McLean) and the Supreme Court of Canada (Fraser-Reid v. Droumsekas). Yet, OREA wants to change the law.
Why change the common law?
Actually, it was already changed in TRESA. A Listing agent has to make this disclosure, otherwise they are in breach of their obligations, notwithstanding that they may be acting contrary to their Seller’s wishes. That provision came into force on 1 December 2023.
It should be remembered that TRESA applies to agents, not anyone else. So, Sellers, and their lawyers are not covered under the Act.
Making changes to TRESA would really have no application and no value. I would ordinarily have thought that OREA would have been aware.
The OREA Form 299 already appears to push that envelope somewhat!
Why not educate Buyer’s agents to get home inspections? That’s what we want. And, that should work!
Brian Madigan LL.B., Broker