Seller’s Obligation to Disclose Defects in Ontario Transactions

The general rule of law in Ontario concerning the purchase of land is that of “caveat emptor”, or as translated from Latin “let the buyer beware.”

At common law, this principle stood for the proposition that when the buyer had
required no warranty he took the risk of quality upon himself, and had no remedy if he chose to rely upon the mere representations of the seller, unless he could show that representation to have been fraudulent,

This basic principle goes back to the 1600’s and has not really changed since that time.

The Honourable Mr. Justice Dickson J. of the Supreme Court of Canada summarized the law in Fraser-Reid v. Droumtsekas [1980] 1 S.C.R. 720:

“…..Notwithstanding new methods of house merchandising and, in general, increased concern for consumer protection, caveat emptor remains a force to be reckoned with by the credulous or indolent purchaser of housing property. Lacking express warranties, he may be in difficulty because there is no implied warranty of fitness for human habitation upon the purchase of a house already completed at the time of sale. The rationale stems from the laissez-faire attitudes of the eighteenth and nineteenth centuries and the notion that a purchaser must fend for himself, seeking protection by express warranty or by independent examination of the premises. If he fails to do either, he is without remedy either at law or in equity, in the absence of fraud or fundamental difference between that which was bargained for and that obtained.”

Di Castri, in the The Law of Vendor and Purchaser, 2nd ed. (Toronto: Carswell, 1988+) provides a summary of the issues and obligations related to disclosure:

§236 Patent and Latent Defects as to Quality

“A patent defect which can be thrust upon a purchaser must be a defect which arises either to the eye, or by necessary implication from something which is visible to the eye. . . .

A latent defect, obviously, is one which is not discoverable by mere observation.

In the case of a patent defect, as distinguished from a latent defect as to quality or condition, and where the means of knowledge are equally open to both parties and no concealment is made or attempted, a prudent purchaser will inspect and exercise ordinary care: caveat emptor.

However, while inspection by a purchaser bars him from complaint as to matters patent, the mere means of knowledge, or the opportunity to inspect when he has relied solely upon a representation by the vendor, does not have this result.

Neither is a purchaser who is unqualified to make an effective inspection, and where, in any event, an inspection could not be conclusive, necessarily barred from relief.

But a purchaser may still be without a remedy as, on a sale of land, there is, generally speaking, no implied warranty as to its use for any particular purpose.

The onus is on the purchaser to protect himself by an express warranty that the premises are fit for his purposes, whether that fitness depends upon the state of their structure, the state of the law or on any other relevant circumstances.

In the case of a vacant lot, a purchaser takes its quality as he finds it, or he seeks his protection in the terms of the contract.

So, it has been held that a plaintiff cannot complain where he has ample opportunity and in fact does cross-examine the defendant’s agent on a certain matter which, subsequently, the plaintiff alleges as the subject matter of a misrepresentation.

But, of course, a purchaser can escape specific performance where there is an actionable misrepresentation as to use.

It would seem that in the case of a latent defect of quality, at any rate where unknown to the vendor, and not resulting in his purchaser being compelled to take something substantially different from what he contracted for, a purchaser has no remedy either in damages or by way of rescission, unless he pleads and proves fraud or breach of warranty.

The conduct of the vendor in concealing the true nature of a patent defect will be treated as fraudulent where it has the effect of lulling the suspicions of the purchaser.

Thus, damages are recoverable in the same way as though there were a fraudulent misrepresentation. . . .”

So, what does the seller have to disclose? The legal obligation appears to be:

1) latent defects, and

2) patent defects that were otherwise covered up or concealed in some way.

It therefore follows that in order to ensure that the sale transaction will close successfully, a seller will want to protect himself by having documentation in the file confirming the disclosure of latent defects and concealed patent defects.

To some extent, that was the purpose of the Seller Information Property Statement or SPIS as it is commonly known. The problem was that it went much further than the law required and rather than protecting sellers, exposed sellers to the risks of further lawsuits. And, in addition, it exposes realtors to claims in negligence for improper advice concerning the completion and execution of the document.

Brian Madigan LL.B. Broker

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