Latent Defects or Hidden Damage in Real Property Transactions

Sabrina Saltmarsh, B.A. (Hons), J.D.Agents and Brokers, Broker and Agent Claims, Civil Litigation, Commercial, Condo Litigation, Contract Disputes, Cottage Litigation, Cottage Purchase and Sale, Misrepresentation, Professional Liability, Real Estate Agent and Broker, Real Estate Litigation, Recreational Property, Recreational Property Litigation1 Comment

What Are Latent Defects Or Hidden Damages?

Latent defects or Hidden Damage are defects to a property that are not generally discoverable by a prospective purchaser on a reasonable inspection and ordinary vigilance. This can include issues such as, faulty electrical wiring hiding behind the walls or a well-hidden termite or mold problem. Many real estate purchases include a buyer’s right to inspect the property to be purchased. However, these inspections are not exhaustive, and may not reveal latent defects or hidden problems with the property that are not readily visible.

Why Do Participants In A Real Estate Transaction Need To Be Concerned About Latent Defects Or Hidden Damage?

The problem latent defects or hidden damage can pose for a prospective real estate purchaser is that no amount of vigilance on a visual inspection can uncover such a defect, even one conducted with a home inspector (who’s inspections are typically also simply visual in nature). Thus a latent defect or hidden damage will often only be uncovered by a purchaser after the closing of the sale, and possession of the property has already been taken.

In some instances, buyers may seek representations and warranties that the property does not have certain defects, including latent defects, that may be of concern to the buyer. If the latent defect was also unknown to the seller, no liability can attach to the seller upon the sale of the property. However, if a seller knows about damage to the property that is not visible or that a latent defect exists (such as unsound construction, mold, infestations, or environmental damage), the seller has a duty to disclose the latent defect to the buyer. A purchaser may have a claim against the seller if the latent defect was, or ought to have been, known to the seller, for any losses or damages resulting from the defect, including damages or costs incurred to remedy the hidden damage or latent defect to the property.

Understanding The Principle Of “Buyer Beware” And The Difference Between Latent (Hidden) Defects And  Patent (Visible) Defects

A heated real estate market might tempt owners of problem or dilapidated homes to offload properties that have defects. The principle “buyer beware” (often referred to in law in its Latin form: caveat emptor) places a fairly high onus on a purchaser to satisfy themselves as to the condition of the property. This principle generally means that a seller has no obligation to disclose any defects to a property that can be discovered by a reasonable inspection and ordinary vigilance on the part of a buyer – referred to in law as patent defects. Assessing whether a defect is patent or latent in law is not always clear and an assessment of all of the facts is important.

Latent Defects And Exceptions To The Principle Of “Buyer Beware”

Based on consumer protection interests the courts tend to carve out exceptions to this general principle of buyer beware. By example, although a seller has no obligation to disclose a patent (visible) defect, the seller also cannot attempt to hide or conceal such a defect, this is referred to in law as fraudulent concealment.

Most of the exceptions to the general principle of buyer beware relate to latent defects or hidden damage and include:

  1. Fraudulent misrepresentation;
  2. Knowledge of a latent defect which renders the home uninhabitable;
  3. Recklessness as to the truth or falsity of statements relating to fitness of the property for habitation; or
  4. Breach of a duty to disclose knowledge of a defect.
Damages Or Rescission – Potential Remedies For Latent Defects Or Hidden Damages

It falls on the purchaser to prove the existence of a latent defect or hidden damage. Usually damages to the purchaser will follow if the latent defect is an objectively verifiable physical defect affecting habitability of the property, and not a mere stigmatization. Further a purchaser will not be able to recover money spent to improve the property in the process. In the case where a purchaser has been induced to enter  into a purchase and sale agreement by deception, the purchaser  may be able to rescind (set aside) the putative contract, however important steps usually need to be taken promptly to preserve this right and this right can be foreclosed if certain steps have already been taken with respect to the property.

Proving A Claim For Damages Arising From A Latent Defect or Hidden Damage To A Property

In order to be successful in a claim against a seller for a latent defect or hidden damage a purchaser must establish:

  1. That the seller (or in some cases a sellers real estate agent/broker) made a representation of a fact to the purchaser (or the purchasers agent/broker);
  2. That the representation was in fact false;
  3. That the seller (agent) made the false representation knowingly or recklessly not knowing whether it was true or false;
  4. The seller (agent) intended the purchaser to act on the representation; and
  5. The purchaser acted on the false representation, entering into the contract in reliance on it, and suffered losses as a result.

A seller who fails to disclose their knowledge regarding a latent defect or hidden damage on the inquiry of a purchaser risks exposure to a claim by the purchaser if the defect is uncovered after the sale.

The Importance Of Prompt Legal Advice And Representation When Dealing With A Latent Defector Hidden Damage To A Property

Identifying whether a defect is patent (visible) or latent (hidden), and whether either party involved in the transaction is liable to deal with the defect is heavily dependent on the particular facts.  Whether you are a purchaser, seller, a property inspector, or a real estate agent/broker involved in a latent defect dispute, it is important to obtain legal advice from a qualified lawyer. There may be duties owed to either the seller, the purchaser, or both by any real estate agents/brokers involved in the transaction which also need to be considered when dealing with a potential misrepresentation issue in a real estate transaction.

Types Of Latent Defects

Types of latent defects or hidden damages may include, but are not limited to: Water Damage; Structural Damage; Contaminated Soil; Former Use as Grow-Op; Infestation; Non-compliance with Building Code or By-Laws; Environmental Clean-up; Gas Storage Tank Leakage; Former Use Issues; Dangerous/Hazardous Chemical Use; Seepage Problems; Tree Root Problems; Erosion; Faulty Foundation, etc.

Parties To A Real Estate Transaction Who Could Be Liable For Latent Defects

Vendors/Sellers; Brokers/Agents; Inspectors; Contractors; Developers; Lawyers

How We Can Help

Gilbertson Davis LLP can act for purchasers, sellers, vendors, home inspectors, real estate agents, real estate solicitors, developers, builders and others such as investors, who are affected by a latent defect dispute related to real property including: commercial; residential; recreational; condominium; or investment properties.

Brief informational summaries about insurance litigation, commercial litigation and family law litigation matters in the courts of Ontario and Canada are periodically published on our website. Please note that our website content is for informational purposes only, and should not be construed or relied upon to provide legal advice. If you require legal advice, please request an initial consultation with Gilbertson Davis LLP using the Request Consultation Form on this webpage or by contacting our Intake Coordinator on (416) 979-2020, ext. 223 (both subject to the Terms of Use described on our Contact page).
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About the Author

Sabrina Saltmarsh, B.A. (Hons), J.D.

Practitioner in a broad range of business and civil litigation matters including commercial, real estate and condo disputes. Experienced at all levels of Ontario Courts. Bio | Contact

One Comment on “Latent Defects or Hidden Damage in Real Property Transactions”

  1. There might be defects in a property so this is the reason you have to get it inspected from an expert. They will prepare an analysis report for everything in the house that needs to be changed.

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