Hidden Defect or the Guarantee of Quality

Hidden defect or the guarantee of quality

When purchasing a commercial or residential property, it is not uncommon for the purchaser to discover a defect some time after the purchase takes place.  I had a client ask me today about what would constitute a hidden defect.  I found this helpful article online which was written by real estate lawyer and professor Michaël R. Concister.  I thought I should share:
What is a hidden defect?

A hidden or “latent” defect is a defect that is invisible to the naked eye.
More specifically:
1.         A hidden defect is a defect that exists at the time of the sale;
2.         It is not apparent or obvious to a prudent buyer or to an inspector conducting a routine non-destructive pre-purchase building inspection. They should not have discovered it;
3.         The defect is such that it renders the immovable unfit for its intended use, or reduces the usefulness of the immovable such that had the buyer been aware of the hidden defect, he or she would not have paid so high a price, or would not have purchased the immovable altogether.
All three conditions or criteria must be present in order for the “problem” to be designated a hidden defect.
Can the buyer pursue the vendor? What about the inspector who was hired to conduct a pre-purchase inspection?

The legal guarantee of quality or warranty against hidden defects has its origins in the Quebec Civil Code and is automatically included in the deed of sale as a guarantee to the purchaser. However, this warranty may be specifically excluded, reduced or enhanced upon negotiation by the parties. Note that a professional seller e.g. a developer may never exclude or reduce this warranty.
In any event, should the vendor be aware of a defect, or, could not have been unaware of it, whether apparent or hidden, and fail to disclose it, he or she may be held liable towards the purchaser. Furthermore, the seller is responsible to compensate the purchaser for a hidden defect regardless of whether or not he had any knowledge of it prior to sale.
Even though the warranty is specifically excluded, the vendor remains liable towards the purchaser if he was aware of the defect and did not disclose it to the purchaser prior to the sale.
Pre-purchase inspection

Although not required by law to have a property inspected, it is recommended to do so in order to avoid potential problems. Often the first-time purchaser does not know what to look for in assessing a property. The pre-purchase inspection that is carried out is usually (especially in residential) visual and non-destructive in nature.
The inspector’s duty is to identify all apparent defects and ask the vendor to make certain declarations with regard to the property (see upcoming related article on inspection). In addition, should the inspector fail to disclose the apparent defects at the time of the inspection, the purchaser will be able to pursue the pre-purchase inspector in a court of law.
What should the purchaser do?

When the purchaser begins to suspect the gravity of the situation, he must inform the seller as soon as possible in writing, advising the vendor of the defect and giving him the right to conduct his own expertise and/or repair it or pay for it.
The case law indicates that this period of notification is generally no greater than six (6) months from the time that the seriousness of the defect became known to the buyer. This time period will vary with the nature of the defect and whether or not it is getting worse. The vendor must be able to ascertain the gravity of the defect and determine whether or not it was hidden at the time of the purchase.
Should there be too great a time taken to notify the vendor, without the repair of the defect, it will be difficult for the Court to appreciate the degree to which the vendor vis-à-vis the purchaser is to blame.
No repairs should be carried out until the vendor has had time to assess the situation. The only exception to this rule is if the defect is of an urgent nature.
The purchaser has three (3) years from the time he or she discovers the seriousness of the defect in which to pursue the vendor and/or the inspector for damages which may involve a reduction of the sale price or the annulment of the sale due to the gravity of the defect.
SUMMARY

Steps to be taken following the discovery of a hidden defect

1.         Immediately take dated pictures of the alleged defect;
2.         Follow-up with a letter of demand to the vendor, allowing him to assess the alleged defect;
3.         Do not carry out any repairs until the first steps have been taken care of;
4.         See an attorney in order to proceed to the selection of an expert such as an engineer or architect, in order to jointly determine the true nature of the defect.
Michaël R. Concister
Avocat – Barrister & Solicitor
Specialist in real estate law
Teacher at the Collège de l’immobilier du Québec