Hidden issues can create significant challenges for Ontario real estate buyers, as is often when a buyer discovers a latent defect. However, there are also steps real estate buyers can take to reduce the risk of discovering a latent defect after a purchase.
In this blog post, we’ll discuss latent defects, the recourse real estate buyers have when a latent defect is discovered, and tips on protecting yourself when making a real estate purchase.
What is a Latent Defect?
Latent defects are issues in a property that are not easily discoverable (and, in many cases, will not be caught by a routine home inspection). Nonetheless, a latent defect can affect the property’s value, safety, or utility.
Common examples of latent defects include the following:
- Structural problems and foundation issues
- Water damage (e.g., hidden water leaks behind a wall)
- Plumbing or wiring issues
Remember that, depending on the nature of the defect and how it is presented on the property, some examples above could be either a patent or a latent defect.
Latent Defects vs. Patent Defects
Latent and patent defects are two types of defects often referred to in the context of real estate transactions. As discussed above, latent defects are those issues that are not easily discoverable. Patent defects, on the other hand, might be best described as “obvious” defects that are visible (or at least detectable through reasonable inspection).
Why Latent Defects Matter for Real Estate Buyers
Discovering a latent defect is often more than a minor annoyance – it can result in unexpected costs if a buyer finds a latent defect after purchasing a property. For example, discovering a structural issue with the property could lead to costly renovations, or toxic mould could render the property uninhabitable for some time.
Another consideration is property value. If you discover a latent defect in your property, you will need to either fix it or disclose it when you sell your property – which could negatively impact the value of your property down the line.
Finally, as we’ll discuss below, actions for latent defects may only be brought against sellers in limited circumstances – meaning that, regardless of the defect in question, you may not be able to seek compensation for any time, money, or other losses associated with a latent defect on your property.
Latent Defects and the Law in Ontario
Under the Real Estate and Business Brokers Act, 2002, SO 2002, c 30, Sch C, realtors must disclose information relating to any facts within their knowledge that either affect or will affect the property’s value in the future. To that end, buyers should be made aware of latent defects that exist on the property.
The problem, however, is that sellers and realtors can’t disclose information they aren’t aware of – so what happens when a hidden or otherwise unnoticed defect exists on the property and is only uncovered after the buyer has purchased the property?
As noted in a recent Ontario case, Bolduc v. Legault, 2023 ONSC 1192, buyers must accept latent defects in the property they purchase unless one or more of the following circumstances apply:
- The seller knew about the latent defect and concealed its presence from the buyer;
- The seller knew about the latent defect, and the defect made the property uninhabitable or potentially dangerous or
- The seller knew about the latent defect and misrepresented the nature of the latent defect to the buyer.
In all instances, the seller must know about the latent defect for the buyer to have a valid cause of action. Unfortunately, if a latent defect exists on a property the seller was unaware of, the principle of caveat emptor (or “buyer beware”) will generally apply.
Purchasing Real Estate in Ontario with Confidence
While latent defects are an uncomfortable possibility in any real estate transaction, real estate buyers can take steps to minimize their risk of later uncovering a defect when entering into a real estate transaction. Below are just a few examples:
- Review the seller’s Property Disclosure Statement carefully: The seller prepares A Property Disclosure Statement and discloses information about the property in a real estate transaction, including defects or issues with the property. Review the Property Disclosure Statement carefully and ask the seller if you have any questions or concerns regarding its contents.
- Obtain a home inspection: While it might be tempting to forego a home inspection, especially in a hot real estate market, it’s essential for bringing peace of mind to a real estate transaction. Be sure to hire a skilled home inspector to assess the property – they will conduct a thorough inspection and alert you to any potential issues with the property.
- Trust your gut: If you have concerns regarding the condition of a property, ask direct questions of the seller and broker. The more information you have, the more easily you can make an informed decision. And, if you have concerns about the condition of the property or suspicions regarding the presence of a defect, don’t be afraid to raise them.
- Work with an experienced real estate lawyer: Working with an experienced real estate lawyer doesn’t just help you navigate the purchasing process – they will also be able to help guide you through the complexities of latent defects or other issues that could arise after you complete your purchase.
Latent Defects and Real Estate: Conclusions
When purchasing a property, research and preparation are your best defence against the surprise of a latent defect. By minimizing your risk and educating yourself about the property, you can avoid issues arising down the line. And, while latent defects are not always easily discoverable (and can evade even the most experienced home inspectors), conducting due diligence will help you rest easy knowing you have done everything you can to ensure you’re happy with your purchase for years to come.
Contact Skilled Residential Real Estate Lawyers Serving Ottawa, Kingston, Cornwall and North Bay
Tierney Stauffer LLP has been advising homeowners and prospective homeowners since 1982. Our team of highly skilled real estate lawyers helps home buyers identify and address risk to proactively avoid potential disputes while easily walking them through every real estate transaction stage.
Whether you are buying your first home, an investment property, or downsizing, our real estate lawyers can help. Contact us online or at 1-888-799-8057 to learn more.