There are circumstances in which you can sue for a patent defect although in most cases you will only be able to bring a lawsuit in relation to a latent defect. This article will define each term, reference case law and examine some situations in which you should hire a lawyer to commence a lawsuit for patent and latent defects.
Have you bought a house with problems not disclosed in Canada? Unfortunately, this happens all the time. These cases usually come down to 1 of 2 things. The first is where a seller outright lied to you in order to induce you to enter the contract. The second and more common issue is latent and patent defects.
“A defect which is readily apparent to someone exercising reasonable care in their inspection of a property” – Vieira v. Dawson, 2018 ONSC 413
Many cases have slight variances in the wording used but this covers the general principle in providing a patent defect definition.
In most circumstances a patent defect will not give rise to a claim. This is due to the doctrine of Caveat Emptor (Buyer Beware).
Two circumstances which may give you the right to sue someone for a patent defect are as follows:
As you can see in most cases a patent defect will be routinely visible to a home inspector. However, lets assume now that the buyer was to stack filled boxes to the ceiling, dozens of paint cans, and piles of wood in front of a wall that had a hole in it. In this case the patent defect may very well give you the right to sue the seller because the seller has arguably taken steps to conceal the patent defect.
Another example of this would occur if there was a picture on a basement wall. This picture covers a hole in the wall. The seller requested that the buyer and their inspector not touch any of the pictures. This may very well be the seller taking a step to mislead the buyer from looking at the damaged wall.
What is a latent defect? This is one of the first questions that we get asked in situations where a buyer has bought a house with problems not disclosed. An unhappy buyer will typically first contact their Real Estate Lawyer. This is usually the lawyer who assisted them with the transaction. The lawyer in most cases is a transactional lawyer who will advise them they may have a latent defect claim.
Most transactional real estate lawyers do not handle lawsuits but refer them to real estate litigation lawyers like McMackin Law. The prospective client then comes to see me and they want to know what a latent defect is.
Latent Defect Definition: A defect which is not readily apparent to someone exercising reasonable care in their inspection of a property is Latent.
· Foundation / Structural Issues
· Leaks / Seepage
· Ice damming
· Mold / Mould
· Prior use issues
· Failure to comply with Building Code
· Underground storage tanks
· Gas leaks
When I tell the prospective client, something is likely considered a latent defect, the next thing they want to know is whether they have a case. The answer to this question is almost always going to require further analysis before making a decision.
The leading case on latent defects is McGrath v. MacLean et al., 1979 CanLII 1691 (ON CA). This case has been cited over 100 times and is an Ontario Court of Appeal decision. The decision was rather favourable to vendors as it created a difficult roadmap to success for purchasers.
The McGrath decision had the potential to be revisited in 2011 as another latent defect case made it up to the Ontario Court of Appeal. (Cotton v. Monahan, 2011 ONCA 697) Unfortunately for purchasers the 2011 case followed closely the reasoning of the 1979 McGrath case.
As a reader your next question is likely, what is the law of latent defects?
Per McGrath v. MacLean et al., 1979 CanLII 1691 (ON CA).
“In an appropriate case a vendor may be liable to a purchaser with respect to premises which are not new if he knows of a latent defect which renders the premises unfit for habitation, but it is incumbent on the purchaser to establish that the latent defect was known to the vendor, or that the circumstances were such that the vendor was guilty of concealment or a reckless disregard of the truth or falsity of any representation made by him. His liability is not founded on the Donoghue v. Stevenson principle. There may be a duty on the vendor to disclose a latent defect which renders the premises dangerous in themselves, or that the circumstances are such as to disclose the likelihood of such danger.”
Per paragraph 3 of Cotton v. Monahan, 2011 ONCA 697
“To be successful in such a claim, a purchaser must establish that the vendor knew of the latent defects, concealed the latent defects or made representations with reckless disregard for the truth.”
Per paragraph 6 of Cotton v. Monahan, 2011 ONCA 697
“In our view, “concealment” in this context connotes an act done with an intention to hide from view some defect of which the vendor is either aware or wilfully blind.”
Per paragraph 18 in Jung et al v. Ip et al. (1988), 47 R.P.R. 113 (Ont. D.C.).]
“Silence about a known major latent defect is the equivalent of an intention to deceive.”
The law in both above cases was further affirmed by Justice Raikes in his 2016 decision in Brown v. Cassidy, 2016 ONSC 5446 where at paragraph 85 he accepted both cited cases as being the law today.
A proceeding for a latent defect claim in Ontario will be brought in the Ontario Small Claims Court (up to $35,000) or the Ontario Superior Court. Each of these courts are below the Court of Appeal. This means that the decisions of Cotton v. Monahan and McGrath v. Maclean et al. are binding on the court where your case will be heard.
Proving the seller knew of the latent defect or was willfully blind can be a tough task in today’s world. In most cases you will need expert evidence to support this assertion.
An important thing to keep in mind is that civil proceedings are decided on the balance of probabilities. This makes the onus of showing the seller knew or ought to have known of the alleged latent defect(s) less difficult than it appears at first glance.
As a seller it will likely be in your best interest to make full disclosure of any latent defect. If the defects are patent and you have done nothing to conceal or mislead the buyer, it is unlikely you will be found liable.
You should not try to rationalize that the problems are not a “material latent defect.” While some information sites use the term material latent defect what you should be concerned about are any latent defects. Selling a house with problems and not making full disclosure can cost you far more than you would imagine.
Take the case of Gemeinhardt v Babic, 2016 ONSC 4707. The sellers were a husband and wife and they were found jointly and severally liable for $758,642.39 plus costs. In this case the entire house had to be replaced.
In most cases the idea of damages is to put a person where they otherwise would be had it not been for the latent defects. This means that in most circumstances the plaintiff will argue they should be entitled to the costs of repair.
The Defendant will almost always argue some or all the following:
1) The quote is excessive
Best practice for the plaintiff is to always have multiple quotes done. If you do not go with the lowest quote, there is a reasonable chance this will be used against you. Unfortunately, in many cases the plaintiff (buyer) fails to do this.
The seller may also want to get their own quote done for the work. If the price is lower than the buyers, then it will put them in a better position to argue that the quote is excessive.
2) Betterment
This is a legal term that can be extremely frustrating for a buyer who purchases a home that has a material latent defect. Imagine owning a home for a couple weeks and then ending up with a flooded basement. You hire a contractor to repair the damage to the structure in order to prevent the issue from reoccurring and this costs you $50,000.00.
At trial, the defendant then argues you are now getting something better than what you bargained for and that this constitutes an improvement to the property. This is a legitimate argument and can lead to a reduction in damages. That $50,000 repair job you paid for may now lead to only $35,000 in damages.
3) Mitigation
The general premise of this is that you failed to mitigate your damages. An example would be if you were to notice a small leak in your basement and you just covered it up a week after purchasing the property. A month later your entire basement is flooded. The seller will then have a legitimate argument that you failed to mitigate. You had the opportunity to fix this issue at a far lower cost and your own failure to mitigate enlarged the issue.
4) No knowledge of Defect
This is the defence that is most unnerving for buyers who have bought a property with problems not disclosed in Canada. If the seller does not admit to knowing about the latent defect in some cases the question of damages will not even arise.
How far reaching can you go in asserting a latent defect in Ontario? This can of worms was opened in Dennis v. Gray, 2011 ONSC 1567. In this case the vendor knew that the purchaser had small children that were moving into the house. The vendor also knew that the person across the street was convicted of a child pornography offence.
A motion to dismiss was brought unsuccessfully by the vendors. Judge Hoy made the determination that it was not plain and obvious that this did not constitute a latent defect that required disclosure.
The question you are probably wondering is how this could possibly be a latent defect given the definition of latent defect.
We must look back to the 1979 landmark decision of McGrath v. MacLean et al., 1979 CanLII 1691 (ON CA) yet again.
In obiter dictor Justice Dubin wrote that “a vendor may be liable to the purchaser of premises which are not new if he knows of a latent defect which renders the premises unfit for habitation or dangerous in themselves and does not disclose it to the purchaser.”
Unfortunately, this case never made it to trial, but it has seemingly opened the door to novel claims of latent defects.
The commonly named defendants are as follows:
· Vendor / Seller – This is typically whom you will have your strongest claim against.
· Real Estate Agents & Brokers – Often named, especially so in claims related to stigmatized properties. It is not common for them to be found liable though.
· Inspectors – Commonly named but difficult to have success against as most of them have a contract that excludes them of liability.
Less commonly named defendants:
· Lawyers – Typically the Real Estate Solicitor who performed the transaction. In a latent defect case, they will seldomly have liability.
· Contractors – They will usually be sued by way of crossclaim. This typically occurs where the seller has hired a contractor to fix a latent defect and they failed to do so. The purchaser then sues the vendor and the vendor sues the contractor.
· Developer – This typically occurs when the developer fails to disclose latent defects to the purchaser. They may also be named in a cross claim in cases such as where a buyer purchases and quickly flips the home and then is sued by the seller in relation to the latent defect. The original buyer may then crossclaim against the developer.
· Outside Parties – Where fraudulent conveyances occur you may end up naming the party in possession of the fraudulently conveyed property or land. This would occur when you bring a lawsuit against the vendor and the vendor transfers title in their other property into the name of another person or business.
For more information on our Real Estate Litigation practice take a look at our Real Estate Practice Area Page.
At McMackin Law we proudly serve Pickering, Ajax, Whitby, Oshawa, Durham Region, Courtice, Bowmanville, Newcastle, Clarington, Port Hope, Cobourg, Brighton, Northumberland County, Toronto, and surrounding areas. If your area is not listed here but you are in Ontario do not hesitate to contact us as in most circumstances, we will still be able to act on your matter!