Many realtors, buyers and sellers have heard of the Latin phrase “Caveat Emptor” or buyer beware. A recent Superior Court decision confirmed this principle in dismissing a lawsuit commenced by buyers of a residential property.
The facts of the case are as follows: The plaintiffs, Eric and Louise Brown, purchased a property located in Forest, Toronto in 2011 from the defendants, Gary and Wanda Cassidy. The Browns looked at the house in 2011. The Cassidys who owned the house since 1983, had some issues with water and mould in the basement in the 1990s. However, they brought a contractor in 2002 to fix the problem. When asked by Brown if there were water problems with the property, Cassidy said “no”. However, Cassidy testified that he did advise Brown about water problems and what was done to fix the problem. The Agreement of Purchase and Sale had no reference to any water problems.
After purchasing the house, the Brown’s contractor discovered mould in the basement. The Browns sued for $85,000 claiming this was the amount paid for the work necessary to repair the property. It is important to note that the purchase was a private transaction and the Browns did not do an inspection of the property before the purchase.
In dismissing the claim, Justice Raikes said that the Cassidys were ignorant of any water damage/leakage and mould contamination and that they did not believe that the problem was recurring. The Judge also said that the Browns failed to use any contractual protections to protect themselves. The Judge applied “Caveat Emptor” or buyer beware doctrine meaning that the risk of any deficiencies in the property rest with the purchaser unless there are specific contractual protections or if the facts fall within the four exceptions. The exceptions are: fraudulent misrepresentation, or concealing a latent (hidden) defect rendering the property unfit for habitation, being reckless as to the truth of statements, making false statements as to the fitness of the house, or breaching a duty to disclose defects that render the property dangerous.
What does this case mean for realtors and buyers? In our current real estate market with multiple offers, it is difficult for buyers to make offers conditional on inspection. As this case illustrates, buying without doing a home inspection is very risky and not recommended. If you cannot do an inspection, then you should insert the appropriate warranties or representations into the Agreement of Purchase and Sale to protect your legal position in the event that there are problems with the property after closing. Failing this, the doctrine of Caveat Emptor applies and the buyer assumes the risk of repairing defects following closing.