April 6th - 2003

Avoid water woes with an SPIS

The sellers are aware that there are problems with water in the basement of their home.

The sellers are aware that there are problems with water in the basement of their home. They remedy the problem by installing exterior drain pipes and state that they have not had serious water problems since then.

The buyers specifically tell their agent that they want a property free of potential water problems and do not want to have to use a sump pump. They viewed the house, inspected it and put in an offer. When they made their final inspection, they noticed some wetness on the basement floor. However, no questions were asked of the sellers and no representations or warranties were made.

After the deal closed, the buyers suffered serious flooding damage. An investigation showed the basement walls were allowing water to enter – a serious problem. The buyers sued the sellers and the judge awarded them damages since the sellers must have known about the problem and should have disclosed it. The judge relied on the Jung v Ip Ontario case of termites.

However, the Court of Appeal said the judge was wrong. A seller must disclose a known latent defect* if it is one that renders the premises unfit for habitation or renders the premises dangerous.

It would be fraudulent misrepresentation to conceal a known major defect, but that the sellers in this case did not intentionally deceive. Jenkins v Foley 2002 NFCA 46

Merv’s Comments

The Jung v Ip case is usually cited for the broad statement that “a latent defect must be disclosed by a vendor who is aware of its existence,” and “vendors are required to disclose latent defects of which they are aware.

Silence about a known major latent defect is the equivalent of an intention to deceive.” This Court of Appeal disagreed with those broad statements as being inconsistent with other binding authorities.

The buyer’s agent should have insisted on a Sellers Property Information Statement and probably should have added the SPIS to the offer and stated it to be a warranty.

The entire decision is available at www.canlii.org.

*The OREA Real Estate Encyclopedia defines a latent defect in this way: “Frequently referred to as a hidden defect. A physical deficiency or construction defect not readily ascertained from a reasonable inspection of the property, such as a defective septic tank or underground sewage system or improper plumbing or electrical lines. Conversely, a patent defect is readily discernable to the untrained eye.”

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