December 22nd - 2015

Legal Beat: Wet basement a reminder of buyer beware precedent

In this case, the buyers discovered a leak in the basement after moving into a house, and the concept of buyer beware played a key role in the court decision.

Legal Beat

In this case, the buyers discovered a leak in the basement after moving into a house, and the concept of buyer beware played a key role in the court decision.

Legal Beat

by Merv Burgard, Q.C

In this case, the buyers sued the seller for failing to disclose a water intrusion caused by a foundation leak.

The offer submitted by the buyer was conditional on financing but not on a home inspection. In fact, the buyers’ relative had some construction expertise and inspected the property, whose owner was a REALTOR®. The buyers were allowed to inspect the property twice prior to closing – two more “walk-throughs” to view the property before the transaction closed. No problems were noted and the deal closed.

Afterwards, the buyers found a leak in the furnace room in the basement. A contractor was installing an air conditioner and when the basement drywall was removed, water was seen coming in through a small hole in the foundation wall. The leak could not be seen by the buyers before the drywall was removed.

The judge decided that there were no misrepresentations. He then went through several cases dealing with the concept of caveat emptor (or buyer beware) and the disclosure obligations of a seller.

The buyers lost their case. In the end, the court ruled that it was not proven that the seller knew of the leak, which was considered a latent defect. According to the precedents, the seller did not have a legal duty to disclose a latent defect. The primary precedents supported the position that any defects must be such that they would render the premises “uninhabitable or dangerous.” The agreement of purchase and sale contained the usual contract clauses, including the OREA “entire agreement” clause, which states:

“26. … This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein…”

Thomas v Raynard 2014 CanLII 68826

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Mervin Burgard Q.C.

Wet basements seem to result in much litigation. This judge gave a carefully reasoned decision on the particular facts of this transaction and the law. Cases such as this reiterate the caveat emptor position in our common law.

Such cases reinforce the need for buyers to get contracts prepared that protect them. Get a warranty from sellers. Insist on a Sellers’ Property Information Statement (SPIS). Ensure that a competent and complete home inspection is done. Talk to the neighbours. Sellers, in turn, will likely want to sell their property “as is”, and remain silent.

Mervin Burgard, Q.C.

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