What is the legal warranty against latent (hidden) defects?
|Monday, 16 July 2012 16:53|
What is the legal warranty against latent defects?
Keywords: latent (hidden) defect – discovery – seriousness – apparent defect – real estate – promise to purchase – deed of sale – pre-purchase expert
The Civil Code of Quebec uses the expression “LATENT DEFECT” within the subsection dealing with the obligation of the seller to warranty the quality of the property he is selling.
One must conclude that the expression “LATENT DEFECT” is relative to the legal obligation of the seller, toward the buyer, to provide a warranty for the property sold. That warranty is not, however, unlimited. It has its own limits and restrictions as we will see. However, it also benefits from its own assumptions which serve to facilitate the process of proving the existence of, or the knowledge of, the LATENT DEFECT by the seller.
The essence of the legal warranty against latent defects is found in article 1726 of the Civil Code of Quebec, which states:
“The seller is bound to warrant the buyer that the property and its accessories are, at the time of the sale, free of LATENT DEFECTS which render it unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them.
The seller is bound, however, to warrant against any LATENT DEFECT known to the buyer or any apparent defect; an apparent defect is a defect that can be perceived by a prudent and diligent buyer without any need of expert assistance.”
I. What are “the property and its accessories”?
a. What is a property?
A property whether corporeal or incorporeal, can be divided into movables and immovables.
Therefore, one must clearly understand that the legal warranty against latent defects applies as much to real estate (i.e. a house or a condominium) as to a moveable (i.e. a computer or a car) or to an incorporeal (intangible) property (i.e. software).
The present article deals with real estate. The specific considerations which would apply to the sale of a moveable property are not treated in this article.
b. What are the accessories of an immoveable?
During a sale, the seller has the obligation to deliver the property, the object of the sale, including all of its accessories. In addition to warranting the purchaser against any latent defects of the immoveable, article 1726 of the Civil Code of Quebec warranties the immovable’s accessories as well.
The accessories of the property which has been sold form part of the property and as such would be subject to any rights and servitudes associated to the immoveable, as well as the immoveables associated or connected to the immovable sold.
II. The absence or the presence of LATENT DEFECTS is assessed “at the time of the sale”
This wording requires that one must be able to establish the moment at which the sale was made in order to determine, at a future date, whether or not there existed a LATENT DEFECT on the property and/or its accessories at the specific time of sale.
a. When is the sale effective?
According to article 1708 of the Civil Code of Quebec:
“Sale is a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay.
A dismemberment of the right of ownership, or any other right held by the person, may also be transferred by sale.”
Therefore, one must differentiate the moment of signing the promise to purchase the immovable from the moment of actual possession of same and also from the moment of signing the deed of sale.
For example, the signing of a promise of sale is not equivalent to the actual sale, even though the potential buyer may make a legal claim in the eventuality the seller withdraws his promise of sale. The difference between the promise of sale and the contract of sale lies in the fact that as long as the actual sale has not been completed, the seller maintains ownership of the property.
It is therefore the date shown on the deed of sale which would be used to determine the pre-existence of a LATENT DEFECT. This distinction is important as the buyer maintains his recourse against the seller for any hidden defect which appeared between the moment of signing of the promise of sale and the signing of the deed of sale.
However, one must be careful of such affirmations in the event where the buyer takes delivery and actual possession of the immovable (i.e. moving and residing in the building) between the moment of the signing of the promise of sale and the moment of the signing of the deed of sale. In effect, the sale would then be considered as having occurred on the day the buyer moved into the building and it is on this very day that the possible presence of LATENT DEFECTS would have to be determined.
III. The required severity of the defect in order to avail of the legal guarantee
As seen previously, article 1726 of the Civil code of Quebec requires a specific degree of severity of the defect in order to engage the legal guarantee: “[…] latent defects which render it unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them.”
1. A “LATENT” DEFECT
A defect is a DEFAULT which is so severe that it diminishes the use or the value of the object sold. Thus, it has to be a DEFAULT of a specific severity, as opposed to the term “poor workmanship” which is also used in the Civil Code of Quebec in the chapter relating to construction contracts.
Also, the defect must be latent and unknown to the buyer at the time of the sale. The seller will not be required to guarantee the property against a defect that started after the sale, nor to provide a guarantee for the defect which was known by the buyer at the time of the sale. However, the seller will remain responsible for the LATENT DEFECT that pre-existed the sale and which only manifests itself afterwards.
In order to determine whether a defect is latent, one must compare the buyer’s performance, or that of his pre-purchase expert, at the time of the inspection of the building, with that of a prudent and diligent buyer placed in the same circumstances.
Here are some examples of defects which have been considered as latent by the Courts of justice:
– the misrepresentation of the existence of a defect by the seller in order to mislead the buyer;
– a defect that an expert, generally competent, could not discover;
– a defect which can only be discovered by excavation or demolition.
On the contrary, the apparent defect, a defect which can be discovered by a prudent and diligent buyer without the need of an expert, is not covered by the legal guarantee.
Here are some examples of apparent defects according to the Courts of justice:
– the wear and aging of a property constitute apparent defects;
– an excess of humidity and the presence of mold are apparent defects, if these elements could be identified by a simple visual examination;
– when the immovable presents evidence which leads to suspicion of the presence of a potential defect, the prudent and diligent buyer who has not called upon an expert must do so, unless he did perform a satisfactory assessment himself.
2. Which renders the good “unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them”.
i. “unfit for the use for which it was intended […]”
In this situation, the defect has to be of such a severity that it would make a residential building unfit to live in.
Here are some examples of defects which are deemed to make a residential building unfit to live in according to the Courts of justice:
– the immovable affected by mold which is a health hazard;
– the immovable in which water is unfit for consumption;
– the immovable of which the well is unable to meet the ordinary requirements of the household.
On the contrary, the mere presence of a contaminant such as UFFI or by Radon does not necessarily make an immovable unfit to live in unless the buyer can prove this is so.
ii. “or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them”
Through this wording, the legislator lightens the burden of the buyer who will only be required to prove, in order to benefit from a legal action, that he would have proposed a lower price.
IV. The consequences of the presence of a latent defect which may affect the property sold
1. If the property sold perishes by reason of a latent defect
Article 1727 of the Civil code of Quebec states the following:
“If the property perishes by reason of a LATENT DEFECT that existed at the time of the sale, the loss is borne by the seller, who is bound to restore the price; if the loss results from superior force or is due to the fault of the buyer, the buyer shall deduct from his claim the value of the property in the state it was in at the time of the loss.”
This provision means that even though the seller no longer has ownership of the property, he will have to bear the costs and consequences of its loss. He may thus have to reimburse his buyer for the entirety of the selling price.
Some exceptions however apply:
– The loss must be provoked by the LATENT DEFECT which already existed at the time of the sale;
– There may be a reduction of the amount of the claim if the loss was caused by a superior force (e.g. fire) or by the fault of the buyer (e.g. allowing the property to deteriorate).
V. The dilemma of the seller who was aware of the defect or could not have ignored it
Article 1728 of the Civil code of Quebec states the following:
“If the seller was aware or could not have been unaware of the LATENT DEFECT, he is bound not only to restore the price, but to pay all damages suffered by the buyer.”
As soon as it is possible to prove either the cognizance of the defect or the impossibility for the seller to disregard the defect, the seller will have to: (1) reimburse his buyer for the total selling price, and (2) pay all damages which have been suffered by the buyer. The legislator has therefore created a higher level of responsibility against the seller who knew about the defect and did not disclose the information.
Moreover, it has been established through article 1729 of the Civil code of Quebec a presumption of knowledge of the defect depending on the identity of the seller:
“A defect is presumed to have existed at the time of a sale by a professional seller if the property malfunctions or deteriorates prematurely in comparison with identical items of property or items of the same type; such a presumption is not made, however, where the defect is due to improper use of the property by the buyer.”
A professional seller is therefore presumed to know the existence of the defect. In the context of a real estate sale, the contractor who built a house with the intention to sell it afterwards is considered as a professional seller.
It is also important to note that according to the wording of article 1730 of the Civil code of Quebec, it might be possible to take an action against the contractor, the supplier and any wholesaler of the property suffering a latent defect. A consequence of this provision allows a subsequent buyer to take an action against the contractor even if the buyer has no contractual relationship with him. It may also allow the buyer, for instance, to take an action against the plumber, the supplier and the manufacturer for a defect in the plumbing pipes which are an integral part of the building.
Article 1730 of the Civil Code of Quebec states:
“The manufacturer, any person who distributes the property under his name or as his own, and any supplier of the property, in particular the wholesaler and the importer, are also bound to warrant the buyer in the same manner as the seller.”
VI. Is it possible for a seller to evade the legal warranty against latent defects?
Yes. Article 1732 of the Civil code of Quebec expressly states that the parties to a contract, under the condition that they mention it in their contract, can diminish the effects of the legal warranty or even exclude it altogether:
“The parties may, in their contract, add to the obligations of legal warranty, diminish its effects or exclude it altogether but in no case may the seller exempt himself from his personal fault.”
A distinction must be made since the seller may not avoid his responsibilities which are the consequence of his “personal fault”. The express renunciation of the legal warranty may not be valid if the seller has failed in his obligation to denounce the defects of which he was aware or if he was involved in any scheme or lies (“fraud”) with the intention to coerce the buyer to purchase the property.
There is in fact a positive obligation to denounce the existence of defects, although this obligation may be subject to one exception: the provision to the effect that the buyer acquires the property “at his own risks” when the contract of sale does not involve a professional seller..
This exception means that in the presence of a provision to the effect that the buyer acquires the property “at his own risks” through a sale by a non-professional seller, the said seller has no duty to denounce the defect, not even the defects of which he is aware. This provision in fact diminishes the obligation of both parties of a contract to act in good faith and thus permits willful misrepresentation through silence or non-disclosure. It merely serves to prohibit the seller from provoking the willful misrepresentation, through deceptive actions or misleading declarations aimed at covering up a defect which was initially apparent.
The information provided on this page is general in nature and cannot compensate for the need to obtain legal advice specific to a particular situation.
 Art. 899 C.c.Q: « Les biens, tant corporels qu’incorporels, se divisent en immeubles et en meubles. »
 Art. 1718 C.c.Q: « Le vendeur est tenu de délivrer le bien dans l’état où il se trouve lors de la vente, avec tous ses accessoires. »
 Le système d’irrigation d’une maison fut reconnu comme étant un accessoire dans Lafrance c. Lanouette, (C.Q. 1997-12-18), SOQUIJ AZ-98031079.
 Article 1710 C.c.Q : « La promesse de vente accompagnée de délivrance et possession actuelle équivaut à vente. »
 ABB inc. c. Domtar inc., 2007 C.S.C. 50
 Mercier c. Sourcier, (C.S., 1959-06-15), SOQUIJ AZ-50304110 Mercier c. Sourcier, (C.S., 1959-06-15), SOQUIJ AZ-50304110
 St-Louis c. Morin, 2006 QCCA 1643
 Thériault c. Dubeau, 2006 QCCS 1527
 De Passillé c. Lecompte, 2007 QCCS 2935
 Laforest c. Chabot, 2008 QCCS 4340What is the legal warranty against latent defects?
Last Updated on Friday, 15 August 2014 15:54