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Articles in this section are of general information and in every situation are subject to the application and interpretation of a law, rule or factual situation that may differ. Consult us for any specific question.

Hidden defects: Getting information to better protect yourself

4 December 2018

Several myths exist regarding hidden defects. Many people mistakenly believe that these are essentially vices that have been hidden in order to get a better price. Others will say that hiring the services of an inspector or expert protects you from any problems. Unfortunately, these are just some of the many misconceptions we encounter.

The number of transactions in both real estate and movable property sales is significant, and nobody is exempt from the possibility of recourse to hidden defects. We often see such claims following the sale of a building, but this is also the case for the sale of any property, including cars, household appliances, animals, trailers, etc.

Nevertheless, being properly informed on the topic can help you prepare for the situation… read on to the end!

What is a hidden defect?

The question is not trivial and the definition of a hidden defect is found in article 1726 of the Civil Code of Quebec. Four conditions are required to qualify as a hidden defect:

  1. A serious defect;
  2. That existed at the time of the sale;
  3. That was unknown to the buyer;
  4. That was hidden or not apparent.

Now let’s take a closer look at each of these conditions.

  1. A serious defect

The defect identified must reduce the use for which the property is intended in such a way that, having known, the buyer would not have bought it or would have offered a lower price. This is an objective standard, i.e., the defect must be significant for the average buyer, not just for the person who actually purchased it. In fact, the whims of a difficult or unreasonable buyer cannot justify a claim for hidden defects.

For example, the presence of asbestos in the walls of a house does not constitute a hidden defect because it does not affect the use of the property, since asbestos is not a hazard when it is left untouched in the walls, the fact that additional safety measures must be taken during renovation work is not sufficient to make the defect sufficiently serious for it to warrant a claim related to hidden defects. On the other hand, water infiltration and the presence of mould are serious defects.

  1. A defect that existed at the time of the sale

The seller is not liable when the defect arises after the sale. However, they are liable when the defect originates before the sale, even if it only appears later. For example, the fact that a vehicle has never had an engine failure prior to being sold does not necessarily exonerate the seller if it is shown that the cause of the failure is due to a pre-sale defect. But if the cause of these breakdowns results from a misuse of the vehicle by the buyer, the latter must assume the cost of the damage.

  1. Defect unknown to the buyer

A buyer who is informed of the presence of a defect and who nevertheless purchases the good with full knowledge of the facts will be ill advised to complain to the seller about it. This is self-evident, but in most cases, we are dealing mainly with a buyer who has presumed knowledge or who has failed to read key documents in detail. In addition, a clear reference to the seller’s disclosure will prevent the buyer from claiming that they were not aware of it, even if they have not read the document… no one can take advantage of their own negligence!

  1. A defect hidden or not apparent

It is often here that the issue comes into play. Although not aware of the defect, the buyer will also have to demonstrate that the defect was hidden and that a reasonably prudent and diligent buyer would not have been able to discover it during a diligent but basic inspection. The buyer is not obliged to hire an expert to carry out a pre-purchase inspection, although this is always recommended. Indeed, the inspection report may prove valuable to all parties, as it documents the condition of the property at the time of sale and provides an indication of what was apparent or not at that time. The inspection is basic in that the buyer does not normally have to open the walls or otherwise conduct a thorough inspection. However, if there are any signs that a larger problem may exist, the buyer cannot ignore them and must investigate further.

Contact us for more information on hidden defects.

The seller’s knowledge of the defect

Many sellers are shocked to learn that despite their absolute good faith, despite the fact that they were totally unaware of the existence of the defect, despite the fact that the defect is due to the fault of someone else (e.g., a construction contractor, the previous owner, the manufacturer, etc.), they are liable to their buyer for hidden defects affecting the good.

This is because the seller’s warranty automatically applies, unless it has been expressly excluded in the deed of sale. Thus, the seller guarantees the buyer that the good is free from hidden defects. Moreover, it is only natural that the seller should be unaware of the defect, since it is hidden! However, the seller will still have to bear the costs of remedying the defect.

It should be noted that the seller who is aware of the defect and does not disclose it to the buyer before the sale may be liable to pay additional damages.

Consult a lawyer before the sale.

Warranty disclaimer

As mentioned, it is possible to sell without a legal warranty, in which case it must be with the consent of the parties and an exclusion clause must be specifically included in the sales contract. It is important to note, however, that only a non-professional seller can limit or exclude the validity of the legal warranty.

There are 2 types of exclusion clauses:

The first type, the clause “Sale made without legal warranty and at the risk of the buyer” is the one that offers the most protection to the seller. By inserting this clause, the seller is not obliged to disclose latent defects they knew about and will not be obliged to repair defects that should have been known. By inserting this clause, the seller completely releases themself from the legal warranty. A claim based on a latent defect will not be possible for the buyer.

The second type, the clause “Sale made without legal warranty” does not totally absolve the buyer from the legal warranty. Indeed, the seller is still liable for his personal acts. Thus, if he knew about a defect that was not disclosed, he could be held responsible and have to repair the defect or compensate the buyer.

When inserting one clause or the other, it is important to know that their effect will be limited if the seller intended to harm/deceive the buyers during the sale. In this case, the buyer can start proceedings for fraud. The exclusion effect is also limited by the personal actions of the seller. In general, case law and authors equate the seller’s personal actions with a right, encroachment or fact that is personally attributable to the seller, that constitutes a defect in the title of the property sold or that affects the exercise of the buyer’s right of ownership, and that the seller has failed to disclose.

A few tips

Buyers must be careful before purchasing any property, pay attention to signs of a defect, ask the right questions and call upon the advice of an expert if necessary. The seller must act in good faith and must reveal everything they know about the property without hesitation, even at the risk of losing a sale.

In the event of the discovery of any defects, the buyer must notify the seller as soon as possible, to allow the seller to verify and examine the defect, either on their own or through the assistance of an expert. This is not an option: a buyer who performs remedial work without giving the seller such a chance will have their appeal dismissed. On the other hand, it is in the seller’s interest to check the defect as soon as possible; otherwise it will probably be more difficult for them to make a full and complete statement of defence.

In all cases, consulting a lawyer as quickly as possible during the process helps to limit the damage and save a lot of headaches.