Epiq Systems, Inc.
Real Estate

Costly lessons in buying a new home

By Matthias Duensing

It’s a seller’s market in and around Toronto. Buyers frequently make one of the biggest financial decisions of their lives within hours — often without having much time to examine the property they’re purchasing.

Most buyers rely on a professional home inspector’s opinion and make an offer of purchase conditional on it. It's important to ensure you can rely on the inspector’s opinion. You want to have confidence that they have performed a proper examination and peace of mind that you will be able to recover if they have not.

As the recent Ontario Superior Court decision illustrates, the failure to take appropriate precautionary steps can have dismal consequences. 

Background

The plaintiff was in the market for a house that wouldn’t require fixing up. In 2009, she thought she’d found what she was looking for: a little house in Toronto’s suburbs that was in seemingly good condition. After obtaining a satisfactory report from a home inspector, she purchased the house for $370,000.

To her dismay, just weeks after taking possession, water started leaking into the basement. Within months, she’d invested $24,000 in repairs. Looking to recover her losses, she sued the vendors and the home inspector. Unable to afford a lawyer, she argued her own case at trial.

The Decision

The Home Sellers

The buyer claimed that the sellers must have been aware of the house’s defects and had breached an obligation to disclose them. The court rejected this argument: in the context of real estate transactions, it explained, sellers generally aren’t required to make buyers aware of a property’s defects. The rule of “caveat emptor” provides that:

Absent fraud, mistake or misrepresentation, a purchaser takes an existing property as he finds it, whether it be dilapidated, bug infested or otherwise uninhabitable or deficient in expected amenities — unless he protects himself by contractual terms.

Buyers bear the burden of doing due diligence on properties they’re interested in (or use contracts to protect their interests). Only if a seller has actively tried to conceal a property’s problems — through fraud or misrepresentation — will a buyer potentially be able to recover.

But proving such an allegation can be difficult. The plaintiff, for instance, argued that the sellers must have known about the basement’s cracks and used boxes to obstruct her view of them. While the court accepted the sellers were, in all likelihood, aware of the problem, it did not find sufficient evidence to support the claim that they’d tried to conceal the defects. The court also noted that the home inspector had ample opportunity to move them.

The Home Inspector

The buyer argued that the home inspector had been negligent and breached his obligations under a standard-form Inspection Agreement. The court agreed.

While the court accepted there are limits to what a homebuyer can reasonably expect from an inspection report they pay a mere $325 for, it concluded the inspector fell short of the standards one would expect.

For this amount, the court found the buyer could reasonably expect to be notified of any “substantial deficiencies in the property which could be discerned upon a visual inspection.” It also accepted the inspector's negligence and contractual breaches were the cause of the plaintiff's losses: she’d been in the market for a home requiring no repairs and would not have purchased the property had the defects been brought to her attention.

This, however, did not decide the matter. On the question of how much the inspector owed the plaintiff, the court concluded she was entitled to a meagre $325 because the inspection agreement included a “limitation of liability” clause, stating the inspector assumed no liability for the cost of repairing any unreported defects and that he was only liable up to the “cost of the inspection.” While the court admitted it was uncomfortable with this outcome, it was unable to find legal grounds for disregarding the terms of the contract.

Conclusion

The plaintiff's situation is every homebuyer’s worst nightmare. After purchasing a house she’d been led to believe was in good condition, and had sunk thousands into repairing, she was only able to recover $325 in damages.

Her errors were understandable, but they were also avoidable. If she’d had a lawyer assisting her with all stages of the real estate transaction, she could have better protected her interests under both the inspection agreement and the purchase agreement.

To Read More Matthias Duensing Posts Click Here
Lawyer Directory
BridgePoint Financial Services Inc.Toronto Lawyers AssociationMKD InternationalFeldstein Family LawLegal Print & Copy Inc.Deadline Law Dewshi Law Practice Janice Quigg International Inc.