I’m Selling My Property – What Do I Have to Disclose to the Buyer?

A Caution on the Use of the Seller Property Information Statement

By Slonee Malhotra

The doctrine of caveat emptor or “let the buyer beware” continues to be the standard for residential real estate transactions in Ontario. As explained in our 2023 article on Murder, Ghosts and Other Chilling Things You May Not Know Before Purchasing Property, buyers are generally responsible for performing their own research, inspecting goods and asking relevant questions when purchasing a property.

As it relates to a seller’s disclosure obligations, the principle of caveat emptor draws a distinction between patent defects and latent defects. Patent defects are faults in the property that are discoverable through an ordinary inspection or upon making reasonable inquiries, while latent defects are not discoverable even with reasonable diligence.[1] Sellers generally have no obligation to disclose patent defects, provided they do not fraudulently or negligently misrepresent them.

When it comes to latent defects, the rules are different. While there is generally no positive obligation to disclose hidden defects, a seller must disclose a known latent defect that renders the property unsafe or unfit for human habitation, such as dangerous electrical or defective plumbing. Not disclosing or actively concealing such material defects may entitle the buyer to rescind the agreement and/or sue the seller for damages. In McGrath v. MacLean (1979), the Ontario Court of Appeal affirmed that caveat emptor does not protect a seller who fraudulently conceals a known dangerous latent defect or makes dishonest representations about a property.[2]

However, as discussed in our previous article, Ontario law does not require sellers to disclose information about certain events that have occurred on a property, such as a tragic death, suicide, crime, or alleged haunting. Since the significance of such events are inherently subjective, the law places the onus on prospective buyers to make inquiries before completing a transaction. However, once a seller chooses to answer a direct question about the property's history, the seller is legally obligated to answer completely and truthfully. False or misleading responses may give rise to claims against the seller for fraudulent or negligent misrepresentation.

A Seller’s Duty to Respond Completely and Truthfully

An ongoing lawsuit in Quebec illustrates the uncertainty that can arise when sellers are asked direct questions about a property and its history. According to recent news, the owners of a home in Hudson, Quebec are seeking $425,000 in damages from its previous owners after discovering that an intruder had been brutally stabbed inside the home in 2020 before being pronounced dead in hospital.[3] The owners claim that the sellers falsely answered "No" on the seller's declaration when asked whether a violent death or suicide had occurred in the home and by doing so, deliberately misled their purchase.

The sellers dispute the purchasers’ allegations, arguing that the declaration was accurate since there was no evidence that the intruder physically died on the property. Further, the sellers argue that they had disclosed that an “intrusion/altercation” occurred in 2020 in a separate section of the declaration, and therefore, the burden shifted to the buyer to ask follow-up questions.

Although this case has not yet been decided, it highlights the challenges courts may face in determining whether a seller's response to a direct inquiry was truthful and non-misleading.

Voluntary Disclosure Through a Seller Property Information Statement

Ontario courts have repeatedly held that sellers who voluntarily choose to provide information about a property or directly respond to a buyer’s inquiries must be truthful and accurate. This most commonly arises through the Seller Property Information Statement (the “SPIS”), an optional disclosure form prepared by the Ontario Real Estate Association that allows sellers to disclose information about a property's condition, such as that relating to structural issues, past repairs, or environmental concerns. Although completing an SPIS is entirely voluntary, any representations made within the document must be truthful.

In Krawchuk v. Scherbak (2011), the Ontario Court of Appeal affirmed that once a seller chooses to "break the silence" by completing an SPIS, the doctrine of caveat emptor falls away as a defense mechanism, and the seller must answer the questions completely and truthfully.[4] The Court found the sellers liable for negligent misrepresentation after they failed to disclose known structural and plumbing defects, explaining that while statements made in an SPIS are not warranties, they may nonetheless form the basis of liability if a purchaser reasonably relied on them at the time of buying the property.[5]

Similarly, in Ménard v. Parsons (2015), the Ontario Superior Court underscored how completing a SPIS can be risky for vendors. The Court found that the seller negligently misrepresented the property’s condition by answering "Unknown" to a question on the SPIS asking about potential environmental contamination despite being aware that part of the property sat on a discontinued landfill site.[6] The Court held that the purchasers were entitled to rescind their purchase agreement and walk away from the transaction in the manner that they did as the SPIS contained untrue and misleading statements.

The Bottom Line

In short, while caveat emptor generally places the burden on buyers to properly investigate a property, it does not protect sellers who choose to speak but provide incomplete, dishonest or misleading information. As a seller, if you complete an SPIS or answer a purchaser's direct questions, respond truthfully and completely, as this information can be relied upon by the courts. In any case, regardless of whether or not you choose to complete an SPIS, if you know of a latent defect that affects the property's safety or habitability, you must disclose it.

If you are selling a property and need support navigating your disclosure obligations, or simply have questions, contact Slonee Malhotra (slonee@sorbaralaw.com) of SorbaraLAW today.