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Sep 2022

Patent vs. Latent Defects in Real Estate Transactions

What are they and what you need to know

By Sandra Johnston, Brooklyn Lester and Slonee Malhotra

A patent defect is a visible defect. It is something that is easy to see or observe. This might be a crack in the home, hole in the wall or broken windows. 

A latent defect is a non-visible defect. This is something that you cannot see or observe without further investigation. This might be a leaky foundation, leaky roof or electrical issues.

Many individuals believe that any issue with a home, whether patent or latent, would be disclosed in the Agreement of Purchase and Sale (the “APS”). This is not necessarily true.

Sellers are under no obligation to disclose patent defects. Just think, if you can see it, it does not also need to be pointed out to you. This is based on the principle that when you purchase a home, what you see is what you get. However, the seller cannot hide this from you either—if they do, they might be on the hook.

Latent defects are a little bit more complicated. A seller is responsible for informing a purchaser about latent defects of which they are aware if they make the home uninhabitable or dangerous. Electrical issues that might start a fire need obviously be disclosed. However, a seller might not always be aware of latent defects and a seller cannot tell you what they do not know. It is accordingly extremely important to hire a reliable home inspector so that you are making your purchase fully informed.

Seller Beware

If a seller fails to disclose a latent defect for which he or she has a responsibility to disclose, you could have an action against the seller for any damages you suffer as a result of that failure. Similarly, you could have an action against a seller who makes an inspection of the property impossible or misrepresents the condition of the property when asked. However, if you become aware of a defect, either latent or patent, before closing and you decide to complete the transaction nonetheless, you will likely have lost your ability to pursue the seller for any such defect in the courts.

There are different clauses that can be used in an APS that address the topic of defects. If you are a seller and are aware of a possible latent defect, consider disclosing this through use of the following clause in an effort to protect yourself from a lawsuit, as described above:

The Buyer acknowledges the Buyer has been informed of the following possible latent defect(s) in the property: ___________________________________. The Buyer further acknowledges it is the Buyer’s sole responsibility to complete their own due diligence concerning this defect, for example, obtaining a report concerning this defect, and the Buyer releases the Seller of all liability for current and future damages resulting from this possible defect.

Buyer Beware

In today’s market, many buyers are purchasing homes nearly sight unseen. Many buyers are submitting unconditional offers so that they have a reasonable prospect of success. However, buyers should always remind themselves of the term “caveat emptor”—buyer beware. Bad actors are prone to take advantage of inflated markets like we see today. They may offload properties with defects and issues to no knowledge of the purchaser.

Agents and buyers should be sure to do their own investigation into a property. In addition to the ordinary checks in a real estate transaction, consider the following:

  • Google search the property address. Look for news articles, images and satellite imagery.
  • Have your agent look at previous MLS Listings—what information was provided the last time the house was on the market?
  • Check out housecreep.com or other online forums for reporting historical and nefarious events
  • Talk to the neighbours.
  • Go for a walk in the neighbourhood at different times of day.

Do your due diligence. If you are a buyer and you have reason to believe that there may be a latent defect that the seller is not specifically disclosing, consider having the seller make a representation confirming that there is no such defect by adding a clause along the lines of the below, which is currently drafted to address water seepage or flooding, but would need to be modified to address the suspected defect in question:

The Seller represents and warrants that on completion, there is no known damage to the basement, roof, or elsewhere caused by water seepage or flooding. The parties agree that these warranties shall survive and not merge on the completion of this transaction, but apply only to the state of the property at completion of this transaction. The Buyer, at the Buyer’s sole option, may terminate this Agreement at any time prior to completion in the event any of the representations and warranties contained herein are incorrect, and the deposit shall be returned to the Buyer in full without deduction.

Have a question about defects? Our real estate and litigation teams would be pleased to review with you.

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