It is not uncommon for a homebuyer to discover that, due to defects that were not apparent when he viewed the home prior to signing the agreement of purchase and sale, expensive repairs are required after he has moved in.  A buyer who finds himself in this situation typically feels that he has paid more than the property is worth, and it is natural to think of taking legal action against the seller.

Legally, once the real estate transaction has closed, the purchaser is for the most part restricted to the conditions and warranties contained in the conveyance or deed.  Since it would be highly unusual for the conveyance to include any kind of warranties as to the condition of the home, the saying “let the buyer beware” normally prevails.

One exception to the “buyer beware” rule is to be found in cases of fraud.  Perhaps the most common form of fraud in residential sales is the case where the vendor has deliberately covered up a significant structural defect.  This is sort of fraud that was alleged in Matz v. Copley, a recent case in the Ontario Superior Court of Justice.

The plaintiffs bought a house from the defendant vendor after hiring the defendant home inspection firm to inspect it for them.  The plaintiffs claimed that after they moved in, they found water on the basement floor that was coming from behind drywall on one of the basement foundation walls.  When they removed drywall, they found cracks and mould on the cement block wall.  They alleged that the vendor had put drywall in front of the wall in a deliberate effort to cover up pre-existing cracks and a mould infestation.

The home inspection firm had inspected the home for the vendor prior to the vendor’s acquisition of the property.  The purchasers alleged that the home inspectors would have seen the true condition of the walls during the course of that earlier inspection, and were negligent in failing to bring the problem to the purchasers’ attention.

The home inspection firm had made a video recording of the original inspection, the one that took place before the vendor purchased property.  This video recording proved to be a critical piece of evidence, as it showed that the drywall was in place on the wall in question before the vendor bought the home.  Since any cracks or mould that may have existed at that time were not visible behind the drywall, the home inspectors had no means of detecting the problem and could not be liable to the plaintiffs in negligence.

Evidence also showed that at some point during her occupation of premises, the vendor had removed the drywall in order to build a sewer stack.  Once the stack was in constructed, the drywall was replaced.  Although presumably the vendor would have observed the damage to the foundation during the time the drywall was down, it was evident to the court that the drywall was not put up with the intention of deceiving anybody.  The drywall was in place at the time the vendor bought the property.  It was taken down during the course of legitimate renovations, and was put back up after the renovations were complete.  Since an intention to deceive is necessary before the court can make a finding of fraud, there was no basis for making such a finding against vendor in this case.  A vendor of real property does not have an obligation to inform the purchaser about latent defects, so long as there is no fraudulent step taken to conceal a defect that would otherwise be visible.

It is also interesting that the court concluded that the presence of mould and water did not make the house dangerous or uninhabitable, and this by itself might have been enough to bar the application of the exception to the” buyer beware” rule.

Although there was no finding of liability against the home inspectors in this case, a firm that has inspected a property on behalf of a purchaser should be cautious about accepting an assignment from a party that intends to buy the property from the earlier purchaser.  This could place the inspectors in a conflict of interest, since it is against their interests to notify the second purchaser of problems that they might have missed the first time around.

Citation: Matz v. Copley, CanLII – 2010 ONSC 5565 (CanLII)

Richard Hayles, B.A., J.D.

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