Patent and Latent Defects in Real Estate

March 7, 2022

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When you buy a property, you buy any latent defects. This is why it’s important to properly inspect a property before making an offer to purchase.

Patent Defects

A patent defect is a defect that is obvious enough that it should be discovered during a reasonable inspection of the home. The legal principle of caveat emptor, or “let the buyer beware” applies to patent defects. According to this principle, the buyer alone is responsible for ensuring that the house they are buying fulfills their expectations. If the buyer does not inspect the property before buying, and subsequently discovers patent defects, the seller cannot be held liable. This is because the buyer was responsible for discovering all patent defects before agreeing to buy.

While it is clear that there is no duty on sellers and their brokers, to disclose patent defects, sellers and their brokers cannot hide from, or otherwise mislead buyers as to the existence of such defects

Examples of Patent Defects: These are defects that a capable home inspector would be able to spot. Patent defects include cracks in the wall, broken windows, damaged floors, a door that doesn’t close, or staining on the walls from a leaking roof.

Latent Defects

A latent defect is a defect which could not have reasonably been discovered by a non-invasive home inspection. Because latent defects are very difficult for a seller to discover, caveat emptor does not apply. If the latent defect was not known to the seller, the seller cannot be held liable for the defect. However, if it can be proven that the seller knew of the defect and deliberately failed to disclose it, the seller may be held liable.

A material latent defect is a physical defect that is not discernible through a reasonable inspection, and makes a property:

  • dangerous or potentially dangerous to the occupants
  • unfit for habitation
  • unfit for a buyer’s purpose, should that purpose be made known to the sellers or by the industry professional

Material latent defects may also include:

  • defects that would be very expensive to repair
  • when a seller has received a notice from a local government or authority that something about the property must be fixed
  • when the seller does not have appropriate building or other permits for the property

These are things your professional will not know unless you tell them. If defects are discovered by a buyer during an inspection, or by their own real estate professional or lawyer when they review permits, real property reports, or title, it could put the transaction in jeopardy.

Examples of material latent defects

  • a seller finished the basement of their house and in the process covered a large crack in the basement wall that affects the structure
  • a seller finished the basement of their house, or built an addition or a garage, without the appropriate permits
  • a seller knows that whenever it rains, water enters the house
  • the home was a former marijuana grow-op and the property hasn’t been remediated. The growing conditions for a large marijuana grow operation create an ideal environment for potentially dangerous mould and mould spores and these may linger and continue to make the property unfit to live in if it hasn’t been remediated
    • Up to four, legally grown marijuana plants are unlikely to cause the damage or mould necessary to create a material latent defect or require remediation. Real estate professionals do not have to disclose that four plants were legally grown in a property, unless they created damage enough to require remediation, which is unlikely. It’s the scale of grow operations that causes the damage, not the type of plant.
  • the home was a former production operation for fentanyl or other opioids. Particles of these substances can remain in homes and surfaces and can be extremely dangerous if touched or inhaled

Sellers cannot hide defects or mislead buyers about the property’s condition or other attributes. You must disclose all material latent defects that you know about.

Your real estate professional must also disclose to buyers any material latent defects they know about. Real estate professionals cannot help hide or disguise material latent defects.

Damage to Property Before Closing

Rights Under the Agreement of Purchase and Sale:

  • Section 8 – Title Search, allows the Buyer’s lawyer, up to five (5) days prior to closing to “requisition” the Seller’s lawyer if the Buyer cannot obtain fire insurance. If the Buyer cannot obtain fire insurance (perhaps because of existing water/flooding damage to a basement) the Buyer may be able to terminate or rescind the Agreement.
  • Section 14 – Insurance, provides that in the event of substantial damage, the Buyer may (i) terminate the Agreement and have deposit returned, without interest or (ii) accept the insurance proceeds from the Seller’s insurer and complete the transaction.

Pre-Closing Remedies:

  • Require Seller to remedy before closing – e.g.
    • Seller to fix leak and replace damaged carpet etc.
  • Price abatement
    • Buyer assumes risk and makes repairs
  • Holdback
    • To be used by Buyer or Seller to cover cost of post-closing repairs
    • Not an abatement
  • Termination / Rescission – refuse to complete transaction
    • Must be material
    • May arise from misrepresentation in SPIS

Post-Closing Remedies

  • Negotiated settlement
  • Sue Seller (usually in Small Claims Court)
    • Time consuming and sometimes expensive
    • Not a quick resolution
    • Have to show pre-existing condition, that know about and that would have a material impact on Buyers, negligent misrepresentation.
  • Title Insurance – in some cases, where renovations done without permits and not up to code

What this means:

As the Seller:

You are not responsible for disclosing patent defects. However, you cannot deliberately hide patent defects (such as painting over leak marks to conceal defective roofing). You are responsible for disclosing any latent defects that you are aware of.

If you cover up a patent defect or fail to disclose a latent defect that you are aware of, the buyer may successfully hold you liable.

As the Buyer:

Because you are responsible for discovering patent defects, make sure to hire an experienced and qualified home inspector. You can only hold the seller liable for patent defects if the seller made efforts to hide these defects. You are not responsible for discovering latent defects. However, the seller can only be held liable for these if the seller was aware of them.

If you do discover hidden patent defects or latent defects, you have two years from the day on which you discover them to start a lawsuit. However, you lose your ability to start a lawsuit 15 years after the seller should have disclosed the defect to you, even if you have not discovered the defect yet.

It is important to beware of how these two types of defects establish your responsibilities as buyer and seller. As always, hiring good realtors, home inspectors and lawyers is the safest way to avoid headaches down the line.