Buyers and Sellers Beware: Patent and Latent Defects

British Columbians are experiencing the hottest residential real estate market in recent memory. A multitude of factors including low interest rates, foreign investment and lack of inventory continue to push prices upward. The lack of inventory in detached residential homes results in more buyers than there are sellers, and to there being multiple offers to purchase properties that are on the market. There is a degree of panic among buyers and sellers investing in the current market.

This sense of panic may result in failure of due diligence on the part of both buyers and sellers as they both try to capitalize on the hot market. To make their offers more attractive, some buyers reduce the number of subject clauses in their offers; some make offers without any subjects at all!

The inherent risk of subject free offers is obvious: if the seller accepts the offer, the buyer must pay the purchase price on the completion date or forfeit the deposit and risk being sued for breach of contract or specific performance.

The consequences of failing to properly inspect the property before purchasing it, or conversely, failing to disclose material defects when selling it, can be also significant.

So what happens if one buys a property and finds a serious defect in it? The general rule is that Caveat Emptor (“buyer beware”) applies, and buyers can only succeed against sellers for failing to disclose latent defects.

Latent defects are those that are not discoverable upon reasonable inspection – they are hidden from due diligence inspections, and sellers are required to disclose all latent defects that they actually have knowledge of, or else risk liability.

Examples of latent defects include (but are not limited to): unauthorized suites constructed without appropriate permits, or notices from the local municipal government regarding remediation that has not been done, or properties being used for marijuana grow operations that have not been remediated.

Patent defects, on the other hand, are defects that are discoverable upon reasonable due diligence inspection. The seller is not obligated to point these out.

Examples of patent defects include (but are is limited to): roof leaks, rotten woodwork, carpet stains, uneven floors, missing banisters, missing smoke detectors, etc.

What constitutes a patent or latent defect varies from situation to situation. It is important to include inspection conditions in offers to purchase real estate, and to carefully review inspection reports prepared by a qualified and reputable home inspector.

Bottom line: don’t forget the importance of due diligence in this hot market. If you are a buyer, conduct a home inspection and visually inspect the property yourself. If you are a seller, make sure you take stock of the latent defects in your home and disclose them.

By | 2018-08-28T16:09:09+00:00 December 1st, 2016|Personal Injury Law Resources|

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