What obligation does a seller have to actually disclose any defects or issues a buyer might consider relevant? After all, what one person may consider relevant, may be a non-issue for another person. Generally speaking, start with the proposition that a purchaser buys a property “as is, where is”, or as many people will tell you, it is “buyer beware”. However, there are specific exceptions to this general principle. These exceptions fall into three categories.
Common law. These are exceptions that have been developed by case law and are continually evolving as cases come before the Courts. In residential real estate, the common law states that a seller must disclose latent or hidden defects that are known to them or ought to be known to them. This is defined as defects that a buyer could not discover through ordinary inspection. For example, if the sewer line is broken and water backs up into the basement every spring, this must be disclosed. Also, if the basement foundation is cracked and subject to water seepage and this is hidden behind drywall, there must be disclosure. Inspectors do not have the liberty of removing all the drywall to discover this defect. Issues that have been fixed do not require disclosure. However, they must be well and truly fixed. For example, a recent Ontario case found liability for a seller where they did not disclose major water intrusion difficulties in the basement and said they had fixed the problem so there was no need for disclosure. Their so-called fix was to install a longer downspout on the eavestrough to take roof water further from the house.
Contracts. The standard Alberta Residential Real Estate Purchase Contract obligates sellers to provide certain disclosures. The warranty section of the contract states that the seller warrants the property is in compliance, among other things. If the seller knows that the property is not in compliance since development permits have not been taken out for structures that have been added, there is an obligation to disclose. Also, the standard contract states that all appliances will be in normal working order as of the closing date. A seller cannot rely on the fact that the appliance was broken when potential buyers viewed the property. There is an obligation to disclose the status of and fix all appliances.
Statute law. There may be specific statutes that require specific disclosure. In the area of residential real estate, the Fair Trading Act applies and lays out a number of unfair practices such as misrepresenting the status of the property. This is a complex area with hundreds of cases evolving over the years.
The statements above are intended as a general summary only and will be helpful to point you in the direction that will be of assistance. If you have any further questions in this area, please contact us directly.
As a seller, you will be responsible for payment of all utilities on your property up to and including the possession date. You will also be responsible for contacting your utility providers to advise them of a change in ownership. We recommend that, particularly during the winter season, you exercise caution in cancelling your utilities. Sometimes, a buyer, for a variety of reasons, will not complete their purchase on the scheduled possession date. In such circumstances, your property may be at risk for damage as a result of bursting pipes and other weather related ailments. Keep your utilities in place until you know that the funds required to complete your sale have in fact been paid.
The standard REPC states that all appliances included with the sale are in normal working order. This is a significant exception to the usual term that the buyer is acquiring the property ‘as is’. This means that if an appliance stops working prior to the completion day or is not working on the day the buyer views the property, you are responsible for restoring it to normal working order. If you are including appliances as part of the sale which you know are not in normal working order, you must disclose the condition of the appliances to the buyer in writing and have them sign off on this deficiency or specifically state the appliances are being sold on an “as is” basis. Otherwise, a buyer has recourse against you for misrepresenting the condition of the appliances.