Courts have long recognized that a seller has an obligation to disclose certain information to a buyer in the context of a real estate transaction.
With respect to defects, the extent of the seller’s obligation to disclose information to the buyer will depend on whether the defect is patent (obvious or visually observable) or latent (hidden or not visually observable).
A patent defect is an obvious flaw that would be discovered by a reasonably prudent buyer without disrupting the property (i.e. a crack on the side of the home, a hole in the wall). It is a visually observable defect. A seller has no obligation to bring patent defects to the attention of a buyer but must not take steps to deliberately hide such defects. As such, a buyer assumes the risk of a defect which was visually observable. This means that it is the buyer’s responsibility to examine the property and discover patent defects.
A latent defect, on the other hand, is one that is hidden and not readily apparent to a buyer upon a reasonable inspection (i.e. a leaky foundation, covered electrical or plumbing). Being that latent defects are not visually observable during an ordinary inspection, a seller may not be aware of their existence. A seller cannot be held liable for an unknown latent defect or for a defect that developed after the closing of a transaction. However, if a seller is aware of a latent defect, the seller must disclose such a defect to the buyer.
In Ontario, a buyer has 2 years from the day on which a latent defect was discovered to commence a lawsuit against the seller. This 2 year period starts to run on the day on which the buyer first knew of the defect or on the day on which a reasonable person with the abilities and in the circumstances of the buyer would have become aware of the defect. A buyer will, however, lose all legal recourses if the buyer commences a lawsuit for a defect after the 15th anniversary of the day on which the seller should have disclosed the defect to the buyer, regardless of the date on which the buyer discovered the defect.
When a latent defect is discovered by a buyer, there is often a presumption against the seller that the seller knew about the latent defect. As such, the seller is required to show that he/she could not possibly have known of the defect, rather than the buyer having to show that the seller knew about the defect. However, if it can be shown that the seller could not have known about the defect and was not willfully blind to the existence of the defect, then the buyer’s claim will not succeed.