Known dangerous defects must be disclosed by vendor

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Does the doctrine of “buyer beware” allow a seller to conceal the mere possibility that there is a potentially dangerous condition in a house? That was the issue in a case heard earlier this year in Edmonton.

In April 2005, George and Lisa Gibb bought a house in Leduc County, Alta., from Earl and Sherry Sprague. Prior to signing the purchase agreement, the buyers inspected the house three times, and found nothing wrong except some issues with the electrical panel.

Upon taking possession after closing, the purchasers discovered that there was an infestation of carpenter ants in the ceiling of a bedroom and in the roof of the house. As a result, they had to remove the entire roof of the house and replace it with a metal roof.

In the fall of 2005, the owners’ son became ill with a headache and cold-like symptoms. The family pediatrician suggested that the symptoms might be due to mould in his basement bedroom.

On inspecting the basement drywall, the owners discovered mould to a height of three feet on the exterior walls, and rust on the bottom of the metal basement support posts.

At about the same time, the Gibbs found that the basement wiring did not comply with the building code, and that the circuits were overloaded.

Unhappy with the condition of the home, the Gibbs sued the Spragues for repair costs alleging that the sellers knew about the defects and fraudulently misrepresented their existence.

In law, whether or not a vendor is responsible for repairing defects in a home depends, to some extent, on whether the defects are found in law to be patent – or obvious, or latent – meaning hidden.

The case was tried before Justice Donald Manderscheid in Edmonton last April.

In his written decision, the judge ruled that the electrical defects were patent defects, and the doctrine of caveat emptor – buyer beware – applied.

The judge ruled that the buyers failed to take reasonable steps to determine the full extent of the electrical problems. As a result, they had to bear the cost of the repairs.

Based on the evidence at trial, the judge was satisfied that the basement leaks and roof infestation were hidden defects because it was unlikely that they could have been discovered on a simple visual inspection of the house without removing portions of the roof and basement drywall.

“I believe,” wrote the judge, “that the (sellers) were neither subjectively aware as to the existence of the roof defect, nor did they act in a reckless manner in regards to the roof defect.” As a result, he dismissed the buyers’ claim for replacement of the roof.

On the issue of the mould in the basement, the judge ruled that the active concealment by the vendors of the mould and a false statement by Sherry Sprague about previous water in the basement amounted to the making of a fraudulent misrepresentation.

The judge wrote that when sellers have experienced a flood in their basement, “it is … reasonable to expect (them) to advise potential purchasers of the property as to the circumstances (of the flood) … The Defendants’ failure to fulfill this expectation and to advise the Plaintiffs as to the existence of the basement defect amounts to a reckless disregard for the safety of the Plaintiffs and their family.”

As a result, the Spragues were found responsible for their “reckless behaviour” relating to the history of flooding in the basement and the resulting possibility of the presence of mould. They owed a duty to the buyers to disclose the defect and they did not. Despite the caveat emptor doctrine, the sellers were ordered to pay the buyers damages of $12,186.45 for repairing the drywall.

It’s clear from the ruling in Gibb v. Sprague that there is a duty on a vendor to disclose a known but hidden defect which makes a home dangerous, and to disclose any known circumstances which are likely to result in danger.


Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818. Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.

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