Can you sue the seller if you discover problems with your house after moving in? This article addresses problems at the time of possession and problems discovered after possession.
Problems arising after Possession
You’ve bought your first home and surprise your first spring there is flooding in the basement causing thousands of dollars of water damage. After speaking with the neighbours, you learn that there had been instances of flooding in the basement with the previous owner as well. You are upset!
The house seemed to be in great condition without any apparent damage or structural issues when you first viewed it. You had a home inspection conducted by a professional, who stated that there are no notable plumbing or electrical defects or evidence of previous water damage. Neither the seller nor the realtor disclosed that there were any issues.
Now what? Can you sue the seller?
It depends. (Typical lawyer answer, right?)
Suing the Seller for Breach of Contract
According to the current standard residential purchase contract in Alberta, the seller provides a warranty to the buyer that they must disclose any known Material Latent Defects to the buyer. Material Latent Defect is defined in the contract as “a defect in the property that is not discoverable through reasonable inspection and that will affect the use or value of the property.” Should the seller breach this warranty, the buyer can sue for breach of this contractual term.
According to the Alberta case of Lewis v Plourde, the buyer must prove the following 5 items on a balance of probabilities to be successful in a claim of breaching the contract:
ONE There is a defect
Easy. Show that the defect exists.
TWO The defect is a latent defect because it could not have been identified by an ordinary purchaser’s reasonable inspection;
Harder. What is a reasonable inspection? Did you have a property inspection? If not, why not? Why didn’t your inspector discover the defect?
THREE The vendor knew of the latent defect or concealed the latent defect or was reckless as to knowing of the existence of the latent defect;
Really Hard. See discussion below.
FOUR The latent defect renders the property dangerous or potentially dangerous or unfit for inhabitation;
In Lewis v Plourde, the court uses a common-sense approach to determine what Is considered dangerous or unfit for habitation.
FIVE The purchaser relied on the misrepresentation or concealment when purchasing the property.” 1
Easy.
In addition to these 5 qualifications, the buyer must also show that they suffered a loss as a result of the breach.
Overall it is challenging for a buyer to make their case.
What “defence” might the seller have?
While it may be simple to prove some of these items, others are more challenging, specifically proving that the seller was aware of the defect or concealed the defect.
The seller may have taken actions to mitigate the defect or had reason to believe that it was a known issue. Or they may state that the defect was disclosed. For instance, 3 years ago they repaired the shingles and had no further problems up until they sold the property.
Proving that the seller was aware of the defect could involve finding evidence that the defect had caused issues for the previous homeowner. Speaking to neighbours or speaking to previous owners who lived in the property before the seller could be helpful in collecting this information. Buyers should also review previous correspondence with the seller to determine whether this issue was disclosed during the home buying process.
Furthermore, there may be a grey area as to whether the seller was concealing the defect, or if they answered questions and provided information honestly. As a seller, it is important to provide full disclosure even if unsure of whether something poses an issue, to avoid this type of litigation.
There is a general guiding principle in the law of “caveat emptor” which means “let the buyer beware.” Buyers must exercise caution when purchasing a property by taking initiative to understand the quality and condition of the property themselves. The buyer must protect themselves through an independent inspection.
Suing the Seller for Negligence or Fraudulent Misrepresentation
Another potential remedy for the buyer is to pursue an action in tort, rather than contract. Depending on the facts of the situation, the buyer may have a claim to negligent or fraudulent misrepresentation.
To sue for negligent misrepresentation, there needs to be an existent duty of care between the parties. Other elements of negligence that need to be proven include: the statements made need to be untrue, evidence that the seller acted negligently, the buyer relied on the statements, and the buyer suffered actual damages as a result.
For fraudulent misrepresentation, the plaintiff needs to prove that there was an untrue statement made knowingly or information has been deliberately concealed.
Steps you can take:
- Send a demand letter to the previous owner giving notice of the defect, alleging that they are responsible for it, and demanding compensation failing which you will take legal action
- Start a court action – ie. Sue the seller.
Problems At the Time of Possession
What can you do if there is an issue immediately on possession?
A slightly different scenario may arise when the seller receives possession of property and immediately realizes that there is a deficiency, or the property is substantially different than when inspected previously. In comparison, latent defects can be realized months or even years after the move-in date.
In Alberta real estate transactions, you do not receive possession of the home until the seller has been paid the purchase price. Once the funds have been paid to the seller, the funds are immediately releasable. The transaction cannot be stopped.
It is important to immediately contact your lawyer.
Type of issues:
Flood, Fire
The seller is responsible for the property up until the funds are paid. If there is a flood the previous evening, the seller would be responsible to deal with it. This would likely be covered by their home insurance. If they are not properly insured or refuse to acknowledge the matter, then you would have to sue them for breaching the contract.
Stuff left behind, Dirty, Damage that wasn’t present at viewing
One possible recourse would be to negotiate with the seller through their realtor or their lawyer, and to try to obtain a settlement. If at the time of possession, the property is substantially different than the time that the contract was signed, this is a breach of contract, for which the buyer is entitled to a remedy. If no agreement can be reached, then you would be left with suing the seller. Most of the time any requests for compensation for these type of issues are ignored or denied.
Weighing the costs of suing the seller and the cost of repairing the defect
It costs money to sue the seller. Even if you sue the seller without a lawyer, there is a still a significant time investment. Additional costs may include hiring an expert witness to give evidence about the defect. As well, if you are successful in suing the seller you will also have to take steps to collect the funds owing and you may even need to hire someone to do this for you. You need to weigh these factors against the potential of recovery.
This article is provided for general information purposes only and does not constitute legal or other professional advice. You are advised to contact a Real Estate Lawyer regarding any specific legal issues. You may reach us at 780-473-7779. Note that our office does NOT deal with real estate litigation.
- Lewis v Plourde, 2017 ABQB 235 at para 208.
