Residential properties, whether new or old, can have various defects arising from poor materials, workmanship, or wear and tear over time. Depending on the type and visibility of a defect, either the purchaser or the seller can be liable. The Ontario government has established a statutory and administrative process to protect purchasers of newly constructed homes. In all cases, a seller cannot hide property defects from prospective purchasers, whether they are visible or not, as such actions can expose them to claims of fraud, active concealment, and misrepresentation. This blog provides an overview of the rights of purchasers and sellers in disputes involving patent, latent, and construction defects.

Patent Defects

Patent defects, also known as visible defects, are damages that are easy to observe. According to the Ontario Court of Appeal in Tony’s Broadloom and Flooring Covering Limited v NMC Canada Inc., these defects are readily discoverable through a reasonable examination and due diligence by prospective purchasers. Examples of patent defects include, but are not limited to:

• Broken windows;
• Staining on walls from a leaking roof;
• Rotten woodwork;
• Carpet stains;
• Uneven floors; and
• Missing smoke detectors.

The Ontario Court of Appeal in McGrath v. McLean explains that a seller is not required to bring patent defects to the attention of prospective purchasers. The principle of caveat emptor (or buyer beware) applies. As such, purchasers assume the risk of defects that are clear or visually discoverable.Sellers can remain silent but must not deliberately hide patent defects from prospective purchasers, as this could expose them to claims of fraud, active concealment, and/or misrepresentation.

For this reason, purchasers and their agents should hire a diligent inspector to report on a property’s patent defects.

Latent Defects

Latent defects, also referred to as hidden damages, are property defects that are not generally discoverable or readily apparent to a prospective purchaser through reasonable inspection and ordinary diligence. The challenge is that no amount of vigilance could uncover such defects, even by a qualified home inspector. Some examples of latent defects include, but are not limited to:

• Leaks, water damage or mold;
• Roofing problems;
• Electrical issue
• Pest infestations (i.e. termites);
• HVAC design flaws;
• Plumbing problems;
• Cracks in the foundation of the building;
• Building expansions without permits; and
• A marijuana grow-op property which has not been remediated.

In contrast to patent defects, a seller has a legal duty to inform purchasers of any known latent defects. A purchaser may sue a seller who concealed or withheld information about latent defects and claim damages or costs incurred to remedy the hidden damage. The Court in McGrath v. McLean states that such claimants must establish that (a) the defect was known to the seller and that the seller is guilty of active concealment, or (b) the seller made a false represen

Construction Defects

Construction defects consist of design deficiencies, system failures (mechanical, electrical, or plumbing), improperly manufactured materials, poor workmanship, or failure to follow construction codes. Some examples of construction defects include, but are not limited to:

• Structural integrity issues (unstable foundation, inadequate framing, improper reinforcement);
• Mechanical problems;
• Electrical issues (overloaded circuits, faulty wiring, inadequate grounding);
• Water intrusion (poorly sealed windows, inadequate waterproofing membranes, improperly installed roofing systems);
• Finishing defects (leading to cracking, water intrusion, or premature deterioration); and
• Windows and doors (air leaks, poor insulation, improper installation).

Depending on its nature, a construction defect can be either patent or latent. Construction defects can arise during the development of newly constructed properties or from renovations performed by contractors hired by seller

For newly constructed properties, the Ontario New Home Warranties Plan Act (the “ONHWPA”) creates warranty protection for purchasers of new homes in Ontario and requires builders to provide certain warranties against construction defects. These warranties protect prospective purchasers from substandard construction, faulty workmanship, material defects, and structural issues. Tarion is responsible for administering the ONHWPA and managing a guarantee fund. If a builder defaults on its warranty obligations, Tarion compensates the purchaser from the guarantee fund and then has recourse rights against the vendor. If a purchaser has issues with a Tarion claim, they can resolve the matter through mediation, arbitration, litigation, or the License Appeal Tribunal.

Construction defects arising from renovation projects may expose contractors to liability for breach of contract or negligence. The courts will generally award homeowners the costs required to repair the construction deficiencies caused by the contractor and they may also award damages for delays. A prudent purchaser must cautiously inspect a property that was recently renovated.

Takeaways

As experts in real estate litigation, we frequently advise purchasers to conduct a thorough and diligent inspection of a property prior to purchase, and to understand their rights and warranties when buying a newly constructed home. We also advise sellers to disclose all known latent defects of a listed property.

Should a dispute related to defects arise, Sellers and buyers may contact us at any time regarding their questions on their rights.