Wednesday, 7 November 2012

Latent Defects -- Real Estate Law

When are Latent Defects actionable?

I recently argued an appeal in the area of latent defects in real estate transactions.  This is one complicated area of the law.  This posting, as with all posts, should be verified with a lawyer familiar with this area of law.  Also, this posting deals mostly with commercial real estate transactions, as opposed to residential.

The Alberta Court of Appeal has drawn a clear distinction between “concealment” and “non-disclosure”.  Concealment requires a positive step to hide a defect in land coupled with an intention to withhold knowledge of the defect from the purchaser.  Non-disclosure or mere silence is just a failure to volunteer information that might be of interest to the other side.  Absent a duty to disclose, non-disclosure generally has no legal consequences, except in rare cases.  The non-disclosure of a defect in the premises is generally not actionable unless there is a covenant in the contract that the defect does not exist.  Non-disclosure is not the equivalent of concealment: Motkoski Holdings Ltd.  v. Yellowhead (County), 2010 ABCA 72 at paragraphs 59 – 60, 63-64

The test in Alberta seems to be:

    1. Is the defect complained of a latent defect?
    2. Did the vendor have knowledge or was it reckless as to the existence of latent defects?  If so, was there active concealment of the defect OR was there non-disclosure and a covenant in the contract that the defect does not exist OR did the vendor make a misrepresentation as to the latent defects and did the buyer reply upon the misrepresentation?
    3. Did the defects make it unfit for habitation or take away from the purchaser’s use, occupation or enjoyment of the premises?

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