Can buyers of a property with latent defects resell it and claim from their seller the difference between the two transactions? This is one of the questions addressed by the Superior Court in Ouellette c. Blais, 2024 QCCS 1025, upheld by the Court of Appeal on May 26, 2025.
The Facts:
Charmed by a large residence that had undergone multiple artisanal extensions over the years, plaintiffs purchased it for the sum of $740,000. Enthusiasm quickly gave way to disenchantment when several water leaks appeared a few months following the purchase. The recurrence and intensity of the problems lead them to sell the property a year later without legal warranty, for half the purchase price. They subsequently filed a latent defect action against their seller, claiming the difference between the two sales as well as damages. Defendant maintained that he had never experienced any water infiltration, adding that the problems raised were the result of deficient maintenance by plaintiffs as well as of apparent and foreseeable conditions.
Prior to the sale, plaintiffs had obtained a pre-purchase appraisal identifying certain corrective work required in the medium term but overall concluding that the property was in an acceptable condition. Did the buyers have warning signs rendering the defects apparent?
The Superior Court Ruling:
The Court first reiterated the well-established principles of latent defect actions. The buyer has the burden of establishing the existence of a defect that is hidden, serious, pre-dating the sale, and unknown to them. The seller can exonerate themselves by establishing that the defect was apparent. If the buyer establishes that the seller knew of the defect, damages may be awarded in addition to either a price reduction or the resolution of the sale. The seller cannot exclude their liability if they failed to disclose defects they knew of or could not have ignored.
First, the Court analyzed the prior, serious and hidden nature of the defects. Among the deteriorated elements identified in the pre-purchase report, some did not indicate that they would lead to water infiltration. In this context, the Court distinguished the notion of apparent defect with that of foreseeable consequence. While the deteriorated elements identified were obviously apparent, the consequential damages to other parts of the property may remain hidden if they were not foreseeable. For example, the replacement value of a skylight identified as deteriorated in the pre-purchase report is not a latent defect, but the water infiltration it caused that could not have been anticipated based on a reading of the pre-purchase report constitutes a latent defect.
Defendant argued that clues not addressed in the pre-purchase report made certain infiltrations apparent. The Court rejected this argument, pointing out that plaintiffs cannot be required to be more informed than the experts they appointed, especially in a context where defendant claimed not to have experienced any water infiltration problems.
The Court then addressed the issue of defendant’s knowledge of the defects, concluding that he was unaware of all of them. He testified that he had noticed only one infiltration during the five years he had lived in the house, and that he had remedied it. Although the evidence established the occurrence of other infiltrations during this period, there was no evidence that they were visible. Defendant carried out regular and ongoing snow removal from the roof, which potentially prevented the manifestation of the problems plaintiffs subsequently encountered. Moreover, some of the infiltrations and repairs appeared to predate defendant’s purchase of the building. This tends to confirm both the existence of latent defects at the time of plaintiffs’ purchase and defendant’s ignorance of them. The Court rejected plaintiffs’ argument that the number of infiltrations, their appearance shortly after the purchase and defendant’s failure to report the single episode of infiltration he had observed were sufficient to establish the latter’s knowledge of the defects.
Finally, the Court set the compensation owed to plaintiffs. Relying on LG Construction TR inc. c. Gélinas, 2021 QCCS 5863, plaintiffs argued that their loss corresponded to the difference in value between their purchase and subsequent sale of the property and also claimed various damages.
In matters of latent defects, the two available remedies are the decrease of the sale price and the resolution of the sale. By selling the property, plaintiffs deprived themselves of the possibility of seeking resolution. The Court therefore undertook the difficult task of establishing the price plaintiffs would have paid, had they known of the defects. The Court noted that the price obtained from plaintiffs’ subsequent resale of the property did not, in itself, constitute evidence of the price they would have agreed to pay at the time of the original purchase had they been aware of the defects. The Court took several factors into consideration to establish this amount at $225,000 (over 30% of the purchase cost), namely the cost of repairs, the difference between the purchase and sale prices of the property, the market value of the property set by appraisal and the value of the land alone (which was high and unaffected by the defects).
The various amounts claimed by plaintiffs in addition to the value of the defects included improvements to the building, taxes, insurance premiums, building permits and disturbances and inconveniences. Given the Court’s conclusion that defendant was unaware of the defects, these damages were dismissed. Plaintiffs argued that in the case of LG Construction, the Court allowed damages to be awarded despite the absence of such knowledge. However, the Court distinguished this decision in that it was based on the regime of art. 2118 C.C.Q. (defects in construction matters) rather than on that of art. 1726 C.C.Q. (latent defects in contracts of sale). Although the cases referred to in LG Construction are based on the latent defects regime in contracts of sale, they involved the sellers’ knowledge of the defects. The Court added that, in any event, the claim for improvements would entail double compensation as their value would be included in plaintiffs’ resale price of the building.
The Court of Appeal’s Decision:
Defendant’s main argument was that the problems known to plaintiffs at the time of their purchase, the deteriorated state of the property and its configuration should have prompted them to carry out an additional inspection. However, although the evidence showed that plaintiffs were aware of the property’s deterioration, the damage caused thereby (namely water leaks) remained hidden, as it could not have reasonably been anticipated. The Court also summarily confirmed the absence of error in setting the indemnity award.
Takeaway:
- An apparent defect must be distinguished from the consequential damage. The latter may constitute a latent defect insofar as it was not reasonably foreseeable.
- The resale of property by a buyer precludes them from seeking resolution of the sale.
- The price obtained in a subsequent resale of the property does not, in itself, constitute evidence of the price the original buyer would have agreed to pay had they been aware of the defects.
- Generally, buyers cannot be expected to have greater knowledge than the experts commissioned to prepare a pre-purchase report.
- In a sale that does not involve construction, case law relating to construction defects cannot be used to bypass the requirement of proving that the seller was aware of the latent defects in order to recover damages in addition to a price reduction or resolution of the sale.
