The Facts
In 2009, Louise Champagne (“Champagne“) and her husband purchased a house in Morin-Heights. They obtained a pre-purchase inspection report, which revealed a number of problems:
- Cracks in the foundation, one of which posed a risk of water infiltration;
- A lack of adequate flashing between the balcony structure and the exterior walls, posing a risk of water infiltration into the building;
- Clear signs of water infiltration through the attic and mould in the chimney;
Alerted by this report, Champagne obtained an invoice from Qualinet confirming that the chimney had been disinfected and considered the problem resolved.
Several other problems affecting the house, including those mentioned above, remained unresolved, either before or after the sale to Champagne. During the winter of 2011, the building was affected by several episodes of freezing and thawing, as well as heavy rainfall. An ice dam formed at the bottom of the roof, and water seeped into the house and through two basement windows.
In 2015, Champagne’s spouse died, and she decided to sell the property. On June 15, 2016, she filled out a seller’s declaration that mentioned certain problems and stated that past inspection reports were available.
The roof was replaced and Champagne completed a second seller’s declaration on August 3, 2017. However, unlike the first declaration, this one stated that past inspection reports were not available. Only this declaration was given to the plaintiffs, Éric Louis-Seize (“Louis-Seize“) and Émilie Contant (“Contant“) before the sale.
On April 15, 2018, Champagne decided to have a pre-sale inspection of the house carried out. A report was submitted in early June 2018 before Louis-Seize and Contant visited the building. The report identified several risks of water infiltration and structural rot on the property. After reading it, Champagne made no changes to the seller’s declaration, did not share any information about it, and did not provide the plaintiffs with a copy.
In June 2018, Louis-Seize and Contant visited the property and completed their own pre-purchase inspection. After reading the seller’s declaration dated August 3, 2017, they requested a copy of the pre-purchase inspection report mentioned therein, but Champagne told them that it was not available.
The report ordered by the buyers noted certain findings and made recommendations, but the roof and chimney could only be observed with binoculars. Champagne reassured the buyers that the fireplace was repaired by a specialized firm, but she did not give them the Qualinet invoice she received in 2009.
The sale finally took place on August 8, 2018, for $310,000. In February 2019, the plaintiffs discovered significant water infiltration in the basement and reported the situation to Champagne. She visited the property but offered no solution and did nothing.
Louis-Seize and Contant then proceeded to completely strip the basement walls and discovered rot and mould in several places. They again reported the defects to Champagne, who told them for the first time that she was aware of the ice build-up on the roof in the winter and the recurring humidity problems in the basement. Following this meeting, Champagne offered no solution and remained passive. Louis-Seize and Contant commissioned several expert reports but did not begin corrective work due to a lack of funds.
The Parties’ Claims
The buyers claimed $212,864.59 in reduction of the sale price and $50,000 in moral damages following the discovery of latent defects, alleging that Champagne acted in bad faith. Champagne argued that the defects were not hidden and that she had acted in good faith.
For the reasons detailed below, the Court ruled in favor of the plaintiffs.
The Decision
The Court reiterated the essential criteria for identifying a latent defect, namely:
- The existence of the defect;
- The anteriority of the defect at the time of sale;
- A serious defect, i.e., one that renders the property unfit for its intended use or diminishes the use that a buyer could reasonably expect;
- A defect unknown to the buyer at the time of sale;
- A defect that is not apparent, i.e., a defect that could not be detected by a prudent and diligent buyer without the need to call in an expert;
It was first determined that the defects alleged by the plaintiffs met all of the above criteria and qualified as latent defects. Champagne was ordered to pay $162,864.59 as a reduction in the sale price, this amount being deemed reasonable since it represented 52% of the sale price.
The Court then examined Champagne’s conduct to determine whether she had acted in bad faith, thereby allowing the award of damages under article 1728 of the C.C.Q.
The application of the obligation of good faith depends on the specific facts of each case. However, a consensus has emerged in case law and doctrine to the effect that this obligation entails a duty to act with loyalty, transparency and honesty, and to cooperate with one’s co-contractor, which includes consideration of the latter’s interests during the negotiation of a contract, during its application and when it is terminated. This obligation also entails a duty to provide information in certain situations, as in this case.
Thus, a seller has a duty to disclose to a potential buyer anything that might constitute an indication or evidence of a defect that could influence the buyer’s decision to acquire the property or to offer a certain price for it. If they fail to do so, the seller is in breach of their obligation of good faith, and the affected buyer is also entitled to damages. In addition, a seller’s specific representations regarding the condition of the property sold exempts a buyer from making thorough verifications and examinations in this regard.
The Court concluded that Champagne had breached her duty of good faith. She had a duty to disclose the pre-purchase inspection report carried out in 2009 and the pre-sale report carried out in the spring of 2018. In addition, Champagne should have disclosed the water infiltration problems affecting the property to the plaintiffs and provided them with the Qualinet invoice.
The Court added that it is unthinkable for a seller to have inspection reports on hand and conceal them from potential buyers; to act in this way directly contravenes the seller’s duty to act with transparency and honesty, which in this case resulted in an additional award of $25,000 in damages for loss of enjoyment of the building, stress and inconvenience.
Take Away
While a buyer has a duty to conduct a careful and serious examination of the property they wish to acquire, the seller has a corollary obligation to inform the buyer of any defects or indications of defects that could influence the buyer’s decision to acquire the property or to offer a certain price for it, even when the buyer is dealing with a pre-purchase inspector.
Should the seller fail to do so, the buyer may claim damages from the seller for breach of their obligation to inform and to act in good faith, in addition to a reduction in the sale price or a resolution of the sale.
