Hidden Problems After Real Estate Purchase

Caveat Emptor: Buyer Beware.”

What can you do if you discover major problems with a property after buying real estate in Alberta? There are a number of legal and practical issues. First let me tell you about a situation that a client brought to me, and then I’ll explain what I advised.

Sometime after purchase, the basement tenants in my client’s Edmonton rental property were complaining that the toilet and bathtub made gurgling noises when draining. A plumber was called, but nothing was found. The next step was to call an inspection company, who put a camera down the toilet. Guess what? Instead of two connections, one for sewage and one for grey water, both connected to the storm sewer and went directly into the river.

The fix-up would require jackhammering the concrete and re-doing the piping. Meanwhile, my client was putting up the tenants in a hotel, and the total cost was going to be about $7,000. What a terrible surprise!

On further investigation, I discovered that nobody obtained a permit from the City of Edmonton when the basement bathroom was installed. My client thought, but was not sure, that the previous owner knew about the problem. My client also feared that the City could levy a fine of as much as $50,000 for the plumbing fiasco.

Of course, the question is: what can be done about the seller? My client would like to be compensated for all the time, trouble, and money that she spent on this problem. She also wants to avoid a $50K fine…

Firstly, on the legal side, the doctrine of “Caveat Emptor” or “Buyer Beware” still applies.

This principle means that it is up to a buyer to do sufficient research to satisfy themselves. Caveat Emptor applies especially to what are known as patent defects.

Patent defects are those that you can easily see,
like a hole in the roof or a broken window.

Latent defects are problems that are hidden,
like faulty electrical wiring or sketchy plumbing.

A seller has an obligation to disclose dangerous latent defects because, by their nature, they are hidden and a buyer cannot see them. Whether the seller has to disclose all latent defects is not a black and white matter.

Secondly, it is illegal for a seller to make fraudulent or negligent misrepresentations.

If the seller knows about defects, they aren’t allowed to try to hide them from the buyer. But not disclosing isn’t the same as hiding, which is why the buyer must beware!

As always, the question is, “What can you prove?”

Perhaps the gurgling just started. Maybe the seller was just plain stupid, but not fraudulent or negligent.

My client could send a demand letter, which would probably be ignored. She could launch a lawsuit, which like most lawsuits would take a lot of time, trouble, and money without any guarantee of success. In cases like this, the most practical thing might be to just try avoiding the City’s fine by getting proper permits and having the problem fixed as soon as possible.

What can you do to discover latent defects in a house?

  1. Check with the City for permits before buying a property. If there have been renovations without permits, like a new bathroom or kitchen, you know the City has not looked at the plumbing or electrical.
  2. Get a full professional home inspection of any property before removing conditions from your offer to purchase.
  3. Do your own inspection, too. Try all the fixtures: flush the toilet, flick on the lights, etc.
  4. Try to meet the existing tenants, and ask them if everything works, are there any problems? You might be able to ask these questions at the same time you get the Rental Information form signed.

This case was a particularly tough one. It’s the first time I’ve run into an issue exactly like this. However, if it’s come up once, it can come up again.

There are also plenty of similar problems that straddle the grey area of latent vs. patent defects and disclosure vs. negligence or ignorance vs. fraud. Knowing these types of problem exist, you have to decide how much diligence you want to do. I always suggest doing as much as possible!

If you are having legal issues with real estate in Alberta, get in touch with me. Buying and selling real estate doesn’t have to be hard, and I can help make it easy!

House/Home Inspection” image by Mark Moz used under CC Attribution 2.0 Generic.