Friday, February 15, 2013

Who Is Responsible for Latent Defects in a Property?

Article 1726 Civil Code of Quebec states that "The seller is bound to warrant the buyer that the property and its accessories are, at the time of the sale, free of latent defects which render it unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them."

In order for the buyer to succeed, his claim must satisfy the following conditions:

1. The defects must be hidden;
2. They must have existed at the time of the sale, and
3. Notice of the latent defects must be given to the seller within a reasonable delay.

Occasionally, some defects may take years or even decades to manifest themselves. Hypothetically, a building may be constructed with materials or techniques that are recognized as acceptable at the time of construction but years later may subsequently be determined to be toxic, hazardous or unsound. What are the recourses of a buyer in such circumstances?

The legal warranty of quality applies to every sale by default, whether or not it is written into the contract, unless it is expressly excluded by the parties. It is an accessory to the sale contract and by virtue of Article 1442 of the Civil Code, the warranty automatically follows the property and transfers to successive buyers. The practical implication of this is that a buyer may not only sue his immediate seller, but may also sue anterior sellers as far back as the latent defect existed. Moreover, each seller can sue his anterior seller(s) to claim indemnification for any condemnation that may be rendered in favour of the ultimate buyer.

Of course, the recourses are predicated upon notice being given to the anterior seller(s) within a reasonable delay of the discovery of the defect.

The right to pursue previous sellers may have practical advantages for a buyer when the immediate seller has disappeared or is insolvent. Moreover, even if the buyer waived and renounced the legal warranty of quality vis-à-vis his immediate seller, he could still pursue one or more anterior sellers.

Assuming that the buyer will not agree to waive the benefit of the warranty, the seller should insist that the warranty will be limited to the immediate buyer and not transferrable to successors in title. Alternatively, the parties could stipulate in the sale contract that the warranty shall lapse and be null and void after a certain period of time e.g. 3 years.

For an illustration, see Riendeau v. Guy Brière Courtier d’assurances Inc., 2012 QCCS 6071.