In Sévigné et al. –vs- Prud’homme et al. 2016 QCCS 6529, soil contamination was discovered five years after the date of acquisition. The Buyer sued to cancel the sale or reduce the price in order to offset clean-up costs in the amount of $125,000. The Seller, in turn, sued his predecessor in title and so on up the chain of title. There were 4 levels of incidental warranty actions.
At least two legal arguments, based on the following provisions of the Quebec Civil Code, were raised by the buyers:
1725. The seller of an immovable warrants the buyer against any violation of public law restrictions affecting the property which are exceptions to the ordinary law of ownership.
The seller is not bound to that warranty where he has given notice of these restrictions to the buyer at the time of the sale, where a prudent and diligent buyer could have discovered them by reason of the nature, location and use of the premises or where such restrictions have been registered at the registry office.
1991, c. 64, a. 1725; I.N. 2014-05-01.
1726. 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.
The seller is not bound, however, to warrant against any latent defect known to the buyer or any apparent defect; an apparent defect is a defect that can be perceived by a prudent and diligent buyer without the need to resort to an expert.
1991, c. 64, a. 1726; I.N. 2014-05-01.
The most recent sale took place in 2007. In 2012, there was serious flooding in the basement after which, the owner noticed the presence of noxious odours. Tests carried out in 2013 and 2014 confirmed the presence of hydrocarbons in the soil. In 2015, an underground heating oil tank was discovered which was believed to be the cause of the contamination.
Regarding Article 1725, the relevant “public law restrictions” are environmental protection statutes and regulations. To succeed, the buyer would have to establish that the contamination existed and the environmental protection law was in effect at the time of the sale. If the sale took place before the law came into effect, the buyer could not succeed on this ground.
Article 1726 requires the buyer to prove that the defect existed at the time of the sale; that the defect was not apparent; and that the defect either rendered the property unfit for its intended use or significantly diminished its usefulness to the extent that the buyer would not have bought it or paid so high a price if he would have been aware of it.
Regarding the most recent sale (i.e. Plaintiff’s claim), Article 1725 clearly applied. Article 1726 also applied since the presence of soil contamination made the property unfit for its intended use, which was to lease the property to earn rental income.
However, the outcome was different for the incidental actions in warranty that were brought against prior owners. For some of them, their purchases pre-dated the application of environmental statutes and regulations so they could not rely on Article 1725.
In addition, the fact that the soil contamination was not discovered until 2012 and had no palpable consequences before then was a bar to the application of Article 1726 since the prior owners could not establish that the latent defect (the soil contamination) diminished their use and enjoyment of the property.