Property Disclosure Statements: Buyer Beware (Still)
In virtually all standard contracts of purchase and sale, the parties agree that the vendor will provide a property disclosure statement (“PDS”) and that the representations made in the PDS will survive the completion of the contract. Where vendors and purchasers frequently get into disputes after closing is when purchasers form the belief that vendors misrepresented the state of the property through a PDS.
In Nixon v. MacIver, 2016 BCCA 8 (CanLII) the Court of Appeal neatly summarized the legal principals concerning property disclosure statements.
In Nixon, the purchasers were buying a home that they understood to be 5 or 6 years old and received a PDS which indicated that the roof was 6 years old. The headnotes of the case state that the residence had been constructed by incorporating a cabin from elsewhere into a newly constructed foundation and lower level.
The purchasers discovered that the roof of the cabin had not been replaced and, as such, the roof was not 6 years old as indicated in the PDS. In the result, although the PDS incorrectly stated the age of the roof, the vendors had not experienced problems with the roof and had assumed that a new roof had been placed on the entire structure. In other words, the vendors didn’t know that their understanding of the facts was incorrect.
The Court held that it remains good law in BC that the doctrine of caveat emptor, or buyer beware, applies to purchases of real property subject to only to the following limited exceptions as set out in previous Court decisions:
- where the vendor fraudulently misrepresents or conceals an issue with the property;
- where the vendor knows of a latent defect rendering the house unfit for human habitation;
- where the vendor is reckless as to the truth or falsity of statements relating to the fitness of the house for habitation;
- where the vendor has breached his or her duty to disclose a latent defect which renders the premises dangerous.
On patent vs. latent defects and the obligations of purchasers to protect their own interests, the Court emphasized the following from Cardwell et al v. Perthen et al, 2006 BCSC 333 (CanLII), aff’d 2007 BCCA 313 (CanLII):
In general, there is a fairly high onus on the purchaser to inspect and discover patent defects. This means that a defect which might not be observable on a casual inspection may nonetheless be patent if it would have been discoverable upon a reasonable inspection by a qualified person: [citations omitted]. In some cases, it necessitates a purchaser retaining the appropriate experts to inspect the property…
Nixon and case law generally make it clear that a PDS is not intended to act nor should be relied on as a warranty or guarantee as to the state of a property. Virtually all standard form contracts of purchase and sale include conditions that purchasers approve the PDS and obtain a satisfactory home inspection report. This provides purchasers an opportunity to collapse the contract if they are not satisfied as to the condition of the property they are buying.
The limitation of the use of a PDS is frankly stated in Nixon where the Court held that:
…a vendor is only obliged to disclose his or her current actual knowledge of the state of affairs of the property to the extent promised in the disclosure statement and need say “no more than that he or she is or is not aware of problems”…
[T]he vendor must correctly and honestly disclose his or her actual knowledge, but that knowledge does not have to be correct. A vendor is not required to warrant a certain state of affairs but only to put prospective purchasers on notice of any current known problems. The purpose of a disclosure statement is to identify any problems or concerns with the property, not to give detailed comments in answer to the questions posed.
The take away? Prudent purchasers take all reasonable steps as may be necessary to fully satisfy themselves as to the state of a property before committing to purchase it because they can’t always rely on the representations of vendors as indicating the true state of affairs.
If you are interested in reading more about patent vs. latent defects, you may read my previous article on the issue here.