Brian Madigan LL.B., Broker
BRMadigan@Rogers.com

RE/MAX West Realty Inc.,
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Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


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Just Because the Basement Leaks Doesn’t Mean that You Can Sue

November 19, 2018 - Updated: November 19, 2018

Just Because the Basement Leaks Doesn’t Mean that You Can Sue
 

Jalin Thomas purchased a property in Kitchener, Ontario from Alma Raynard. Following the closing, it turned out that the basement leaked.
 

Thomas advanced several theories for the recovery of damages:

 

  1. There was a duty to advise of the leak, and
  2. There was a fraudulent concealment of the leak.
     

Ultimately, the Court rejected both arguments because the Plaintiff could not offer sufficient evidence.
 

The Contract Related to the Sale
 

The basic contractual arrangements appear to be as follows:
 

  • Agreement of Purchase and Sale dated June 17, 2013,
  • the house was over 60 years old,
  • The contract contained the entire agreement clause (clause 26),
  • The deal was conditional on financing but not on inspection,
  • There was no warranty dealing with the basement or potential water intrusion problems.
     

The entire agreement clause provided in relevant part:
 

26. AGREEMENT IN WRITING... This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller.  There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein...
 

The Water Leak and Discovery
 

The plaintiff in fact conducted an inspection with the defendant’s consent, after the parties had entered into the Agreement of Purchase and Sale. 
 

After that inspection, the plaintiff proceeded to closing and took possession of the property on July 16, 2013.
 

At the time of the Seller’s purchase a couple of years earlier, the basement was partly finished and on her inspection of it she had noted no evidence of any water problem in the basement.  This evidence was accepted by the Trial Judge.
 

Ms. Raynard testified that her renovations, performed for the most part by Mr. Jandric, were finished in two stages: 
 

  • The drywall, painting and floors were done by April 2012. 
  • The baseboards and carpet were finished in March 2013. 
     

Raynard testified that she never experienced any water problem in the basement.  There is no direct evidence to the contrary.
 

Thomas discovered a basement water problem in July 2013. It was found by chance in the furnace room after a contractor’s faulty installation of an air conditioner resulted in some water buildup there. 
 

The Trial Judge, Winny stated as follows:
 

“27.              On a balance of probabilities, I am unable to conclude that Ms. Raynard was or ought reasonably to have been aware of the foundation hole discovered by the plaintiffs in July 2013. 
 

I find it more probable than not that she was aware of some water intrusion issues at some point after June 2011 but no later than April 2012, because evidence of such issues must have been apparent during the renovation process leading up to the completion of the walls and floor. 
 

But the precise extent of the issues of which she must have been aware during that timeframe is revealed neither by the evidence nor by any reasonable inferences which the court might otherwise be in a position to draw from the evidence.”
 

This simply means that it is very, very difficult to prove. It’s not a simple matter of drawing inferences that it might have been known.
 

A neighbour was called with respect to assisting an elderly prior owner to mop up a water leak in the basement. Naturally, that doesn’t prove that this Seller knew about it, or that it was necessarily the same leak.
 

The Duty of Disclosure
 

Judge Winny considered the law and went with the 1979 decision of the Ontario Court of Appeal:
 

                   “What I take from McGrath v. MacLeansupra, is this:
 

the majority and dissent agreed that caveat emptor is the presumptive rule and they agreed that in general a seller is entitled to keep silent and not disclose a known defect to prospective purchasers. 
 

The dissenting justice held that a tort-based duty to warn, arising from the cases dealing with inherently dangerous products, applied to real estate transactions but that such a duty could be negated by the terms of contract. 
 

The majority merely assumed the existence of such a duty for the sake of argument and without pronouncing the law to be so. 
 

The court was unanimous in holding that the scope of that duty was in any event limited to defects rendering the property uninhabitable or inherently dangerous.”
 

That was the correct statement of the applicable law. Some cases had sought to extend the principle but essentially the Appellate Courts (Ontario Court of Appeal and Supreme Court of Canada) were consistent in holding that there was no broad increase in Seller’s duties.
 

Winny J. also referred to the principle of caveat emptor from the Supreme Court of Canada in Fraser-Reid v. Droumtsekas, 1979:
 

“Although the common law doctrine of caveat emptor has long since ceased to play any significant part in the sale of goods, it has lost little of its pristine force in the sale of land. 
 

In 1931, a breach was created in the doctrine that the buyer must beware, with recognition by an English court of an implied warranty of fitness for habitation in the sale of an uncompleted house. 
 

The breach has since been opened a little wider in some of the states of the United States by extending the warranty to completed houses when the seller is the builder and the defect is latent. 
 

Otherwise, notwithstanding new methods of house merchandising and, in general, increasing concern for consumer protection, caveat emptor remains a force to be reckoned with by the credulous or indolent purchaser of housing property.
 

Lacking express warranties, he may be in difficulty because there is no implied warranty of fitness for human habitation upon the purchase of a house already completed at the time of sale. 
 

The rationale stems from the laissez-faire attitudes of the eighteenth and nineteenth centuries and the notion that a purchaser must fend for himself, seeking protection by express warranty or by independent examination of the premises. 
 

If he fails to do either, he is without remedy either at law or in equity, in the absence of fraud or fundamental difference between that which was bargained for and that obtained.”
 

Judge Winny also reviewed another case which was decided by the Ontario Court of Appeal in 1995. The purchaser sought to purchase an industrial property for conversion into residential premises. The property turned out to be contaminated but it could still be used for the same purpose as it had been used for, namely industrial purposes. If the purchaser disclosed his real and true intention of rezoning the property to permit residential condominium development, then the price would have gone up, so he remained silent on this point.
 

Here are some references to Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc. (1995), General Division, affirmed  (1996) by Court of Appeal:
 

  • after closing the buyer discovered the presence of a contaminant on the industrial property which frustrated the buyer’s intended development of the land as a condominium project, 
  • The seller’s principal had been fully aware of the contaminant and its ongoing effects, but did not disclose it,
  • There was no relevant contractual warranty, and
  • There was an entire agreement clause.
     

Winny J. stated: 
 

“39.              The buyer’s claim was summarily dismissed by White J.,
 

who held that there was no legal duty on the seller to disclose the fact of the contaminant, which did not impair the continued use of the property as an industrial factory. 
 

His Lordship also held that given the buyer’s intended use of the property, it should have
 

  1. conducted a proper inspection before entering into the agreement of purchase and sale;
  2. asked pertinent questions of the vendor; and
  3. insisted that the agreement of purchase and sale be conditional on the property being appropriate for residential use.

 

40.              An appeal by the buyer was dismissed.  Doherty J.A., writing for the court, held that the buyers “got exactly what they bargained for - industrial land,” and “ the existence of a duty to bargain in good faith was debatable but that in any event there were no misrepresentations and there was no basis for a finding of bad faith on the sellers’ behalf.”
 

Winny J.  after discussing responsibilities to tell the truth and be properly forthcoming if the Seller chooses to execute a Seller Property Information Statement, said: “A duty of disclosure is a different matter and brings into question the seller’s right to say nothing and let caveat emptor operate in the normal course.”
 

The law was summarized as:
 

“74.  The common law does not imply any warranty that real estate is sold in any particular state or is fit for any particular purpose - to the contrary, the governing principle is caveat emptorFraser-Reid v. Droumtsekas [supra] [further citations omitted]...
 

The courts have consistently demonstrated an unwillingness to assist purchasers who failed to heed the dictum “buyer beware”, including those who purchase contaminated lands.”
 

And, in conclusion:
 

“Finally, I find that potential liability for breach of a duty of disclosure is ousted by the terms of contract between the parties. 
 

A duty of disclosure would be inconsistent with the terms of contract including particularly the entire agreement clause, which must be given effect like any other contractual terms. 
 

The plaintiffs cannot sidestep the terms of their bargain with Ms. Raynard by simply positing a common law duty of disclosure as a kind of implied ex post facto warranty.”

 

The Law with respect to Fraudulent Concealment
 

There was a further issue and that was fraudulent concealment. The Trail Judge stated:
 

“65.              The type of concealment that the plaintiffs must prove was explained as follows in Cotton v. Monahan, [2011] O.J.  No. 4944 (C.A.), at para. 6:

 

...  In our view, “concealment” in this context connotes an act done with an intention to hide from view some defect of which the vendor is either aware or wilfully blind.

 

66.              What is unusual about the case at bar is that      
 

the concealment alleged is the basement renovation work which in relevant part was completed by April 2012. 
 

It is alleged that the defendant’s installation of floors and walls fraudulently concealed the water intrusion problem from the plaintiffs when they purchased the property in June 2013.
 

And the conclusion:

                  

“68.              As I find the facts, Ms. Raynard must have been aware of some water intrusion problem after she purchased the property. 
 

The evidence does not establish any specific problem, nor its source or severity, having been known to her during the relevant timeframe. 
 

The evidence does not satisfy me that the renovations completed in April 2012 were other than bona fide renovations intended to improve the basement.”
 

The Buyer’s case was dismissed. There was simply insufficient evidence.
 

COMMENT
 

So, that was the case. It’s difficult to prove. You may have a strong hunch that the Seller knew a little too much, but you really can’t prove it. The Trial Judge is not going to guess. You must convince the Judge of the facts on the balance of probabilities, that simply means “more likely than not”.
 

What evidence would you need:
 

  1. a claim to an insurance company,
  2. a contractor’s estimate for repairs,
  3. an admission to a neighbour.
     

Those were all potential facts. This plaintiff had some information but all in all, it just fell short.
 

As far as the law goes:
 

  1. Fraser Reid on caveat emptor continues, and
  2. McGrath v. MacLean on the disclosure of latent defects continues.

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: disclosure law mcgrath latent defects fraser reid caveat emptor basemen leaks ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

Phone: 416-745-2300

BRMadigan@Rogers.com

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