Report from Council Newsletter, August 2007

Published on 22 August, 2007

  • Disclosure of Material Latent Defects

    At common law, a seller, and correspondingly, a seller’s agent must disclose all known material latent defects. A latent defect is one that is not visible upon ordinary inspection. On the other hand, a patent defect is one that is readily visible and/or obvious upon ordinary inspection. Both latent and patent defects may materially affect the property’s use or value.

    Section 5-13 of the Council Rules requires disclosure of known material latent defects and that section defines a material latent defect as follows:

    “material latent defect means a latent defect that cannot be discerned through a reasonable inspection of the property, including any of the following:

    (a) a defect that renders the real estate

    (i) dangerous or potentially dangerous to the occupants,

    (ii) unfit for habitation, or

    (iii) unfit for the purpose for which a party is acquiring it, if

    (A) the party has made this purpose known to the licensee, or

    (B) the licensee has otherwise become aware of this purpose;

    (b) a defect that would involve great expense to remedy;

    (c) a circumstance that affects the real estate in respect of which a local government or other local authority has given a notice to the client or the licensee, indicating that the circumstance must or should be remedied;

    (d) a lack of appropriate municipal building and other permits respecting the real estate.”

    Further, section 5-8 of the Council Rules requires that disclosure to be in writing and separate from any agreement under which real estate services are provided and separate from any agreement giving effect to a trade in real estate.

    As a result of recent amendments to the Council Rules, a licensee is not required to disclose a known material latent defect to a buyer if the seller has already disclosed all known material latent defects, in writing, to the buyer.

    For example, disclosing the material latent defect on the Property Disclosure Statement (PDS) may now satisfy the requirements of the Council Rules. Timing of the disclosure is critical. Written disclosure of all known material latent defects must be provided to the buyer before there is an accepted offer. This applies whether the PDS, or some other document is to be used to disclose these defects.

    A licensee acting for the seller must ensure that the written disclosure of the material latent defect was provided to the buyer prior to the acceptance of the offer by the seller. Licensees should include the following wording in the Contract of Purchase and Sale whenever a material latent defect is disclosed.

    “The buyer acknowledges having received separate written disclosure of a material latent defect relating to (general reference to issue).”

    Licensees must keep in mind that trading services includes offering real estate for rent or lease. As a result, written disclosure of a material latent defect is required, regardless of whether the real estate is offered for sale or for rent or lease. Section 5-13 of the Council Rules also provides that if the client instructs the licensee to not disclose the material latent defect, the licensee must refuse to provide further trading services to the client in respect of the trade in real estate.