If it turns out wrong later, you may have to pay for it. Here’s why:
Mr. X. bought a detached home on Salem Ave. in Toronto’s west end for $439,000. He bought it “as is” from a family who had owned it since 1967. The basement was not finished.
Mr. X. planned to renovate it, so he got the necessary permits and made extensive changes, including refinishing of the basement. A year later, he sold it to Ms. Y and her mother for $658,000.
The MLS listing form said: “This house was gutted to the bare bones and has literally been rebuilt from scratch. Except for the four exterior walls, almost everything else is new. New insulation, framing, walls, floors, roof, electrical, plumbing.”
A brochure given to people viewing the house said: “Fully insulated from basement floor walls all the way to attic. Basement designed as a comfortable entertainment centre and/or spacious home office. Gutted to the bare bones.”
The Ys did an inspection. The report indicated concerns about basement leaks. It said in part: “Cannot predict how often or badly crawl space or basement will leak” and that there were “efflorescence, stains dampness on the exposed foundation wall, and that these are typical conditions not out of the ordinary for a home that age.”
It turned out that 99 per cent of the foundation wall was not visible, as is usually the case when homes are inspected.
The report said that since the inspector could not see behind the walls, the buyers were encouraged to consult a contractor or engineer.
The buyers smelled must and dampness almost immediately after closing. No investigation was done behind the drywall as they did not wish to do any unnecessary damage to the finishes. There was then a major flood one year after closing. Most of the costs incurred to repair the damage were covered by insurance.
The cleanup crew discovered that the north foundation wall leaked water into the basement. They also found cracks in the mortar between the cinder blocks, including one crack that appeared to have been crudely plugged with a piece of wood to stop the flow of water.
The buyers sued for the $8,659 cost to repair the leaky basement wall. They also claimed $1,000 in punitive damages, stating that the seller deliberately concealed the problem.
They claimed the seller must have known about it if he gutted the basement to the bare bones. The seller said he had not seen any leaks and did not notice the piece of wood because he did not strip the basement walls to the cinder blocks, but rather just insulated and dry walled the area in front of the existing plaster.
In a small claims court decision the judge decided that even though the seller did not know that the problem existed with the basement walls, he was still responsible to pay. This is because he had carelessly said the property was gutted to the bare bones and the buyers relied on this when buying it.
The judge found that the buyers were misled into believing that they were getting a basement which did not have any hidden defect. However, the judge also found that the buyers, as a result of the warnings by the home inspector, should assume part of the risk, since they chose not to do any further inspections.
He awarded the Ys 50 per cent of the damages, or $4,329.50. No punitive damages were awarded.
In my opinion, the buyers were fortunate: there was nothing in the contract itself that mentioned any warranty about how the home was constructed.
The lesson for sellers is to make sure any statement about the home is true. The lesson for buyers is that when inspecting older homes, it is always a good idea to do further due diligence about water penetration issues, from the roof or the basement. In addition, if there is anything advertised about a home that is important to you, include it inside the real estate agreement before you sign it.
By Mark Weisleder, Real estate lawyer, author and speaker.