That was the problem facing Eric Smith and his mother, Louise, after they bought a house in October 2011.
During his first inspection of the house, Eric asked the owner if he had ever had any water problems in the basement and was told “no.” The seller later told Eric that there had been a water problem in the basement in 2002, but it had been fixed.
The Smiths decided not to have a home inspection because the male buyer and seller were both members of the Freemason’s fraternity and “could trust each other.”
Although it was important to the Smiths that the property had not had any water problems, the offer which was drawn up by their lawyer made no mention of that issue.
After closing, the Smiths hired a carpenter to paint the house and do basement repairs. The carpenter discovered that the basement carpet was wet. Water was flowing under the floor, the floor strapping was completely black with mould, and there was no vapour barrier between the concrete and the strapping.
There was also mould on the baseboards and in the basement drywall, all of which had to be removed.
Mould spores were discovered in the ceiling and on the walls of the fireplace.
Mould was also discovered in four locations upstairs.
Eventually, the Smiths sued the sellers for repair costs of $85,000 calculated at the modest rate of $15 an hour paid to their carpenter. The damages amounted to almost half of the $167,500 purchase price of the house. The buyers’ claim to the courts was based on fraudulent misrepresentation and concealing of a dangerous hidden defect.
The law in this area is caveat emptor: buyer beware. If there are no representations or warranties in a purchase agreement, a seller is not liable in damages to a buyer, but there are exceptions:
- Where the seller fraudulently misrepresents or conceals an issue;
- Where the seller knows of a hidden defect which makes the house unfit for habitation, and fails to disclose it to the buyer;
- Where the seller is reckless about statements made relating to the fitness of the house for habitation.
After a four-day trial, the judge threw out the buyers’ claim. He ruled that they had not inserted any contractual protections in the offer. “I find,” he wrote, “that the sellers were ignorant of the water drainage/leakage and mould contamination issues anywhere in or around the house.” He added that “this is not a case of concealment.
“The sellers saw nothing that led them to understand the problem was recurring, nor was there anything that should have led them to that conclusion.”
Not only did the Smiths lose the case, but they had to pay their lawyer as well as a portion of the defendants’ legal bill.
The lessons to be learned from this sad case are:
Rule 1: Always insert a home inspection condition in an offer to purchase;
Rule 2: If you ignore Rule 1, insert representations and warranties in the agreement about the condition of the property;
Rule 3: if you ignore Rules 1 and 2, don’t expect to be compensated for any problems you discover after closing.
Bob Aaron is a real-estate lawyer. He can be reached at email@example.com , on his website aaron.ca and on Twitter @bobaaron2.