Almost every one of us knows a home-owner who had some sort of damage from July’s record rainfall that flooded Toronto.

But who would pay for damage to a house if that house had sold, but had not yet closed?

I was fortunate enough to be away on my Honeymoon when the biggest rainstorm in 100 years befell Toronto, but I knew there would be implications when I came back.

I had six buyer-clients waiting to close on houses after the rainstorm, and all of them would be wondering, “What the heck do we do?”

It didn’t take long when we got back to Toronto to hear the first “flood horror story.”  Our limo driver told us that his entire basement had flooded, and that there was eight to twelve inches of water throughout the whole level.  It took four days for the water to drain, but the carpet and underpadding was ruined, the baseboards and bottom portion of the drywall was ruined, and a few electrical outlets would need to be replaced.

I conducted two inspections with clients who were closing on houses in August, and luckily, neither revealed any evidence of basement moisture after the flood.

Both sets of clients asked, “What if we did find moisture?  What if there was leakage?  What then?”

Another client asked me, “If we moved into the house in September, and found out then that there was damage done in July, for a house we purchased in June, who would be liable, and what would the process be like?”

It’s a question I had to seek legal counsel on.

Thanks to David Feld, from Feld-Kalia for this guest blog which sheds some light on a question many buyers have…

In the purchase and sale of land, the doctrine of caveat emptor, “the buyer beware”, continues to dictate the Canadian Law landscape for Plaintiffs seeking damages after closing.

The law, therefore, does not oblige the vendor to disclose to the prospective purchaser any and all information relating to defects at the property that may influence the buyer’s decision. It is prudent for a prospective buyer to include all desired warranties and conditions in the Agreement of Purchase and Sale prior to the finalization of the Transfer. This is the best way to protect oneself from any prospective issues.

What happens when a defect occurs after closing?

In order to be successful for damages suffered after closing, a prospective litigant must establish “fraudulent misrepresentation”,  that was experienced at the hands of the Vendor. If this is established, a vendor cannot utilize “caveat emptor” as a defence.

The failure to disclose and the damages suffered thereafter are broken down into two categories

i)                    A patent defect which is visually noticeable by a purchaser; and

ii)                   A latent defect which cannot be discovered by the “naked eye”.

A patent defect would not attach liability to a Vendor, because the defect would be discoverable to the naked eye. However, a Vendor’s non-disclosure of a latent defect can lead to a finding of fraudulent misrepresentation which would thereafter lead to an award of damages in the appropriate circumstances.

One of the most common issues that arise after closing this month is flooding.

Dependent on the factual circumstances relating to the flooding, the courts have recognized that flooding would constitute a latent defect.

In many circumstances when Property is purchased, a Vendor has the option of preparing what is known as a “Seller Property Information Report” (SPIS).

While the same is not mandatory it can be helpful to a prospective buyer in order to determine if there are any issues that a buyer should be aware of when they purchase the property (flooding is one of those issues that a Vendor is forced to report through the SPIS). The SPIS assists a court in determining, for instance a flooding issue, whether the Vendor had knowledge of flooding at the time of sale.

More importantly, and given the prevalent use of the SPIS, the Court of Appeal for Ontario in Krawchuk v. Scherbak, 2011 ONCA 352, indicated that the duty of a vendor to properly represent the property on a SPIS continues even if a home inspection is done. The SPIS also survives after closing. Therefore an SPIS, dependent on when it was prepared can be persuasive in any action that may arise where a latent defect is discovered.

While each case is different and the merits of a particular case are dependent on its facts,  generally, issues relating to flooding can be remedied by a Small Claims Action if it was not disclosed to a prospective buyer, either by the Vendor, the SPIS, or in a home inspection report.

David Feld, Lawyer
F|K – Feld Kalia Professional Corporation
72 Berkeley Street
Toronto, Ontario M5A 2W7
Tel: (416) 203-6347 ex. 101
Website: www.feldkalia.com
Email: david@feldkalia.com