Purchase Agreement S.3 – General Terms

Purchase Agreement s. 3 -
General Terms

Here we review section 3 of the Residential Purchase Contract.

Clauses 3.1 (a) to 3.1(e) are self-explanatory. So we start with clause (f).

3.1 In fulfilling this contract, the seller and buyer agree to act reasonably and in good faith and agree that…

(f) the seller will disclose known Material Latent Defects. Material Latent Defect means a defect in the Property that is not discoverable through a reasonable inspection and that affect the use or value of the Property;

Generally speaking, there are two types of defects: patent and latent. Patent defects are those that a reasonable person using reasonable diligence should discover. These defects are the responsibility of the buyer to discover. The legal term “Caveat Emptor” (meaning “buyer beware”) covers these types of defects. This is why when buying a home, you are expected to hire a professional to do a “home inspection” for you. The seller generally does not have a legal obligation to disclose patent defects to you.

Latent defects, on the other hand, are not discoverable through reasonable inspection. Even though the term is defined in common law, clause f provides the definition of such defect for added clarity. Historically in AB, the courts had applied to term to defects that went to the “fitness of the premises for habitation.” However, this definition has been extended in more recent history to include “any loss of use, occupation or enjoyment of any meaningful portion of the premises or residence that results in the loss of the enjoyment of the residence as a whole.” How the courts interpret clause f’s definition of latent defect in light of its common-law definition remains to be seen.

Another question that has been raised by the courts is whether or not the seller need to actively hide the defect for the court to find him in breach of the duty to disclose. This question has been answered in the negative. The non-disclosure by itself can amount to a fraudulent representation and no active concealment/hiding is required. The BC Supreme Court has even extended this duty to disclose to cases where the seller may not even subjectively be aware of the defects but rather “is reckless as to whether or not they exist.”

Matter of latent defect is not an easy or straight forward determination. If you are ever in doubt, we encourage you to discuss this matter with your solicitor.

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