Another month passes, and another year-over-year increase in home sale prices. This time, the Toronto Regional Real Estate Board (TRREB) reported a 12.6% increase in prices from July of last year. The average selling price of a home was $1,062,256. While overall sales may have declined (down 15% from the same time period), this is in the context of the incredible demand that we witnessed during the height of the pandemic lockdowns. And despite sales having dropped, prices still went up.
There are a # of contributing factors to the HOT Canadian real estate market. This post is not going to engage in a discussion or overview of those factors, but as a real estate lawyer practicing in Real Estate transactional law, one of the strongest factors I have seen driving peoples buying behavior is FOMO — Fear Of Missing Out. This has caused people to make offers well beyond their means and at times, remove conditions meant to protect them — financing and/or inspection being the primary ones. But while people are desperate to get that “dream house” — which in many cases has now become “any house” — they often overlook a crucial legal principle that will largely define their purchase: Caveat Emptor, or, Buyer Beware!
Canadian courts, but Ontario courts in particular, ruthlessly apply this principle. There is almost no mercy for a buyer if s/he discovers a deficiency after entering into an Agreement of Purchase and Sale (APS), save and except if it qualifies as a “Latent Defect”. Generally, this is a defect that “is in effect some fault in the structure that is not readily apparent to an ordinary purchaser during a routine inspection. And ordinarily, if a vendor actively conceals a latent defect, the rule of caveat emptor no longer applies and the purchaser is entitled, at their option, to ask for an [rescinding] of the contract or compensation for damages.” [Giancola v. Dobrydnev, 2020 ONSC 6007, par.24, citing LaForme J. in Swayze v. Robertson, [2001] O.J. No. 968, at par. 27. Emphasis added.] Otherwise, any other type of defect is considered a “Patent Defect” which is something that “may be discovered by inspection and ordinary vigilance on the part of the purchaser, and with respect to them the primary rule is caveat emptor.” [Giancola, ibid, par.23, citing McCallum v. Dean, [1956] O.J. No. 345].
Essentially, almost every defect that buyers will find in a home — and there will always be a defect because nothing is perfect — save and except something that affects the structural integrity of the home, will likely be considered a “patent defect” and the buyer will have to live with it.
Recently, I represented a couple who purchased a home in an area they had been eyeing for quite some time, in mid-town Toronto. They finally saved up enough and found a home within their budget. They wanted to establish their familial roots for their growing family. Everything looked swanky when they put the offer in — as it is supposed to with staging — and my clients paid well over asking. The day before closing, they did their final inspection. The house was a mess: overgrown weeds, rodents having staked a claim to the shed, dead vermin under the deck. But the most egregious was a hole in the floor that had been covered up on staging with a rug. We vociferously objected and sought a hold-back, but the seller was aggressive in asserting “buyer beware”, and threatened that if my clients did not close in time, they would consider my clients in breach of the APS, bring an action against them for the deposit, and relist the home. (NOTE: Our firm did not represent the buyer in the negotiation or drafting of the APS). The seller knew that in the 4+ months between when my clients entered into the APS and closing date, they could sell the house for even more. My clients did not want to lose the home over something that would cost them less than $10,000 to correct, and in conjunction with our reading of the case law, decided to close on time. It was a bitter pill to swallow. But it served as a reminder that the only leverage a buyer has, is during the negotiation phase.
Sure, my clients could sue the seller after closing — and this is still an option — alleging bad faith in negotiating the APS, among other causes of action. But then they would incur the cost, emotional aggravation, and time-suck that comes with an active legal claim. The goal of getting either out of the deal, or a reduction in purchase price, does not exist once the APS is firm.
Buyers and their agents need to ensure that they don’t fall prey to the pressures of the market, and hold steadfast to their demands. I encourage clients not to enter into an APS, unless a specific condition is included that inspection is not considered complete, until all furniture and staging accessories have been removed. When buying a home in the winter, with snowfall covering the ground or roof, insert a clause that inspection is not considered complete until the driveway, roof and surrounding perimeter is clear of snow.
The concept of “buyer beware” is antithetical to Islamic legal principles, which requires honesty and forthrightness in purchase-and-sale transactions (not just in Real Estate), between all parties. Under an Islamic legal system (which does not exist anywhere in the world), my clients would have recourse against the seller, and the seller would be prohibited from selling the property, or backing out of the APS, until the “defects” were addressed.
It can be difficult navigating our current Capitalist/Liberal-Democratic system, especially when looking to buy a home. Realtors need to give their buyer-clients confidence, and buyers need to have steadfastness and patience. For as The Creator says in the Qur’an (translated): “And no one will be granted such goodness except those who exercise patience and self-restraint” (41:35)
When the only leverage the buyers have is during the negotiation phase, it is important they wield that not for the benefit of the seller.
This article is not intended to be given as legal advice and does not create a Lawyer-Client relationship between the reader and the author.
