In a recent B.C. Court of Appeal decision, the court was asked to revisit the age old question of whether vendors of real property in British Columbia can still rely on the doctrine of caveat emptor or 'buyer beware' to avoid certain types of claims made by disgruntled purchasers. In short, the court ultimately recognized the continuing application of the doctrine with only certain limited exceptions: fraud, non-innocent misrepresentations, an implied warranty of habitability for newly constructed homes, and a duty to disclose latent defects. Absent one of these exceptions, and despite the existence of a property disclosure statement ("PDS") in most residential property transactions, a purchaser may be precluded from successfully pursuing a claim against a vendor. In another important aspect of the case, the court also confirmed that a PDS only requires a vendor to provide its current state of knowledge in response to questions contained therein and therefore there is very limited opportunity for a vendor to be liable based on those responses even if the vendor's knowledge is factually not correct.
The facts of the case were not that unusual. The plaintiffs/purchasers (the "Purchasers") were looking to buy a property that was no more than five or six years old. The house in question had been constructed by a previous owner of the property which incorporated an older cabin from elsewhere into a newly constructed foundation and lower level on the property. Therefore, when the defendant/vendor ("Vendor") indicated on the PDS that the roof was six years old, that is what she believed even though the roof had not been replaced at the time of consolidation. After the Purchasers closed on the transaction and moved into the property, they discovered at that time that the property had previously been consolidated, and therefore they argued the PDS was wrong and wanted to rescind the contract. The Plaintiffs claimed the Defendant had deliberately concealed latent defects and that she had misrepresented the age of the roof. The trial court dismissed the action and the Purchasers appealed.
The Court of Appeal dismissed out of hand the aspect of the appeal dealing with latent defects and moved on to consider firstly the doctrine of caveat emptor and then secondly the obligation on the Vendor when completing a PDS. After confirming the continued existence of the doctrine of caveat emptor in British Columbia real estate transactions (subject to the exceptions noted above), the court moved on to consider the import of responses contained in a PDS.
The court concluded that a vendor is only obliged to disclose his or her current actual knowledge of the state of affairs of the property to the extent promised in the PDS and need say no more than that he or she is not aware of problems. In other words, the court said vendors must correctly and honestly disclose their actual knowledge, but the knowledge itself does not have to be correct in fact.
As the Vendor answered the question of the age of the roof based on her actual knowledge of the current state of affairs, she was not liable to the Purchasers. There was no positive obligation on the part of the Vendor to disclose information that may be relevant to a particular purchaser if that information was not directly responsive to one of the specific questions in the PDS. As such, the appeal was dismissed.
The takeaway from this case is that purchasers of real property in British Columbia ought to be cautioned to not simply rely on information contained in a PDS, as that information could be factually incorrect. Rather, they ought to conduct their own due diligence to determine the suitability of a specific property for their own purposes. If issues with the property are only identified after closing, purchasers will likely have no recourse against an honest, yet mistaken, vendor unless they can fit themselves within one of the narrow exceptions to the doctrine of caveat emptor. 'Buyer beware' is still sound advice in BC.
This blog is authored by members of the Litigation and Dispute Resolution Department. We follow new and interesting issues emerging in the legal and business communities. The wide range of experience among the members of our litigation group will provide a diverse and insightful examination of current legal trends and topics. Our goal is to provide a source of valuable information and insight on a wide variety of matters for our readers.