Court Ruling Reinforces Buyer Beware in Real Estate Transactions

Image of a house designed to resemble a lemon - conveying the concept of buying a lemon due to inadequate inspection.

The recent court decision in the case of CanDeal Group Inc. v. Capservco Limited (2024 ONSC 1315) underscores the enduring relevance of the principle of caveat emptor, or “buyer beware,” in real estate transactions. This principle essentially means that the responsibility for discovering any issues with a property lies with the buyer, not the seller, unless those issues are actively concealed or misrepresented.

This decision reinforces the caveat emptor principle in real estate, highlighting that buyers must be diligent in their property assessments. It also clarifies that sellers are not obligated to disclose every single detail about a property, especially if the buyer has had the opportunity to inspect the premises and such details are contractually addressed.

In this specific case, CanDeal Group Inc. sued Grant Thornton and Cushman & Wakefield, alleging that they were not informed about the noise from idling trains at nearby Union Station, which they claimed constituted a latent (hidden) defect. However, the court dismissed CanDeal’s action, ruling in favor of the defendants for several reasons:

  • CanDeal was aware of the property’s proximity to transportation facilities, including rail lines.
  • CanDeal had conducted an inspection of the premises.
  • The contracts explicitly stated that Grant Thornton would not be liable for any disturbances caused by noise or vibrations from transportation systems.

What This Means for Real Estate Buyers and Sellers

For buyers:

  1. Due Diligence is Crucial: Buyers must conduct a comprehensive investigation of a property before making a purchase. This should include delving into the property’s history and thoroughly exploring any potential legal issues, such as easements or liens. Additionally, it’s important to assess the physical condition of the property and explore the surrounding neighborhood. Visiting the property at different times of the day can provide insights into varying traffic patterns, noise levels from nearby properties or roads, and the general atmosphere of the area, helping to ensure there are no unwanted surprises after moving in.
  2. Importance of Inspections: Engage professionals to inspect the property’s structure, systems, and any other important aspects to uncover potential problems.
  3. Contract Review: Carefully read all contracts and legal documents involved in a property transaction. Seek legal advice if anything is unclear.

For sellers:

  1. While the caveat emptor principle provides some protection against post-sale disputes regarding the condition of a property, it’s crucial to distinguish between simple disclosure and providing full, complete answers to specific inquiries made by potential buyers. Disclosure involves revealing known defects and legal issues with the property. In contrast, fully answering questions requires a more detailed explanation of the property’s condition and any factors that could influence a buyer’s decision.
  2. Recent changes under the Trust in Real Estate Services Act (TRESA) have introduced new disclosure requirements that increase the obligations for sellers and real estate professionals. It’s important to note that the court case discussed in this article occurred before TRESA came into effect. Under TRESA, there are now more stringent standards for what needs to be disclosed during a real estate transaction, aimed at enhancing transparency and fairness in the market. For more information on TRESA see – Two Big Changes To Residential Real Estate Sales Process in Ontario.
  3. Sellers should ensure that any contractual agreements clearly outline the terms and conditions related to the property condition to avoid misunderstandings.

Given these evolving legal landscapes, the best practice for sellers – and the realtors representing them – is to err on the side of disclosure. When in doubt about whether something should be disclosed, it’s safer and more prudent to disclose. This approach not only helps in building trust with potential buyers but also minimizes the risk of legal disputes post-sale, ensuring a smoother transaction process for all parties involved.

Michael Abrams, Kelly Santini LLP

Michael Abrams
Partner & Certified Specialist in Real Estate Law