The plaintiffs purchased an approximately 50-year old home in northwest Calgary in Spring 2007. Within seven days of moving into the home, the plaintiffs (the buyers) experienced serious flooding in the basement. A year earlier, in June 2006, the defendants (the sellers) experienced similar basement flooding, as a result of which they re-contoured their lot and installed a sump pump.

The buyers incurred costs of more than $25,000 to clean up after the flood, fix the flood damage and ‘waterproof’ the house, and sought damages from the sellers on the basis that the sellers failed to disclose a defect that might render the property dangerous or unfit for habitation.

The buyers’ offer was subject to a home inspection, but a home inspection was never done and the buyers waived the condition. Instead, the buyers relied on a home inspection report that was completed for the sellers in January 2006. The buyers also requested a list of all work the sellers did to the house since the date of the home inspection. The buyers received that list, but the list did not include installation of a sump pump or re-countering of the lot.

The January 2006 home inspection report indicated the inspector looked for signs of abnormal or harmful water penetration into the building and reported none. The sellers did not experience serious flooding until Spring 2006.

When the buyers did a pre-possession walk-thru of the property in April 2007, they discovered the sump pump under a cabinet. The buyers’ representative asked the sellers’ representative about it and the buyers were advised that the sellers’ neighbour had suggested a sump pump would be good to install. The buyers’ representative asked the sellers’ representative if there had been a water issue and was told no. The judge accepted the buyers’ representative’s recollection of this conversation, though the sellers’ representative could not recall it.

After the flood in Spring 2007, portions of the drywall were removed and the buyers discovered what was thought to be mold in their insulation and on the back of some of the basement drywall. It was determined that water leaked into the basement between the concrete footing and the concrete basement wall, as well as through fissures created by rusting snap ties in the concrete wall of the house. No one suggested that the sellers knew the snap ties were corroded, and there was no evidence that the sellers knew exactly how water entered their house in the Spring 2006.

At trial, the sellers’ counsel argued the principle of “let the buyer beware” and advised on the distinction between latent and patent defects. Counsel argued that the sellers’ duty is to disclose only those defects of which he or she is aware and that the buyers’ opportunity to have the property inspected prior to purchase is his or her protection. The buyers indicated they relied primarily on the terms stated in the residential purchase contract.

Clause 6.1(h) of the purchase contract stated that the sellers were not aware of any defects that were not visible and that may render the property potentially dangerous or unfit for habitation. The sellers never disclosed the prior flooding. The buyers waived the home inspection condition upon review of the home inspection report from January 2006, provided by the sellers, and a list of subsequent work that was done to the property, which did not include mention of installation of a sump pump or re-contouring of the yard.

The judge found that the issue to be decided upon was whether the prior flood occurrence was a “defect” that was not visible and might render the property potentially dangerous to occupants or unfit for habitation. If so, it would need to be disclosed.

While the property was being fixed following the Spring 2007 flooding, one of the buyers (now an owner) continued to reside in the house, as a sort of live-in renovator and the judge found that notwithstanding the buyer’s presence in the house, it was not fit for habitation at the time. Given the evidence of a defect and the fact that part of the property was not fit for habitation, the judge had to consider whether the sellers’ failure to disclose the defect was actionable.

Through the purchase contract, the sellers expressly represented and warranted that they were not aware of any defects that were not visible and might render the property unfit for habitation.

Clearly the sellers were aware of prior flooding, but did they have reason to believe the defect had been rectified? The answer is no, as the sellers had been advised by the foundation people who installed the sump pump that the pump might not prevent further flooding and advice was given that weeping tile might be required if further flooding took place. There was no basis for the sellers to believe the defect was completely rectified following the June 2006 flooding.

The sellers’ lawyer argued that the defect was discoverable, and therefore did not need to be disclosed. The judge, however, found that not to be the case. The January 2006 home inspector did not find the defect, the foundation people who installed the sump pump were unable to assure there would be no further flooding and in fact, the defect did not again become clear until it rained. Additionally, it was not until the basement framing and drywall were ripped out that the cause of the flooding was discovered.

The judge also found that the buyers’ failure to secure a home inspection is only fatal to the case if the home inspection would have revealed the problem and there is no reason to believe that it would have.

Silence – that is, knowledge of a defect but failure to disclose that knowledge – may constitute concealment when there is a contractual obligation to disclose. In this case, there was through the contractual warranty or representation in the purchase contract by the sellers that they were not aware of or knew nothing of any defects, which were not visible and which might render the property unfit for habitation.

The Court found in the buyers’ favour on the issue of liability and suggested to the parties that they settle out of court.

(Connie v. Sampson, 2009 ABPC 61)

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