Buyer beware! A pre-purchase inspection is not a warranty against latent defects

For several years, there have been calls by some associations, including the Québec Association of Building Inspectors, for oversight of the work done by pre-purchase inspectors. On June 12, 2018, they resulted in the introduction of the Act mainly to improve the quality of buildings, the regulation of divided co‑ownership and the operation of the Régie du logement.^[1] If that bill is enacted as it is now written, it will allow the Régie du bâtiment du Québec to regulate the exercise of building inspector functions, in particular by issuing certificates for engaging in the occupation of inspector and by requiring the purchaser of a building to have it inspected prior to purchase in certain cases.

We will take this opportunity to provide an overview of the obligations of pre-purchase inspectors and cases where the buyer or seller may be liable notwithstanding the pre-purchase inspection.

1. Importance of the pre-purchase inspection

Purpose of the pre-purchase inspection

A pre-purchase inspection provides a buyer with information about the condition of the property that the buyer is in the process of purchasing. The inspector must, primarily, inspect the structure of the building, the plumbing, and the roof, to identify defects that [TRANSLATION] "reduce the use, enjoyment or value of a building or involve a risk to the safety of the occupants".^[2] Based on academic literature with regard to this issue, the purpose of the pre-purchase inspection is to inform buyers of potential problems with the building so that, if there are any, buyers can take further steps and investigate further if they wish to pursue the transaction.^[3]

Obligations of the pre-purchase inspector

A pre-purchase inspection contract is a contract for services and is governed by articles 2098 et seq. of the Civil Code of Québec. Inspectors must act in the best interests of their clients, with prudence and diligence and in accordance with good practice.

The obligations of the seller, buyer and inspector are set out in article 1726 C.C.Q.:

1726. The seller is bound to warrant the buyer that the property and its accessories are, at the time of the sale, free of latent defects which render it unfit for the use for which it was intended or which so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them.

The seller is not bound, however, to warrant against any latent defect known to the buyer or any apparent defect; an apparent defect is a defect that can be perceived by a prudent and diligent buyer without the need to resort to an expert.

Under that article, the seller is bound to warrant the quality of the property sold and must ensure that it is free of latent defects. The second paragraph provides that the seller is not bound to warrant against a defect known to the buyer or an apparent defect. The courts have interpreted the second paragraph as also covering signs that suggest a defect may be present.^[4] It is settled law that the buyer has an obligation of means, but what is the case for the pre-purchase inspector, who is not mentioned in article 1726 C.C.Q.?

The courts have held that the pre-purchase inspector must act with the same diligence as the buyer. The pre-purchase inspector has an obligation of means and not of result.^[5] The inspector's conduct is assessed in relation to the conduct of a reasonable, prudent and diligent inspector in the same circumstances.^[6]

The scope of the inspection is the same whether it was done by the inspector or by the buyer. A prudent buyer who retains an inspector must not be put at a disadvantage as compared to a bolder buyer who does not retain an inspector.^[7] As the Court of Appeal held in Marcoux c. Picard, [TRANSLATION] "[t]he test in article 1726 C.C.Q. is the test of the prudent and diligent buyer, not of the meticulous expert on whom a sort of obligation of result is imposed. A different standard of prudence and diligence does not apply according to whether or not a buyer has retained an inspector."^[8]

The inspector is therefore required to detect apparent defects and apparent signs of latent defects. An apparent defect is a defect [TRANSLATION] "that can be observed by a prudent and diligent buyer without the need to retain an expert".[9] It can be discovered without the need to do [TRANSLATION] "meticulous investigation".^[10] For example, damp and mould are generally defects that are apparent and can be detected by a visual inspection.^[11] On the other hand, author Vincent Karim uses the example of asbestos and writes that it cannot be discovered on a visual inspection.^[12]

An apparent sign of latent defects is one that suggests the potential defect exists.^[13] [TRANSLATION] "Inspectors must be capable of interpreting the apparent signs of latent defects and making the appropriate recommendations to their clients; otherwise, they may be liable in respect of a latent defect that affects the building."^[14]

A pre-purchase inspection is only visual, but is thorough. First, the inspection is visual, in that it does not call for any destruction. The purpose of a pre-purchase inspection is not to carry out an in-depth analysis of the structure of the building. Second, the inspection is thorough, in that even though it does not call for destruction, the inspector cannot merely cast a cursory eye over the building.^[15]

[TRANSLATION] "In other words, a pre-purchase inspection is not an expert opinion; it is simply a careful additional examination done by a disinterested person who has a competency that the buyer does not have in this field. However, it is limited to an examination of apparent elements, to ascertain whether those elements reveal significant indications of the existence of latent defects or serious problems that call for repairs."^[16]

An inspector has a number of obligations to the buyer, but those obligations are limited. First, pre‑purchase inspectors are generalists.^[17] They are not experts and they therefore do not have the same experience or exercise the same care as an expert. A pre-purchase inspection is not a guarantee of insurability.^[18] In short, [TRANSLATION] "a pre-purchase inspection does not amount to a guarantee against latent defects nor is it an insurance policy for the buyer of the building inspected."^[19]

2. Responsibility of the buyer

As we noted earlier, the buyer's obligations are set out in article 1726 C.C.Q. The buyer, like the pre‑purchase inspector, is required to detect apparent defects and signs of apparent defects. When the buyer retains a pre-purchase inspector to detect defects of these kinds, but does not follow the inspector's recommendations, the buyer may not then justifiably claim damages relating to the defects. In Benhabra,^[20] the inspector raised a number of problems in his report. A reasonable buyer would have asked more questions or called in experts. In that case, however, the buyer relied on her real estate agent and not on the inspector's report. In such a situation, an inspector who has acted diligently cannot be found liable because the buyer preferred to follow the real estate agent's advice.

In addition, the inspector's role is not to deter clients from buying.^[21] In Migas,^[22] the inspector identified the problems affecting the building, and the additional verifications to be done, in his report. In spite of the report, the buyers took no additional action and sued the inspector when they encountered problems with their new purchase. They apparently wanted him to discourage them from buying the property. That is not an obligation that falls within a pre-purchase inspector's mandate and the claim against the inspector was dismissed.

It may happen that the pre-purchase inspector shares responsibility with the buyer. In the opinion of the Superior Court, [TRANSLATION] "retaining a pre-purchase inspector is not a free pass for apparent defects".^[23] While there is no obligation for a buyer to retain the services of a pre-purchase inspector, it may be a sign of prudence and diligence in some cases.^[24] However, the buyer must still not be careless and rely solely on the inspection done by the inspector.^[25] Buyers still have obligations, even if they have retained an inspector, and they must remain on the lookout and detect apparent defects. In Blais c. Raymond, the house was affected by a number of apparent defects, including cracks and subsidence. The Court decided to hold the buyer and the inspector each 50% liable since neither the buyer nor the inspector had acted diligently.^[26]

3. Responsibility of sellers

The seller must warrant the quality of the property sold. If the property is affected by latent defects, the seller may be liable.^[27] In ABB Inc. v. Domtar Inc.,^[28] the Supreme Court listed the criteria to be met if a defect is to be characterized as latent. The defect "must be latent, must be sufficiently serious, must have existed at the time of the sale and must have been unknown to the buyer". Sellers may be liable if they make false representations or fail to disclose information.

[TRANSLATION] … "Reticence, fraudulent manoeuvres, lies, or omissions are associated by the courts with fraud and have the effect of transforming "signs" or apparent defects into "legally latent defects". … A sale contract is a contract in good faith entered into by the parties. Accordingly, the seller has an obligation of transparency to the buyer. Even though [sellers] are not required to report that which is visible, they must disclose to the buyer the problems that - to their knowledge - would likely influence the buyer's decision."^[29]

For example, in Bellefleur c. Mucciarone,^[30] the buyer purchased a house that exhibited a number of serious problems affecting the foundations. When the inspection was done, there was nothing from which the inspector could have concluded that there was a defect. However, the inspector suggested that a contractor specializing in foundations be retained, but that was not done. The inspector had shown prudence and diligence, but he was misled by the seller: the seller failed to disclose all the information known to him. The seller even tried to conceal the defects in the house. The seller was therefore held liable for the damage suffered by the buyers.^[31]

Conclusion

A pre-purchase inspector has a number of obligations to fulfil in order not to be liable. However, there are limits to those obligations. The buyer and seller each also have obligations that may result in liability on their part when the obligations are not met.

As we have seen, the courts have been the main source of the delineation of the inspector's obligations. When the new bill is enacted, it will provide more guidance for decisions regarding the liability of a pre-purchase inspector.