One of the questions that comes up often when selling a house surrounds disclosure requirements. It’s understandable given that when you want to sell your home, you’re trying to put its best foot forward. While every house is going to have its own drawbacks and imperfections, nobody likes to shine a spotlight on the imperfections. But choosing not to disclose a problem when you are aware of it can land you in hot water, potentially leading to a lawsuit.
I recall working with a buyer couple several years ago. We had viewed a property and they decided they wanted to write an offer on it. Just before I was going to deliver the offer the listing agent phoned me to let me know that there was a large burn in the master bedroom rug, and that in an effort to have the home show well the vendor had placed a small mat overtop of the burn. In this case, I am fairly certain she wasn’t trying to pull a fast one. She just knew that the burn was unsightly and didn’t want it to detract from the appearance of her home. But in doing that, she unwittingly put herself into a precarious position which, fortunately, her REALTOR recognized and was able to rectify. In the end my clients did buy the house with the agreement that the carpet in that bedroom would be replaced before possession.
There are two relevant factors to consider with respect to disclosure. On one hand, Manitoba law relies on the principle of Caveat Emptor - ‘let the buyer beware’'. This means that it is incumbent on a buyer to do the necessary due diligence in order to make an informed decision. This can include hiring professionals such as home inspectors or engineers to inspect the property prior to finalizing the deal. In the standard residential Offer To Purchase contract it states the following:
11.e.iii This agreement contains all of the promises, agreements, representations, warranties and terms between the parties relating to the transaction hereby contemplated, and … (C) in making this Offer, the Buyer relies only on the Buyer’s personal inspection of the Property, the Seller’s promises and representation contained in this Offer and any Property Disclosure Statement that forms part of this agreement.
So no worries, right? It’s up to the buyer to find the negatives? Not so fast. It’s a bit more complicated than that. Under Manitoba law a seller has an obligation to disclose any known material latent defect. Let’s unpack that and see what that means to a seller.
The first word, ‘material’, means ‘material to the buyer’. In other words, it means anything that might be of some importance to a buyer, or that a buyer would consider important in making their decision. This poses a challenge because to some extent it would require an act of mindreading to know what issues might be considered material to a buyer. To the extent that you want to keep yourself out of court, it’s probably a good idea to consider that if you are hesitant to disclose something, it’s probably because you know it is something that could be considered material to the buyer, right? If you didn’t think it would matter at all to a buyer, you certainly wouldn’t mind disclosing it. When in doubt, err on the side of caution and consider it material.
The next word is ‘latent’ which is defined as “present and capable of emerging or developing but not now visible, obvious, active, or symptomatic”. In practical terms, it means anything that isn’t readily obvious upon a cursory view of the property. These can be things that are hidden from view, or would require more than a simple walk-through of the property to uncover.
And finally, we have the word ‘defect’. This is perhaps the one that gets the most difficult to pin down. Certainly, in some cases a defect is obvious. If you’re selling your home in the middle of winter but you know that your central AC unit is not working, that is a pretty clear cut case of a material latent defect. But other things aren’t quite so obvious. Ultimately, something is considered to have a defect if it doesn’t serve its originally intended purpose, or doesn’t function as it was intended to function.
So there we have it. A seller’s obligation - and by extension, the seller’s REALTOR’s obligation - is to disclose any known material latent defect. To help sellers disclose what they need to, and to help buyers make informed decisions, it has become popular in Manitoba to make use of a document called Seller’s Voluntary Property Disclosure Statement, often referred to simply as a PDS. A PDS asks a series of questions attempting to uncover what the seller knows about common and potentially costly defects in homes. When a seller completes a PDS they should at all times be truthful, and remember that there isn’t an expectation that a house, especially an older house, is perfect. In fact, a completed PDS which discloses one or more issues, especially if those issues have been addressed and remedied, can help set a buyer’s mind at ease that the vender isn’t trying to hide anything.
I’ll close off this article with the same advice we REALTORS are given: When in doubt, disclose disclose disclose!
This article is not intended to be legal advice and any party concerned about their legal rights and / or obligations should consult a lawyer.