Drafting Purchase Agreements to Qualify or Extend Caveat Emptor

• Author: Bradley N. McLellan
• Profession: WeirFoulds LLP
• Pages: 121-142

Drafting

Purchase

Agreements

to

Qualify

or

Extend

Cav

eat

Emptor

Bradley N. McLellan

I.

INTRODUCTION

It

is

appropriate

to

begin

an

analysis today

of the use of

contract terms

to

qualify

or

extend

caveat

emptor

by

quoting

from

the

lecture

by

Professor

Bora

Laskin

in the

1960

Law

Society

Special

Lectures

on

Contracts

for the

Sale

of

Land:

Does

the

vendor have

any

duty

of

disclosure

in

matters

of

quality

and

fitness

which

do not

constitute

defects

of

title? Here

we

deal with

the

classical

notion

of

caveat

emptor

as

applied

to the

physical amenities

and

condition

of the

property unrelated

to any

outstanding claims

of

third parties

or

public authorities such

as

would impinge

on the

title.

Absent

fraud,

mistake

or

misrepresentation,

a

purchaser takes existing

property

as he

finds

it,

whether

it be

dilapidated, bug-infested

or

oth-

erwise uninhabitable

or

deficient

in

expected amenities, unless

he

pro-

tects himself

by

contract terms.

In

contracts

for the

sale

of

goods,

a

purchaser

is

today protected

not

only

by

such express terms

as may be

stipulated therein

but

also

by

implied terms

— for

example, there

is an

implied condition

of

merchantability

in

case

of a

sale

of

goods

by

description

and an

implied condition

of

reasonable fitness

for a

partic-

ular

purpose made known

to the

seller. Does this

in any way

hold true

Of

WeirFoulds

LLP.

121

122

Bradley

N.

McLellan

in the

case

of a

sale

of

land?

To the

extent

to

which implied obligations

of

the

vendor

are

involved

in

contracts

for the

sale

of

land,

to

that

extent

is

caveat

emptor

in its

full

rigour

abated.1

In

Ontario, statutory provisions protecting

new

home purchasers

from

the

application

of

caveat

emptor

have been enacted

in the

past twen-

ty-five

years.2

However,

in the

case

of

resale residential purchases

and

commercial

real estate

purchases,

the

common

law

doctrine

of

caveat

emp-

tor

is

still

applicable.3

In the

absence

of

contractual terms protecting

a

pur-

chaser,

a

vendor's

defence

of

caveat

emptor

will

be

successful

in a

claim

by

the

purchaser arising

from

the

discovery

of a

physical

defect

in a

resale

or

commercial property

purchase,

unless

the

purchaser

can

establish

fraud,

innocent misrepresentation,

or

negligent misrepresentation.

A

significant

issue that

affects

the

application

of

caveat

emptor

in

res-

idential resale

and

commercial real estate purchases

is

whether

a

ven-

dor has a

duty

to

disclose

to the

purchaser

a

physical

defect

in the

property.

This paper will proceed

on the

basis that

a

vendor

(a) is not

obligated

to

disclose

a

patent

defect;

(b) is not

obligated

to

disclose

a

latent

defect

that

it is not

aware

of; (c)

cannot conceal

a

latent

defect

or

prevent

the

purchaser

from

discovering

it; (d)

cannot misrepresent

the

quality

of the

property

to the

purchaser;

and (e) is not

obligated

to

dis-

close

a

latent

defect

to the

purchaser unless

the

defect

would render

the

premises

unfit

for

habitation, dangerous,

or

likely

to

become danger-

ous.4

It is

interesting

to

note that there

has

been

a

change recently

in the

1 B.

Laskin,

"Defects

of

Title

and

Quality:

Caveat

Emptor

and the

Vendor's

Duty

of

Disclosure"

in Law

Society

of

Upper

Canada

Special

Lectures:

Contracts

for the

Sale

of

Land

(Toronto:

L.S.U.C.,

1960)

389 at

403^04.

2

See the

article

by H.

Herskowitz

in

this

volume.

3 See the

article

by J.

McCamus

in

this

volume.

4

McCrath

v.

MacLean

(1979),

95

D.L.R. (3d)

144

(Ont. C.A.);

Sevidal

v.

Chopra

(1987),

64

O.K.

(2d)

169

(H.C.);

Scott-Poison

v.

Hope

(1958),

14

D.L.R. (2d)

333

(B.C.S.C.);

Gronau

v.

Schlamp

Investments Ltd.

(1974),

52

D.L.R. (3d)

631

(Man.

Q.B.);

Swinton

v.

Whitinsville

Savings

Bank

(1942),

42

N.E. (2d)

808

(Mass. S.C.);

Gumbmann

v.

Cornwall

(1986),

44

R.P.R

114

(Ont. H.C.);

Hughes

v.

Stusser

(1966),

415

P.2d

89

(Wash. S.C.);

Jung

v.

Ip

(1988),

47

R.P.R

113

(Ont. Dist. Ct.);

Hoy v.

Lozanovski

(1987),

43

R.P.R.

296

(Ont. Dist.

Ct.);

Currie

v.

MacFarlane

(1989),

6

R.P.R.

(2d)

243

(N.S.S.C.);

Heighington

v.

Ontario

(1987),

41

D.L.R. (4th)

208

(Ont.

H.C.),

aff'd

(1989),

61

D.L.R. (4th)

190

(Ont. C.A.); P.M. Perell,

"Caveat

Emptor

and

Latent

and

Patent Defects" (1999),

24

R.P.R.

(3d)

34; H.

Bernstein

&

D.

Book,

"Latent

Defects

of

Quality

— The

Erosion

of the

Rule

of

Caveat

Emptor"

in

Real

Property

Hot

Spots

(Toronto: CBA-O, 1989);

and F.

Coburn

& G.

Manning,

Toxic

Real

Estate

Manual

(Aurora,

ON:

Canada

Law

Book Inc., 2001)

at

II-l

to

11-17.