Disclosure of Defects - What are the rules?

With every real estate transaction, a buyer is faced with a myriad of potential defects with any property. Some defects are patent or obvious, such as the property is located next to an airport, or the roof has no shingles. Generally, these defects do not need to be specifically disclosed, as they are readily identifiable on any reasonable inspection of the property. Other defects are not so easy to identify and these are considered latent or hidden defects.

A latent defect is one that cannot readily be discovered through a reasonable inspection of the property. Latent defects may include such things as: a leaking roof; improper wiring; or, the presence of a current or a former grow-op.

Latent defects in a property that are material and are known to the seller or licensee typically must be disclosed to the potential buyer. This is particularily true in situations where they may impact the use and value of the property, its fitness for habitation, or where the defect makes the property potentially dangerous.

As a common point of reference, the court has commented that:

"Every imperfection or deficiency which a reasonably careful inspection and inquiry will not reveal cannot amount to a latent defect of the kind capable of displacing the doctrine of caveat emptor. In order to qualify as such, the defect must carry with it a consequence of substance; that is, it must be of such a nature as to render the house uninhabitable or dangerous."

A licensee, representing the seller, generally has the same duty to disclose that a seller has at law. A licensee, representing a buyer, or as a limited dual agent, also typically has a duty to disclose such material latent defects that are known to them. Allegations are often made that such disclosure was not made. The buyer, in such cases, must prove that the seller or licensee actually knew or, reasonably ought to have known, of the defect and failed to disclose it.