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"Buyer Beware" Has Limits

In a recent case called Kelly v. Pires, the Ontario court confirmed the limits on the legal principle of "buyer beware", in a case where the seller had fraudulently misrepresented the existence of a defect causing water damage on the property.

The buyer agreed to buy the seller’s home, subject to a satisfactory building inspection. Being a qualified building inspector himself, the seller did his own inspection and was satisfied with what he saw. The deal closed 10 days later, and the buyer moved in immediately with his wife and young family.

However, while stripping wallpaper in a basement room slated for repainting, the buyer’s wife noticed black marks on parts of the underlying drywall. This led to the discovery of significant moisture issues, including the widespread presence of mold. The removal of some wood paneling revealed newer drywall extending for an entire wall and newly-added foam insulation suggested deliberate concealment attempts. Experts later confirmed widespread damage, including moldy drywall, blackened lower-level studding and wet insulation.

When confronted, the seller (who now happened to live next door) denied any knowledge of moisture problems, but when pressed admitted that some repairs had been done periodically by family members. He refused to contribute to the repair costs, claiming the moisture could have been detected during the pre-closing inspection. He considered the mold to be the buyer’s problem, effectively raising a “buyer beware” defense to the new owner’s complaints.

The buyer sued, claiming that the seller had fraudulently misrepresented the lack of moisture damage to the home. He claimed about $60,000 in damages for the cost of repair, as well as various amounts to redress the six months of inconvenience to his 5-member family, all of whom had to live in the cramped 1,000-square-foot upper level, with one shared bathroom, during remediation. The buyer also described fear for his children’s physical safety and marital stress during that time.

In assessing the buyer’s claim, the court heard of the home’s complex and checkered history, with repairs and renovations conducted piecemeal over the years by various self-taught members of the seller’s family. Their collective evidence denying knowledge of a moisture problem was simply not credible. For example, renovations had been made at one point to allow a family member to move in with her elderly and disabled mother, but the move never took place. The court surmised this was because the "chronic and extensive" mold problem had already come to light at that point.

Indeed, the water damage was not only extensive, but it was known to and actively obscured by the seller, the court found. The very nature of the repairs and concealment efforts – made by relatives under the seller’s direction – suggested it. In contrast, the buyer’s pre-closing inspection met the required standard, so it could not be said that he contributed to his own losses.

The court noted that while the longstanding principle of "buyer beware" still governs, it is trumped in cases of active concealment by a seller, who is obliged by law to disclose known latent defects in quality that make a property unfit for habitation. Here, the seller’s deliberate cover-up of the latent defect causing mold and extensive water damage amounted to fraudulent misrepresentation.

The court awarded the buyer $30,000 for the needed repairs. As for his more esoteric claims for stress-related damages, the court acknowledged the strain on the family but could not quantify those damages in the absence of a professional opinion. See Kelly v. Pires, 2015 (ONSC).