It is every buyer’s worst nightmare. They move in, belongings are unpacked, and then the basement floods, yet nothing had been disclosed by the previous owners about flooding.
What to do?
Does a seller have an obligation to tell a prospective buyer about any basement flooding? Yes.
Legal Definition: A “latent defect” is a fault in a property that could not have been discovered by a reasonably thorough inspection before the sale. Such faults must be disclosed by a seller to a purchaser.
Several years ago I read a reported case where the parties entered into an agreement of purchase and sale for a home. The sellers had provided the purchaser with a completed Property Condition Disclosure Statement (“Disclosure”) in which the sellers answered “No” to questions dealing with flooding and water problems.
Shortly before closing, water leaked into the basement through the window wells, flooding the basement. The sellers used fans to dry the carpet.
The sellers had not previously had any water problems in the basement, thought that the incident was an isolated event, and decided not to tell the purchasers because the sellers did not believe they were required to do so because the incident was not likely to occur again.
The sale closed. Three weeks later, the basement flooded again. The purchasers cleaned the mess and took steps to prevent further flooding. It was discovered that water accumulated in the backyard and ran into the window wells. The cost to clean up the mess and to fix the problem was almost $23,000. A neighbour told the purchasers about the water event that had occurred before closing.
The purchasers sued the sellers. The matter went to trial and then on to appeal. The Appeal Court found the sellers liable, concluding as follows:
(a) the sellers were obligated to tell the purchasers about the flood;
(b) the sellers had acted negligently by not disclosing the flood to the purchasers; and
(c) the purchasers could rely on the representations in the Disclosure that there had been no water problems or flooding, and the sellers could not, in this case, find refuge in the principle of “buyer beware”.
The sellers were ordered to pay $25,000 to the purchasers.
The case suggests that, in similar circumstances, an honestly held belief about the significance of a flood or other damage will not protect a seller from liability, particularly so in cases in which a Disclosure has been provided to the purchaser. Sellers should investigate the cause of the damage and disclose it to the purchaser.
Jeffery A. Cormier
Legal information appearing in this article and elsewhere on Key Murray Law’s website is intended for informational purposes only and is not intended to substitute for or replace any legal or other professional advice. If you have specific concerns or a situation in which you require legal advice, you should consult directly with one of our lawyers.