Sale of property without legal warranty: scope and limits of the warranty exclusion clause
When you buy a building, you may come across a warranty exclusion clause in the notarized sales contract.
This contractual provision is designed to prevent the buyer from seeking compensation for a potential defect in the building he has purchased.
In general, a sale without a legal warranty can be a good opportunity for the parties to negotiate the price. But this can also give rise to difficulties that can lead to recourse to the courts.
Let’s imagine the following scenario: you buy a building trusting the seller, but the seller has misled you and the sales contract contains a warranty exclusion clause. What can you do?
A sale without a legal warranty does not mean that the buyer renounces all rights.
First of all, it should be remembered that a sale without a legal warranty does not mean that the buyer waives all his rights.
In reality, the warranty exclusion clause found in the sales contract has no absolute value, and is not applicable when the buyer’s consent is vitiated. This exclusion only applies to latent defects in the building, since warranties of right or title are not affected by the exclusion.
“Induced into error”
In the scenario we have presented, the buyer is said to have trusted the seller, but the latter “misled” him.
Inducement of error on the part of the seller could be the failure to reveal adverse information, i.e. a defect that the seller knew about and is concealing, or the use of misleading statements to reassure and convince the buyer.
For example, in one case, the judge pointed out that “a stipulation excluding the legal warranty prevents the buyer from having recourse against the seller, unless the latter ‘did not reveal the defects that he knew or could not have ignored'”.
We’re no longer in a situation of good fraud, where the seller is trying to boost his sale, but rather in a situation of bad fraud. In the latter case, the non-warranty clause falls away, and the buyer can sue the seller for lack of consent. Thus, the buyer can sue for fraud in the case of a sale made in bad faith, even in the presence of a warranty exclusion clause. [Pelletier c. Matte, REJB 1999-11728].
This case concerned the existence of water infiltration problems, known to the seller but not reported to the buyer. The ineffectiveness of a warranty exclusion clause in the case of fraud has been consistently established in case law.
In another case, the judge reached similar conclusions: “By withholding information and making misrepresentations the defendants have breached their duty of honesty and acted in bad faith.” [Savaria c. Davignon, 2010 QCCS 6443].
Withholding essential information
The withholding or concealment of information essential to the buyer is deemed by the judge to be an act of bad faith, and therefore falls under the heading of fraud. False information or misrepresentations of reality are treated in the same way.
This warranty exclusion clause, which offers the seller the appearance of a certain degree of irresponsibility for defects or any problems arising after the sale, does not mean that the seller is immune from all the things he knew about. Quite the contrary, in fact.
Dans l’affaire Villeneuve c. L’Heureux, [REJB 1998-08378] in which it was held that “the seller remains subject to the warranty for his personal acts despite the warranty disclaimer clause.
“Seller’s declaration on the building”
In this case, the absence of a French drain and its immediate and probable consequences, i.e. water infiltration under the floor and rotting joists. “In principle, when selling a property, the seller is required to complete a compulsory form entitled “Déclaration du vendeur sur l’immeuble“.
This form is a questionnaire about the building’s characteristics. At the time of sale, the seller may misrepresent the condition of the building, or worse, may mislead a buyer about a fact that exists but is denied in the seller’s declaration. He will be held responsible for these lies.
There are several ways to read this warranty exclusion clause
There are therefore several ways of reading this exclusion of warranty clause: one from the buyer’s point of view, the other from the seller’s point of view.
What these two approaches have in common is the seller’s personal behavior, for which no warranty is applicable.
In the Savaria c. DavignonThe seller had failed to inform the buyer of a very important piece of information, even though it was available to her and concerned the presence of mold in the building. The judge found that the saleswoman’s behavior showed “total disregard for the plaintiff’s interests and recklessness in the face of the resulting consequences”.
In addition to being ordered to pay for the renovations undertaken by the buyer, the defendant was also awarded punitive damages due to the circumstances of the case.
Indeed, it is the circumstances of the case that determine the degree of responsibility of each party, and whether or not the clause is effective.
A seller who demonstrates active, total transparency and honesty with regard to the characteristics of the property he is putting up for sale does not risk having the warranty exclusion clause blown out of the water on grounds of lack of consent.
However, it should be remembered that the burden of proof for bad faith and fraud lies with the claimant and therefore, in our scenario, with the buyer.
This shows that the warranty exclusion clause is not an absolute exclusion of all liability on the part of the seller, and of all means of recourse for the buyer.
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Depending on the factual circumstances of a given situation, the limits of this clause may be reached and recourse may be sought.
Whether you are a buyer or a seller, don’t hesitate to contact our lawyers specialized in civil law and real estate law, who will be able to guide you serenely through your real estate purchase or sale projects.
NOTE: This article does not constitute legal advice or a legal opinion. It is intended solely to inform readers of certain aspects of the laws surrounding civil liability in the province of Quebec and in Canada.
