Avocat Michael R Concister Lawyer

In nine out of ten provinces in Canada, including Quebec, there is no regulatory body that is responsible for training building inspectors and overseeing pre-purchase building inspection in the commercial and/or residential domain.  The exception is British Columbia.  Indeed, building inspection is not legally recognized as a profession in the Code of Professions and is not reserved for a particular group of individuals.

Anyone in Quebec can be a building inspector, but most of them are engineers, architects, draftsmen, chartered appraisers, former developers or handymen.  Their training is non-uniform and although each of the above might have some of the required training, it is not usually specifically addressed to pre-purchase building inspection.  There are associations of building inspectors, but  they are not regulated by the provincial government.  Some of these associations, however, adhere to norms of practice and their own codes of ethics. On the other hand, professional orders such as the Order of Architects, Order of Engineers or Order of Technologues are regulated by the government, but not necessarily vis-à-vis building inspection per se.

What is a non-destructive visual inspection and when is it required?

It is an inspection that is carried out before the purchase of the  immovable property in order to visually ascertain any and all apparent defects (see my article on hidden defects) which can be perceived by a prudent and diligent buyer, without any need of expert assistance.  The government did not want to require a potential buyer to seek the services of a building inspector who is fundamentally unregulated but, on the other hand, wants the purchaser to be aware – caveat emptor (buyer, beware) – if he/she is involved in a costly transaction. As a result, there is a prevelant  practice of hiring the services of an inspector in a way that fulfills the obligation of the purchaser to be prudent and diligent – since it is the inspector that will discern potential apparent defects with his “expert eye”.  Indeed, if the services of a real estate broker are utilized, he/she is required under the Real Estate Brokerage Act ⁽¹⁾ to recommend to the potential purchaser that a full inspection be carried out by a professional or a building inspector who:

1. has professional liability insurance covering fault, error or omission;
2. uses a recognized inspection agreement;
3. performs according to inspections standards; and
4. submits a written report to the party that requested the inspection services;

This regulation is ambiguous at best, since there is currently no standard inspection agreement, nor inspection standards, as defined by law.  Therefore, in order to define the above requirements, one must take into account current industry practices and examine the jurisprudence on a case by case basis.

Furthermore, the Code of Ethics of the Real Estate Brokerage Act requires brokers to furnish their clients with a list of more than one professional or building inspector, who meets the above-mentioned criteria so that there is no perceived bias or conflict of interest.

What does the inspection consist of? Can it be a destructive inspection?

An inspection, whether destructive or non-destructive, can only be carried out with the permission of the vendor. Most residential inspections are non-destructive in nature and consist of detecting apparent defects usually seen by the naked eye.  No part (especially in residential) of the immovable is destroyed in order to ascertain a defect.  For example, destruction of the foundation by drilling holes into it to analyze the concrete, or hammering parts of the roof to look beyond visual cracks and/or stains etc. is not permitted without the express consent of the vendor.  The normal residential inspection consists of investigating the five major systems: plumbing, foundation, heating and ventilation, roof, and electrical. The average duration of a residential inspection is between one and four hours, depending upon the size of the residence.  However, in commercial situations (see my upcoming article on commercial lease), most financial institutions insist upon destructive investigations where there is any concern for environmental issues or for any defect that could lower the value of the property and, that can be quite complicated and costly.

In conducting an inspection that is non-destructive and visual, the inspector who follows the norms will be unable to detect hidden defects.  This would be only be achieved (save for instrumentation) by using destructive means.  However, an inspection that is done properly might lead a purchaser to demand a more probing or specialized expertise.  Indeed, if the inspector indicates, either orally or in his report, that he has identified an apparent defect and in fact suggests further inspection e.g. of a chimney or electrical panel, and this is not pursued by the purchaser, then the vendor within a particular contextual situation, will not be responsible for any type of hidden defect thereafter.  The  only exception to this rule is that the purchaser and/or inspector were so comforted by the responses given by the vendor, that they arrived at the conclusion that there was no further need of inspection and there was no indication made by the inspector that a more detailed inspection (expertise) was needed.  However, if the vendor has exaggerated, concealed or lied about a defect, it would make him/her civilly responsible.  Nevertheless, this might not be sufficient to exonerate the inspector, who compared to other inspectors doing a similar inspection would have investigated further. This would be ascertained by an independent expert, evaluating whether or not the service rendered by the pre-purchase  inspection was indeed prudent and diligent to the extent provided by the law (jurisprudence) .

Thus, hiring a building inspector to carry out a pre-purchase building inspection, does not absolve the purchaser of further responsibility., and therein lies the Pandora’s Box!

(1) Quebec Real Estate Brokerage Act; (R.S.Q., Chapter C-73.2) Regulation respecting brokerage requirements, professional conduct of brokers and advertising; Section 81.

HIDDEN DEFECT or THE GUARANTEE OF QUALITY

When purchasing a commercial or residential property, it is not uncommon for the purchaser to discover a defect some time after the purchase takes place.

What is a hidden defect?

A hidden or “latent” defect is a defect that is invisible to the naked eye.

More specifically:

1.  A hidden defect is a defect that exists at the time of the sale.

2.  It is not apparent or obvious to a prudent buyer or to an inspector conducting a routine non-destructive pre-purchase building inspection.  They should not have discovered it.

3.  The defect is such that it renders the immovable unfit for its intended use, or reduces the usefulness of the immovable such that had the buyer been aware of the  hidden defect, he or she would not have paid so high a price, or would not have purchased the immovable altogether.

All three conditions or criteria must be present in order for the “problem” to be designated a hidden defect.

Can the buyer pursue the vendor? What about the inspector who was hired to conduct a pre-purchase inspection?

The legal guarantee of quality or warranty against hidden defects has its origins in the Quebec Civil Code and is automatically included in the deed of sale as a guarantee to the purchaser.  However, this warranty may be specifically excluded, reduced or enhanced upon negotiation by the parties.  Note that a professional seller e.g. a developer may never exclude or reduce this warranty.  In any event, should the vendor be aware of a defect, or, could not have been unaware of it, whether apparent or hidden, and fail to disclose it, he or she may be held liable towards  the purchaser.  Furthermore, the seller is responsible to compensate the purchaser for a hidden defect regardless of whether or not he had any knowledge of it prior to sale.  Even though the warranty is specifically excluded, the vendor remains liable towards the purchaser if he was aware of the defect and did not disclose it to the purchaser prior to the sale.

Pre-purchase inspection

Although not required by law to have a property inspected, it is recommended to do so in order to avoid potential problems.  Often the first-time purchaser does not know what to look for in assessing a property.  The pre-purchase inspection that is carried out is usually (especially in residential) visual and non-destructive in nature.  The inspector’s duty is to identify all apparent defects and ask the vendor to make certain declarations with regard to the property (see upcoming related article on inspection).  In addition, should the inspector fail to disclose the apparent defects at the time of the inspection, the purchaser will be able to pursue the pre-purchase inspector in a court of law.

What should the purchaser do?

When the purchaser begins to suspect the gravity of the situation, he must inform the seller as soon as  possible in writing, advising the vendor of the defect and giving him the right to conduct his own expertise and/or repair it or pay for it.  The case law indicates that this period of notification is generally no greater than six (6) months from the time that the seriousness of the defect became known to the buyer.  This time period will vary with the nature of the defect and whether or not it is getting worse.  The vendor must be able to ascertain the gravity of the defect and determine whether or not it was hidden at the time of the purchase.  Should there be too great a time taken to notify the vendor, without the repair of the defect, it will be difficult for the Court to appreciate the degree to which the vendor vis-à-vis the purchaser is to blame.  No repairs should be carried out until the vendor has had time to assess the situation.  The only exception to this rule is if the defect is of an urgent nature.

The purchaser has three (3) years from the time he or she discovers the seriousness of the defect in which to pursue the vendor and/or the inspector for damages which may involve a reduction of the sale price or the annulment of the sale due to the gravity of the defect.

SUMMARY

Steps to be taken following the discovery of a hidden defect

1.  Immediately take dated pictures of the alleged defect.

2.  Follow-up with a letter of demand to the vendor, allowing him to assess the alleged defect.

3.  Do not carry out any repairs until the first steps have been taken care of.

4.  See an attorney in order to proceed to the selection of an expert such as an engineer or architect, in order to jointly determine the true nature of the  defect.