Litigation

Vendors, Should you Disclose all Known Facts, Including Those that May Influence the Decision of the Purchaser, eEven if They do not Relate to the Property Sold?

Feb 7th, 2019

By Laurent Debrun

Back Cliquez ici pour une version française

The vendor of a property must disclose to the purchaser all facts known to the vendor or that are likely to influence the decision of the purchaser, even if they do not relate to the property being sold.

More specifically, the vendor of land may be bound by the legal warranty relating to the soil, notwithstanding the fact that the deed of sale expressly provides that the sale is without any warranty as to the condition of the soil. It all depends on what the vendor knows about the condition of the soil and what he fails to disclose to the purchaser. In a recent case, the Court of Appeal held  that the vendor ought to have provided information regarding the condition of neighboring land, other than the information regarding the land subject of the sale, as such information would have influenced the decision of the purchaser (Monarque du Richelieu Inc. c. Boisé Richelieu Inc. (2018 QCCA 2168)).

The facts are simple. In 2000, Boisé Richelieu Inc. (Boisé) purchased 19 million square feet of land in Trois-Rivières in order to build a golf course and hundreds of homes. Boisé quickly discovered a problem with the soil where it had begun building three homes, namely the presence of sub-consolidated clay. The foundations collapsed. Boisé obtained an expert assessment of the soil which recommended that certain specific measures be taken when building future homes to avoid this situation.

In 2009, after a year of negotiations, Monarque du Richelieu Inc. (Monarque) purchased the yet undeveloped land from Boisé, namely 12.5 million square feet, to continue the same residential development.

Monarque did not carry out a soil analysis as the President of Boisé, who had already built 400 homes on the other part of the land, did not mention to him that he had problems as a result of sub-consolidated clay.

The deed of sale specifically states that the vendor being an experienced professional does not grant any warranty with respect to the soil since he did not carry out any expert assessment whatsoever. The vendor does not grant any warranty and is not responsible for any drainage or excavation work that may be required on the land. (translation)

In 2011, Monarque begins construction and quickly discovers problems with the soil, namely the presence of sub-consolidated clay. Monarque learns that Boisé had encountered the same problems nearby, requiring the installation of supporting posts. Monarque filed a claim for damages in 2014 demanding that Boisé pay as damages the additional construction costs and other damages, arguing that it was a victim of fraud ( a civil fault). The first judge dismissed the action, finding that the vendor is not required to make disclosures regarding facts about the condition of the land other than those subject to the sale. The trial judge also held that the purchaser is experienced and should have carried out a soil analysis, especially since the deed of sale excluded any legal warranty as to the condition of the soil.

The Court of Appeal reversed the decision on the ground that the vendor was under an obligation to inform the purchaser. The vendor could not simply answer the questions honestly; he had a positive duty to disclose everything that is liable to influence the purchaser.

Failure to fulfil an obligation to inform, whether through silence or reluctance, constitutes fraud which invalidates the consent of the purchaser. This type of fraud is different from legal warranties against latent defects, as victims have a remedy even if they renounced to the legal warranty. The deceived purchaser who can prove that the vendor acted fraudulently can hold him accountable, even if the purchaser does not otherwise benefit from a warranty against latent defects.

The Court of Appeal found that the vendor could not simply disclose the facts regarding the land it was selling. The vendor was required to inform the purchaser of all facts that are liable to change his decision. Even a fact that does not relate to a defect of the property may be crucial for the purchaser. In this case, since Boisé had obtained an expert assessment of the soil on neighbouring land in 2000 and learned of the presence of sub-consolidated clay, Boisé was required to inform Monarque as this problem could likely affect the remaining land, even if the soil thereof had never been subject to an expert assessment.

The Court of Appeal awarded damages of $1,059,000, a sum equal to the cost of the corrective work required to build despite the clay issue.

The lesson to be learned from this decision is that a prudent vendor should disclose as much pertinent information as possible to the purchaser even if the purchaser waives legal warranty.

 

 

This publication is of a general nature, is as of the date indicated and is not intended to constitute an opinion or legal advice. The facts and circumstances of your particular situation should be specifically identified and addressed before appropriate legal advice may be given.