Oct 27, 2023
In the world of real estate, it’s crucial to be aware of two distinct types of defects that can significantly impact property transactions: Latent Defects and Material Latent Defects. These terms often lead to confusion, but they hold essential distinctions that can influence the decision-making process for both buyers and sellers. In this blog, we will delve into the differences between these two defect categories and why disclosing Material Latent Defects is of utmost importance in the real estate industry.
A Latent Defect is a flaw in a property that is not readily visible or discoverable through a reasonable inspection. One classic example of a Latent Defect is a foundation crack hidden within the walls of a finished basement, which is impossible to spot during an inspection. However, if this crack becomes visible from the outside (above ground), it transforms from a Latent Defect into a Patent Defect, which is easily detectable.
Other instances of Latent Defects encompass issues like a basement that only leaks during specific seasons or problems that necessitate damaging the property to uncover. These defects can also result from past repairs or renovations that have concealed underlying issues. The differentiation between a Latent Defect and a Material Latent Defect lies in the extent of potential harm and the cost of repair.
Material Latent Defects, on the other hand, are those defects that go beyond being merely hidden from sight. They present serious concerns that render a property unfit for its intended purpose, dangerous for occupants, or in violation of specific regulations. These defects may also incur substantial repair costs or result from a lack of necessary permits.
Examples of Material Latent Defects include:
Both sellers and real estate professionals have a legal obligation to disclose Material Latent Defects. These defects can render a property unsuitable for habitation, potentially dangerous, or unfit for any disclosed purpose. This requirement aims to protect buyers from making uninformed decisions and safeguard the integrity of real estate transactions.
There are different definitions of Material Latent Defects used by various entities, such as the Real Estate Council of Alberta (RECA) and common law. The RECA definition includes defects that make the property unfit for living, potentially dangerous, or unsuitable for any disclosed purpose. It also considers defects with high repair costs or those necessitating government-mandated repairs.
Common law, in contrast, has a broader definition, often requiring more extensive disclosure compared to RECA’s rules. Since 2017, the Alberta Real Estate Association (AREA) contract introduced a new definition that includes defects affecting the property’s value, broadening the scope of required disclosures.
The decision to disclose a defect rest on several factors, including the nature of the problem and the seller’s risk tolerance. If a defect falls under the RECA definition, disclosure is mandatory. When a defect is less severe but might affect the property’s value, sellers have the option to disclose. However, full written disclosure can significantly reduce a buyer’s chances of success in a lawsuit related to that defect.
In the event of a lawsuit related to a Material Latent Defect, the burden of proof lies with the buyer. They must demonstrate that the defect caused damages, was latent in nature, and that the seller was aware of the problem but failed to disclose it adequately. Buyers must also prove that they would not have purchased the property or would have paid less for it if full disclosure had been made.
In conclusion, understanding the difference between Latent Defects and Material Latent Defects is essential for all parties involved in a real estate transaction. While the legal requirements for disclosure can vary, prioritizing transparency and honesty in property transactions is fundamental for maintaining trust and ensuring a fair and secure real estate market.
Hi! I’m Erin Crocker. I’m a real estate lawyer with over 10 years of experience in Alberta and British Columbia real estate law. I love technology and efficiency. I’m on a mission to create a modern, digital closing experience for buyers and sellers through technology, transparency and sharing knowledge.
