When buying a home, people typically consider affordability, access to hospitals, proximity to work/schools, and the property’s condition. Most purchasers do not consider whether the home is haunted or whether there is a sex offender or radioactive material across the street. For some purchasers, these were realities.
Put simply, when purchasing a property, a buyer has a duty to investigate into a property’s ‘patent’ defects. Generally, patent defects are physical and are discoverable by inspection, such a gurgling septic tank or noticeable water damage. The seller has no duty to draw attention to such defects, but, of course, they cannot actively conceal them. If the purchaser does not investigate further, then little recourse is available as ‘caveat emptor’ applies, which is Latin for ‘buyer beware’.
In addition to patent defects, there are ‘latent’ defects, which are defects that cannot be seen by inspection. For latent defects that are known, the seller (and, if applicable, the realtor) has a duty to disclose to the purchaser. If the seller conceals these defects, the purchaser may be entitled to damages and possibly rescission (the undoing) of the contract after the purchase.
A leading case on this issue is Gronau v. Schlamp Investments Ltd.,  M.J. No. 223. In this Manitoba case, the seller actively concealed a significant crack in a wall, knowing that the defect was serious. After the sale completed, the purchaser discovered the issue and sued the seller. The court ordered that the contract be rescinded (undone).
So, how far does this ‘disclosing defects’ duty go? Do sellers (and their realtors) also have to disclose defects that are not physical or that are not actually located on the subject property? In some cases, yes, they do.
Consider Sevidal v. Chopra,  O.J. No. 732. In this Ontario case, the sellers concealed that radioactive material was found in the neighbourhood and there was a “hot spot” across the street from the property. The purchasers sued the sellers and, after trial, the sellers were found liable for damages.
Also, consider Stambovsky v. Ackley, 169 A.D.2d 254 (NY App. Div. 1991). In this New York case, neither the seller nor the seller’s realtor revealed to the purchaser that the home was allegedly haunted, as reported in newspapers, as well as in Reader’s Digest. After the sale completed, the purchaser discovered the rumours/publicity and sued the seller. The court eventually rescinded the contract.
In this New York case, it was irrelevant whether the house was actually haunted. It was, however, relevant that there was publicity regarding the haunting, which impacted its value. It was also relevant that the purchaser could not have discovered poltergeists from inspection. Put simply, the purchaser did not get what he paid for.
Interestingly, the duty of sellers to reveal latent defects may even extend to the presence of sex offenders in the neighbourhood. In Ontario, there is a pending case involving the sale of a property, which is located across the street from someone convicted of possessing child pornography. The presence of this individual was apparently common knowledge in the neighbourhood. The purchasers are parents of two young children and, after finding out about their new neighbour, did not want to move into the home. Not surprisingly, they are currently suing the seller (and the sellers’ realtor).
From the above, three points are clear: 1) sometimes, defects that do not relate to the physical condition of the home should be disclosed; 2) in the near future, there may be big changes in the real estate world; and 3) real property law is complicated and fraught with risk.
**The information contained in this column should not be treated by readers as legal advice and should not be relied on without detailed legal counsel being sought.
Originally posted on Castanet.net on January 31, 2012: Pedophiles and haunted houses.