A few months after buying your dream property, you may discover a significant hidden defect. Although it may be a very unpleasant discovery, be aware that in most situations you will be automatically protected by law and will be able to take steps against the seller.
Sometimes, however, this is not the case. The key to accessing this form of protection is the promise to purchase that you signed. Indeed, some contracts mention that the property is sold 'at the buyer's risk', meaning that the transaction will be carried out without legal warranty.
Legal warranties in real estate: what exactly are they?
Every person who sells a building must ensure that it is free from defects, i.e. defects in the title or condition of the property. This is known as a 'legal warranty'. Apart from defects known by the buyer at the time of the transaction, which are identified in the seller's declaration or noted by the building inspector during the pre-purchase inspection, everything else is covered by this warranty.
The legal warranty has two distinct components: that of quality and that of ownership. These two components are automatically included in all contracts under the law, without the need to add them to the terms of the document. Rather, an additional clause must be included if any of these guarantees are not included.
Warranty of quality
The warranty of quality assures the buyer that the building they are about to acquire is free of hidden defects (present at the time of the sale) that would eventually render it unfit for use or diminish its value to such an extent that they might not have purchased it or would have lowered their offer had they had full knowledge of the facts.
However, it does not protect against defects known to the buyer, i.e. those disclosed before the sale or those that a prudent purchaser could have ascertained had they taken the appropriate precautions. This is why, despite this quality warranty, it is essential for the buyer to carry out a pre-purchase inspection for the property they wish to purchase.
The fact that the seller is unaware of the defect, or that the problem arises after the transaction, does not diminish the effect of the warranty. However, if it turns out that the seller had knowledge of the defect and had voluntarily hidden it, the latter would be doubly responsible and would have the obligation to compensate the buyer for the decrease in the value of the property and any hardship suffered.
Warranty of ownership
The warranty of ownership assures the buyer that the property is free of any rights other than those declared by the seller. It concerns the defects of titles which would limit or deprive the buyer of their right of ownership. In other words, it certifies that:
- The seller has released the building from any mortgage tied to it;
- The property does not encroach on the land of a neighbour and is not subject to encroachment;
- The property does not violate any limitation of public law, except those already disclosed by the seller or that the buyer should have already discovered through the appropriate procedures.
Thus, there would be a breach of the warranty of ownership if the seller has not repaid the mortgage they had contracted on the property as they had undertaken to do at the time of the transaction.
Exclusion from the warranty of quality: possible scenarios
Depending on the situation, the legal warranty may be increased, decreased, limited for a certain period or simply excluded. In most cases of exclusion, only the warranty of quality is affected. Only in rare cases is it recommended to exclude the warranty of ownership.
The warranty of quality is usually excluded when the sellers have only limited knowledge of the home. This is the case, for example, in the case of a succession or a financial takeover. In both situations, the sellers have not lived in the building and cannot attest with certainty to the condition of the property. They therefore protect themselves against possible prosecution by adding a clause to the sales contract to exclude the warranty of quality. An elderly person wishing to protect their estate could also use this clause at the time of the transaction to avoid future recourse against any inheritors.
The exclusion of the warranty may concern the whole of the property or only certain components of the property. For a complete exclusion, this clause is usually included in the promise to purchase:
'This sale is made without legal warranty of quality at the buyer's risk and peril'.
Where the exclusion of the warranty concerns only part of the immovable property, such as a swimming pool, the words 'relating to' are generally added at the end of the clause. This is followed by a description of the component(s) excluded from the legal warranty.
If the seller wishes to exclude the warranty of quality at the outset of the sale, a note indicating this should be included in both the real estate broker's contract and in the detailed description of the property, so that all parties involved in the transaction are on the same page.
'At the buyer's risk and peril' clause
Although the clause states that the buyer acquires the property at their own risk, it does not exempt the seller from declaring all defects of which they are aware. They still have a responsibility to comply with legal requirements, to act in good faith and not to mislead the buyer.
They must therefore describe, as precisely as possible, the defects they know about the property in the seller's declaration. In the event that the new owner discovers a hidden defect following the acquisition of the property, they could still sue the seller if they are able to prove that the latter acted in bad faith and intentionally concealed the defect. The buyer will then have to demonstrate that their decision was influenced by the seller's deception, lies or reluctance to disclose an essential element relating to the condition of the property.
In short, the sale of real estate without a legal warranty in no way entitles the seller to be dishonest and to deliberately deceive the potential buyer.
Advantages and disadvantages of purchasing without a legal warranty
Like everything else, selling without a legal warranty has its advantages and disadvantages. For the seller, the primary advantage is of course being able to protect themselves against possible recourse, although they will probably have to lower their selling price.
As far as the buyer is concerned, they usually have the option of acquiring property without a warranty at a lower cost. However, this price difference will vary depending on the market. If the demand is higher than the supply, the cost reduction is likely to be rather small.
The major disadvantage for the interested buyer is of course the possibility of discovering hidden defects. Since most cases of sale without a legal warranty concern sellers who have not lived in the building, they will have only limited knowledge of the defects present. However, if the seller was unaware of the problem and had, in good faith, disclosed everything they knew, they would not be held liable and the new owner would have no other recourse to resolve their situation.
Precautions to take before buying a property without a legal warranty
In order to reduce the likelihood of uncovering hidden defects, the best initiative the buyer can take is to hire a building inspector to examine the building. This expert has all the necessary skills and knowledge to inspect the desired property. They are able to detect visible defects and inform the future owner of potential problems that may arise depending on the severity of such defects. Of course, this expert must be informed that the building to be inspected is to be sold without legal warranty so that they can take this into account when noting their observations.
Note, however, that conducting a pre-purchase inspection does not constitute a guarantee that there are no defects. A hidden defect is usually not visible, which means that the inspector may not detect it during their visual inspection. However, they may discover some early warning signs and advise you to hire a specialist to look into this further.
In addition to conducting an inspection, the buyer should insist on receiving a copy of the 'Seller's Declaration of the Building' in order to ascertain the defects declared by the seller.
The duties of the real estate broker during a transaction without legal warranty
When working in a transactional context without a legal warranty, the real estate broker has a duty to inform their client of the implications of the exclusion of this quality guarantee. They must therefore inform the seller that the exclusion of the warranty may have an effect on the sale price, that the property description sheet must mention this absence of warranty, and that they will not be immune from prosecution in the event of known but undisclosed defects.
If they work with the buyer, the real estate broker will have to inform them that they will have no recourse in case of hidden defects, unless they succeed in proving that the seller has intentionally concealed the information from them. In addition, they should strongly recommend that they carry out a pre-purchase inspection before purchasing the property.
If you are looking at a property without a legal warranty, you should be cautious and not hesitate to seek advice from real estate professionals.
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