Can a Buyer Sue You for Hidden Defects in Alberta?

A letter arrives months after closing. The buyer says there is a leak in the basement, or a foundation problem, and they believe you should have told them. It is stressful, and your first question is probably whether they can really sue you.

The answer depends on what you knew, what you said, and what the contract promised. This article walks through the main ideas: caveat emptor, latent defects, fraud and misrepresentation, and the time limits. It is general information and no substitute for advice on your letter.

This article covers the law of Alberta.

The starting point: let the buyer beware

The common-law starting point is caveat emptor, meaning "let the buyer beware." Absent an express warranty, a contractual condition, a collateral contract, fraud, or error in substantialibus, the buyer takes the land with its defects after conveyance and cannot reopen the contract.

The Supreme Court of Canada has also observed that there is no implied warranty of fitness for human habitation on the purchase of a house already completed at the time of sale. So a buyer of a finished home generally cannot rely on an implied warranty of habitability.

That said, commentary on this area notes that the doctrine has been eroding and its exceptions are growing. Do not assume a buyer's complaint is hopeless just because the rule sounds seller-friendly.

Where a buyer's claim can succeed

The doctrine does not protect a seller who commits fraud or misrepresentation, gives an express warranty, or makes a collateral contract. These are the usual routes for a buyer.

• Fraud or misrepresentation: for example, a false statement about the condition of the property.
• Express warranty or contract term: a promise written into the purchase contract.
• Collateral contract: a separate promise made alongside the main sale.

For an executed sale, rescission is not granted for innocent misrepresentation, and nothing short of fraud will suffice, according to the Supreme Court of Canada. A buyer who keeps acting as owner for a long time after learning of the problem may be treated as having confirmed the sale, which can bar rescission even when fraud is alleged. Whether those principles help or hurt in your case turns on the facts, so a lawyer should review them.

Latent defects and what you knew

A material latent defect is a defect that cannot be discerned through a reasonable inspection, or one that makes the property dangerous or unfit for habitation. RECA says sellers cannot hide defects or mislead buyers about a property's condition, and must disclose the material latent defects they know about. Your realtor was also required to disclose the material latent defects they knew of.

So the key questions are usually practical ones. Did you know about the leak or the foundation movement? What did you tell your realtor? What did you say to the buyer, and in writing? A problem you genuinely did not know about is very different from one you knew about and did not mention. Gather your records before you respond to anything.

The time limits

Under Alberta's Limitations Act, a claimant must seek a remedial order within 2 years of when they knew or ought to have known of the injury, that it was caused by the defendant's conduct, and that a proceeding is warranted. Claims are also barred 10 years after the claim arose, and whichever period ends first applies.

This means you cannot assume a claim is over because a fixed period in the purchase contract has passed. Equally, a seller who concealed a defect cannot rely on the 10-year cut-off while the concealment continues.

What to do if you receive a letter

• Do not ignore the letter, and do not reply in anger or admit anything.
• Collect the purchase contract, any disclosure documents, inspection reports and your messages with the buyer and your realtor.
• Write down what you knew about the problem and when you learned of it.
• Note the closing date and the date the buyer says they found the problem.
• Speak to a lawyer promptly about your options before you respond.

Also let your realtor know, since they may have their own records of what was disclosed and when. A lawyer can tell you how the rules above fit your facts.

Frequently asked questions