Caveat Emptor in Alberta Real Estate: What It Means for Sellers

You may have heard that in real estate the buyer must beware, and that once the keys change hands the seller is in the clear. That is part of the picture, but only part.

This article explains what caveat emptor means in Alberta, how much comfort it gives a seller, and where it stops. It is general information and does not replace advice on your own sale.

This article covers the law of Alberta.

What caveat emptor means

Caveat emptor is Latin for "let the buyer beware." It is the common-law starting point: absent an express warranty, contractual condition, collateral contract, fraud, or fundamental mistake about what was sold, the buyer takes the land with its defects after conveyance and cannot reopen the contract.

There is also no implied warranty that a finished house is fit for human habitation when it is sold. In plain terms, a buyer of an existing home is expected to inspect and ask questions.

Where the protection stops

The doctrine does not protect a seller who commits fraud or misrepresentation, gives an express warranty, or makes a collateral contract. Commentary also notes that the doctrine has been eroding and its exceptions are growing.

For a buyer who wants to cancel a completed land sale, innocent misrepresentation is generally not enough, and nothing short of fraud will suffice. A buyer who keeps acting as owner for a long time after learning of the problem may also be treated as having confirmed the sale.

Disclosure rules that sit alongside the doctrine

Caveat emptor is a court-made rule. The Real Estate Act Rules add duties for licensees. A material latent defect is one that cannot be discerned through a reasonable inspection, or that makes the property dangerous or potentially dangerous to occupants, or unfit for habitation.

• A seller's licensee acting as sole agent must disclose to all buyers the material latent defects the licensee knows of.
• Under transaction brokerage, the brokerage must disclose known material latent defects to the buyer.
• A seller's licensee must tell the seller, in a timely manner, relevant facts affecting the transaction.
• Sellers cannot hide defects or mislead buyers, and a defect can include missing building or other permits.

Because the duty falls on the licensee, a seller who tells their realtor about a known defect results in the realtor having to disclose it. Disclosure duties do not cover every fact: a seller need not tell buyers that the home is conditionally sold when accepting offers.

How long a seller can be exposed

A buyer must generally seek a remedy within 2 years of when they knew or ought to have known of the injury, that the seller's conduct caused it, and that a proceeding is warranted. Claims are also barred 10 years after the claim arose, whichever ends first.

The 10-year limit is suspended while a defendant fraudulently conceals the injury. A purchase contract cannot shorten these periods, though the parties may agree to extend them.

What to do next

Separate from disclosure, a few other parts of selling a home are worth planning for early. If you are married, the Dower Act says you cannot dispose of the homestead during the lifetime of either spouse unless the spouse consents in writing, or the Court has made an order dispensing with that consent, and this applies even if only one spouse is on title. A married owner can apply to the Court to dispense with consent on certain grounds, such as spouses living apart, and the Court may grant the order if it appears fair and reasonable under the circumstances.

If there is a mortgage on the property, the Registrar discharges it when given a discharge in the prescribed form (Form 7) signed by the mortgagee, and a seller's lawyer arranges for the lender to sign it so the mortgage comes off title when the sale closes. On the tax side, you must report the sale of a principal residence on Schedule 3 of your return, and since 2016 the CRA allows the exemption only if the sale and designation are reported on the return. How this applies depends on your situation, so it is worth confirming with a lawyer or accountant.

• Tell your realtor about any problem you know of, including past leaks, repairs and permit gaps.
• Answer buyer questions accurately, and keep copies of what you said in writing.
• Be careful about adding warranties to the contract, since an express warranty can take you outside caveat emptor.
• Keep repair records and permits with your sale file.
• If a buyer raises a complaint after closing, get legal advice before you respond.

Frequently asked questions