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Stigmatized Properties: Buyer Beware or is Full Disclosure Required?

In-law Suites: What Are They and What You Need to Know

Buyers are largely responsible for determining that the property they are buying is suitable for their needs. This is the doctrine of caveat emptor, or “buyer beware”. Still, vendors are obligated to disclose certain matters about the property to the buyer. Included in the seller’s warranties in article 6.1 (h) of the standard AREA contract is the seller’s promise that

“except as otherwise disclosed, the Seller is not aware of any defects that are not visible and that may render the Property dangerous or potentially dangerous to occupants or unfit for habitation”.

This is known as the duty to disclose “material latent defects” (faults with the property that are not readily apparent).

What is this and how is it determined?

Often it is obvious whether a particular circumstance could be considered a latent defect. For example: a crack in the wall, or water leaks.

Stigmatized Properties: There is another category of circumstances that are more difficult to define. What if a home was the site of a murder or a suicide, was allegedly haunted, or the home of an organized crime member? Such properties are defined as “stigmatized properties”.

The difficulty in considering whether such a stigma is a latent defect is that something that might bother one person may not bother another person. We also see that this question is answered differently in different jurisdictions, depending on the facts:i.Quebec seems to have the strictest disclosure rules in Canada, requiring sellers to divulge the “presence of an unexplained phenomenon”:

Quebec disclosure rules haunt sellers

ii.The situation in Ontario is less clear. Recent cases there involved homes where there was a known sex offender in the area, and in one case the court concluded that the seller should have to disclose this information:

National Post Editorial: Protecting families from the pedophile next door

iii.In Pennsylvania, the court recently determined that a death in the house was not a material defect:

A death in a house is not considered a “material defect” in Pennsylvania

The Real Estate Council of Alberta has examined this issue and made the following conclusion:

The Real Estate Act and Rules do not define stigmatized properties. They also do not require sellers or the industry members who represent them to disclose circumstances that some may consider as stigmas.

Buyers are advised to carefully consider the areas of concern they have, discuss them with their industry member representative, and ensure the necessary inquiries are made to avoid purchasing a property they will not feel comfortable living in. With regard to possible stigmas, sellers should consider the consequences of disclosure compared with no disclosure and seek legal advice.

When there is any doubt, we recommend sellers and buyers seek legal advice in determining whether certain circumstances require disclosure.