Category: Real estate laws

Latent Defects

Posted on by Tania Ellerbeck

(Please note that the following is based on my informed opinion as a real estate broker and should not be taken as legal advice.)

 

You bought your dream home but now that you’ve moved in, you think it may have a defect. What do you do??

The first thing to do is determine whether you bought the property WITH a legal warranty or WITHOUT a legal warranty. For the purpose of this article, we’ll be looking at properties WITH a legal warranty. For information about properties sold WITHOUT a legal warranty, please check out our March 2023 article: Legal Warranties in Quebec.

Unless otherwise agreed to in your contract of sale, a property sold in Quebec is presumed to have been sold with a Legal Warranty of Quality. According to Article 1726 of the Code Civil du Quebec, “The seller is bound to warrant the buyer that the property and its accessories are, at the time of the sale, free of latent defects.”

What is a latent defect?

According to the Code Civil du Quebec, a latent defect is an issue with a property (the immovable) that is

  1. Present at the time of purchase but is unknown to the buyer, seller or building inspector;
  2. Not apparent at the time of the purchase;
  3. Is serious enough that, had they known about it, the buyer would not have purchased the property OR would not have paid such a high price for it.

As a homebuyer who has discovered what could be a latent defect, you will have to prove that the problem existed at the time of purchase, which isn’t always easy. You’ll most likely have to rely on an expert to provide an analysis of the problem – including how serious it is and how long it may have been going on (for example, a small leak in a bathroom pipe that has caused the floor joists to rot over several years, affecting the structure and safety).

In addition, a latent defect is one that wouldn’t have been apparent at the time of purchase. However, the law does require buyers to take precautions when buying a home – a vendor can’t be liable if the issue could have been found by a prudent buyer carrying out an inspection of the property.

Finally, a latent defect has to be serious enough that it reduces the value of the immovable, that it renders it unfit for the use it was bought for, or that the buyer wouldn’t have bought it or paid the price they did for it.

At the time of sale, the listing broker will have the home seller complete a Seller’s Declaration, which is a required form used to disclose information about the home, such as the year it was built, what renovations have been done, and if there have been any problems with it. It’s important for the seller to fill out the Seller’s Declaration in as much detail as possible, without leaving anything out. Omitting information can have serious repercussions later on.

For a buyer, the process of discovering a hidden defect, having it fixed and getting compensation for it can be long and expensive, especially if you have to go to court. So it’s no surprise that it’s one of the most common concerns home buyers express to me, their real estate broker.

You can’t guarantee that you’ll never run into a problem, but there are steps you can take to help avoid one:

  • Read the Seller’s Declaration carefully and ask questions if you aren’t sure about something.
  • Have an inspection carried out by a reputable Home Inspector. While they can’t open up walls or pull up flooring to look for defects, they are trained to look for signs that could indicate that there’s an underlying problem. If they see anything concerning, they’ll recommend you hire an expert to come and take a closer look before you buy the property.

 

What do you do when you discover a latent defect?

First, document everything. Take photos and/or video of the defect and the related damage. If you have to go to court, this will help the judge to make their decision.

Next, hire an expert to do a thorough analysis and to give you an estimate of the cost to repair the defect.

Send the previous owner a registered letter advising them of the defect within a reasonable amount of time after finding the defect (Article 1739 of the Code Civil du Québec) and giving them an opportunity to have the defect inspected. I always recommend consulting with a lawyer for help drafting the letter.

It’s also a good idea to check with your real estate broker to see if they have an insurance program that might be able to help you. I offer qualifying clients Royal LePage’s Protection Royale, which provides insurance and legal advice relating to latent defects for a year after purchase.

Ideally, you’ll be able to come to an agreement with the seller to have the defect fixed. Failing that, you would have to take legal action and present your case before a judge. Be aware, however, that pursuing legal action can be time consuming and expensive, so make sure you have a strong case.

It’s worth noting that, should you win your case against the previous owner of your home, if they can prove that the defect existed when they purchased it, they can pursue the previous seller for damages. And there’s no limit to how far back previous owners can go, provided there’s evidence of the defect existing.

Your real estate broker is there to guide you through the home-buying process, so don’t hesitate to ask them about latent defects and how to mitigate the risks.

 

Sources:

OACIQ

Legallogik

Code Civil du Quebec

 

NB The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

Legal Warranties in Quebec – A Buyer’s Guide

Posted on by Tania Ellerbeck

NOTE: I am not a lawyer. This blog post contains my informed opinion as a professional real estate broker. It is not intended to be legal advice.

 

If you’ve been house hunting recently, you will have no doubt noticed that many listings include the clause “sold without legal warranty”. What is a legal warranty and what does it mean for you, the buyer?

In Quebec, there are two types of legal warranties applicable to the sale of a house:

1.Legal warranty of title/ownership.

The property is free of all rights except those declared by the seller;

The seller has discharged the property of all hypothecs, except for those assumed by the buyer;

The property is not subject to any encroachment on the part of the seller or a third person; and

The property does not violate any restrictions of public law, except those declared by the seller or those that the buyer should have discovered.*

2.Legal warranty of quality, meaning good working order.

Seller warrants the buyer that the property is free from defects, existing at the time of the sale, that would render it unfit for the use for which it is intended or which would so diminish its usefulness that the buyer would not have bought it or paid so high a price if he had been aware of them.*

You cannot sell a home without a legal warranty of title – you have to own the title in order to sell the house.

However, it is possible to remove the legal warranty of quality and sell the home “as is”. The relevant clause on the Seller’s Declaration will read as follows: “This sale is made without legal warranty of quality, at the buyer’s risk and peril.” Essentially, what this means is that the vendor will not guarantee the condition of the property.

There are many reasons a vendor might sell a property without a legal warranty of quality. Companies, landlords, estates and banks typically sell their properties without legal warranty of quality because they have never lived in the property and cannot guarantee it’s condition. Owners of older homes may choose to sell them without warranty because an old house can have surprises hidden behind the walls. A house with recurring issues will also be sold without warranty. For example, if the basement floods once a year, no vendor will offer a warranty. Finally, the Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ) recommends older homeowners sell without warranty in case of future memory loss.

So what does this mean for the buyer?

The legal warranty protects the buyer from what is unknown at the time of the sale – a latent defect that may become apparent only after the buyer moves into the home.

When a property is sold WITH a warranty, the buyer can legally pursue the seller for money to repair the problem that existed when they purchased the property, even though no one was aware of it at the time of the sale. The burden of proof lies with the buyer, or now new owner, to prove the problem existed when they bought the property, no matter how long ago. Claimants can go back to past owners as well, until it can no longer be proven that the problem existed when the past owner purchased the house.

In an effort to curb endless legal pursuits that can potentially cost the parties involved thousands of dollars in legal fees with no satisfactory resolution, homes are being listed without legal warranty more often. When they agree to this condition in the purchase contract, buyers are acknowledging that they’re foregoing the ability to pursue the seller for hidden defects in the home.

However, there’s a big difference between a home sold in good faith that has some unexpected issues and a home whose issues have been intentionally hidden in order to sell or to obtain a higher sales price. Sellers can’t hide behind the veil of no warranty in that situation. The buyer/new owner still has recourse against the previous owner if they don’t declare an issue they know about, even if they sell without legal warranty.

As a buyer considering making an offer on a home without a legal warranty of quality, it’s important to have a thorough inspection done. In addition, check with the town for any potential zoning or boundary issues. The more information you have about the current condition of the home and the potential problems it might have, the better protected you’ll be.

Working with an experienced real estate broker who knows the area and is familiar with some of the more common potential problems you might encounter, such as iron ochre or seasonal flooding, can also be extremely helpful.

Once you have done all that and are happy with the results, you can negotiate the price to compensate for the added risk of buying a home with no warranty. No home will be perfect, but doing your due diligence can help you avoid big problems.

*Source: OACIQ

 

NB The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

 

Don’t Forget the Welcome Tax!

Posted on by Tania Ellerbeck

When you buy a home in Quebec, you are required to pay a Land Transfer Tax, also referred to as the “Welcome Tax” thanks to the former Quebec Minister of Municipal Affairs, Jean Bienvenue (which means welcome in French), who was responsible for instituting it. The municipality will send you an invoice in the weeks following the signing of the Deed of Sale.

The Welcome Tax is based on:

the sale price OR

the evaluation price of a property OR

the amount of the consideration stipulated in the Act of Sale, if different from the price paid (for example if given as a gift).

The Municipality will take the highest of the three as the basis for their calculations. In addition, many Municipalities are also now multiplying the base number by an extra amount, a Comparative Factor, that changes yearly. In 2023, the Comparative Factor in Vaudreuil and Hudson is 1.28%, so the Welcome Tax on a $500,000 home, for example, would be calculated on a base of $506,400 ($500,000 x 1.28% = $506,400). In Saint-Lazare, the Comparative Factor is 1.33%, so a $500,000 home would have a base value of $506,650 ($500,000 x 1.33% = $506,650).

Once the base is determined, it is broken down into increments which can vary by municipality.

The breakdown for Vaudreuil, St Lazare and Hudson is:

The first $55,200 is multiplied by 0.5%

$55,200 to $276,200 is multiplied by 1%

$276,200 to $500,000 is multiplied by 1.5%

Anything above $500,000  is multiplied by 3%

 

If you were to purchase a $750,000 home in Vaudreuil or Hudson, your Welcome Tax would be calculated as follows: $750,000 x 1.28% = $759,600

The first $55,200  $55,200 x 0.5% = $276

$55,200 to $276,200   ($221,000 x 1%)   $2,210

$276,200 to $500,000 ($223,800 x 1.5%)  $3,357

$500,000 to $759,600 ($259,600 x 3%) $7,788

and your total Welcome Tax payable would be $13,631

 

In comparison, the City of Montreal has extra increments with slightly different values and in 2023 the Comparative Factor is 1%.

Up to $53,200               0.5%

$53,200 to $266,200     1%

$266,200 to $532,300   1.5%

532,300 to 1,164,600        2%

1,164,600 to 2,059,000    2.5%

2,059,000 to 3,000,000    3.5%

Over $3,000,000               4%

 

As you can see, the total amount of the Welcome Tax can be quite high. It absolutely should be one of the costs that figure into your offer price and your moving budget along with moving costs, utility installation costs, insurance, etc. Buying a home is an exciting and happy occasion – don’t let it be ruined by an unexpected cost!

 

*Please note that these numbers are subject to change and can be different from one municipality to the next. Always check on the town’s website for the latest numbers. Your notary will give you the final value. The above numbers are not guaranteed by us, they are only intended as a guideline.

**The numbers above were taken from the website of each Municipality mentioned.

Town of Hudson

Town of Saint-Lazare

City of Vaudreuil-Dorion

 

The End of Double-Ending

Posted on by Tania Ellerbeck

“Double-ending” refers to a situation where a single real estate broker represents both the Seller and the Buyer in a residential real estate transaction. It’s a practice that has long raised concerns about the broker’s ability to act in the best interests of both sets of clients.

Changes to the Quebec Real Estate Brokerage Act will effectively put an end to the practice of double-ending in order to avoid potential conflicts of interest. As of June 2022, real estate brokers will have to represent either the Buyer or the Seller in a particular transaction – not both. The goal of this Amendment is to further protect Buyers and Sellers and to promote trust in the client/broker relationship.

The Brokerage Contract to Purchase

The Amendment to the Real Estate Brokerage Act introduces another change to the way real estate is conducted in Quebec with the Brokerage Contract to Purchase. Brokers are now required to have a signed Brokerage Contract when representing Buyers. It’s long been standard practice to have a signed contract with Sellers, but contracts with Buyers have been less common.

In the past, brokers signed contracts with Sellers to represent them in the sale of their property. But for the most part, agreements with Buyers were verbal, with exceptions in cases like For Sale By Owner (FSBO) transactions. More brokers have been implementing signed Brokerage Contracts with Buyers in recent years, but it hasn’t been the norm. Going forward, Buyers will be required to sign a Brokerage Contract to Purchase (BCP) with their chosen broker before writing a Promise to Purchase on a home.

(There is a way for the Buyer to buy a home without signing a Brokerage Contract to Purchase, but they would have to waive their right to be legally represented and they would lose any protection afforded by the contract. We will explain this in more detail in a future post.)

Benefit for Clients

The Amendment to the Real Estate Act will reduce potential conflicts of interest and protect clients’ best interests. It will also help increase trust in the broker-client relationship, which is a good thing.

Reputable brokers have always done their best to represent their clients’ interests, even when double-ending. At Groupe Ellerbeck, we’ve already been doing this with our clients. One of us will represent the Seller while the other acts on behalf of the Buyer, both working our hardest to make sure our assigned clients get their best possible outcome. There have even been situations where we’ve brought in another experienced broker from our office, to ensure the highest level of fairness. We’ll continue to ensure that each client’s interests are represented in the best way possible, just as we always have.


We’ll go into more detail about the specifics of the Brokerage Contract to Purchase in an upcoming post, but if you have any questions about the new regulations and how they might affect you, we’d be happy to answer them for you.

Source: OACIQ

Do I Have to Sell My House?

Posted on by Tania Ellerbeck

Once rare in our area, multiple offers, often above asking price, are becoming more common, leading clients to ask: “If I receive a full price offer, do I have to accept it?”

In short, the answer is no. The fine print on the listing sheet states that “This is not an offer or promise to sell that could bind the seller to the buyer, but an invitation to submit such offers or promises.” The seller can even counter a full price offer and ask for more money. In seller’s market, the seller has the advantage and can ask for whatever price they want.

Recently, we’ve been seeing some brokers and sellers listing properties below market value to encourage multiple offer situations and prompt bidding wars. This practice is unethical and discouraged by the real estate board.

I advise my clients to price their home at their bottom line sale price. I conduct a thorough competitive market analysis and suggest a listing price that will generate strong interest and attract financially qualified buyers. The risk with setting the listing price below market value is that buyers who are qualified at a low price range will visit and present offers when the owner knows they aren’t going to sell at that price, wasting the buyer’s time, the seller’s time and the broker’s time.

Pricing is a balancing act and the real estate landscape has changed significantly in our area over the last year and a half. Previously, brokers would list properties slightly above the market value, expecting prospective buyers to present opening offers slightly below market value. Negotiations would then take place through counter offers until a mutually agreeable price was reached. It wasn’t unusually to see as many as 7 counter offers. These days, counter offers are rare. Multiple offer situations are now the norm, with prospective buyers offering their best offer on the first offer. If the seller were to counter at a higher price, the buyers would likely walk away.

Overbidding

Another trend we’re seeing is overbidding on an offer to purchase. Buyers are anxious to do whatever they can to have their offer accepted amidst all the competition. The downside to overbidding that buyer and their brokers need to be aware of is that they may not get financing. Banks require a property evaluation before they agree to financing. If the bank evaluator appraises the property below the selling price, they can ask for a larger down payment from the buyer or only provide a mortgage for their evaluated price, which can be a problem for prospective buyers who are already pushing the limits of their budgets with their offers.

High ratio mortgages, between 5% and 19% down, can appear less desirable on an offer but are worth considering if the selling price is well above market value. The CMHC, which guarantees these mortgages, is less likely to send an evaluator to appraise the property’s value, so an offer above market value is less problematic in terms of financing.

Should you take the highest offer?

In my opinion, conditions can be more important than price in an offer. We’re increasingly seeing buyers making huge offers, only to ask for significant price reductions after the building inspection. I encourage my clients to carry out pre-listing building inspections which they can show to buyers before they make an offer, so that there are no surprises and no inflated price reduction requests.

So back to the original question, “do I have to sell to the highest bidder?” You are absolutely not bound to accept the highest offer. You can look at other conditions in the offer, like source of funds and building inspections, when making your decision. Note, however, that you’ve signed a contract with your real estate broker. Clause 7.1 (2) in the brokerage contract states that, if your broker brings you an offer that meets all the criteria you set out (price, dates, inclusions, exclusions) and you refuse that offer, they can demand to be compensated. I have yet to see a broker exercise this clause, but as the seller, you do need to keep in mind that it is a possibility.

If you have questions about pricing your home for sale, please feel free to contact us. We’d be happy to discuss the best strategy for you.

Protective Flood Zones

Posted on by Tania Ellerbeck

We’ve just experienced a winter with very little snow followed by a very dry spring. We’re dealing with low water levels throughout the region and facing the prospect of a drier than normal summer. For many homeowners and prospective buyers, however, the threat of seasonal flooding is an ongoing concern.

Gone are the days when a homeowner could build a house anywhere on their property. As development has increased, municipal and provincial governments have passed laws intended to protect homeowners, their neighbours and the environment. These include rules regulating construction in flood zones.

Flood zones have received a lot of media attention in the past few years but our area has always experienced floods – it’s part of living by the lake. Major flooding usually only occurs every 20 years or so, but those of us living in Hudson, Rigaud and Vaudreuil in 2017 and 2019 know firsthand they can happen more often. I can remember Main Road by the ferry being flooded a few times during my childhood. My dad even had to rescue our neighbours by canoe in the 90s when water surrounded their home. Coming together through floods has become part of our community identity.

New flood zone laws

Most municipalities have mapped their waterfronts and produced flood line maps showing the 20-year and 100-year flood lines. By law, homeowners can’t alter the shoreline, remove trees or add structural elements such as sand/soil or retaining walls below the 20-year flood line.

Prior to the 2019 flooding, it was possible to build between the 20-year and 100-year flood lines provided certain conditions were respected. Since 2019, however, most municipalities have created new bylaws to prevent construction below the 100-year line. In 2019 the Québec government produced a Special Planning (ZIS) flood map imposing strict regulations and a moratorium on construction below the flood lines.

You can’t build a new house in a flood zone, but what about houses that are already in the flood zones? These houses have acquired rights to be there but are subject to restrictions when it comes to renovating or rebuilding. For example, you can’t add an extension to an existing house and you can’t demolish a house with the intention of rebuilding in the same spot.

There are certainly risks associated with owning a home in the flood zone. If the home is damaged during flooding and the cost to repair it is more than 50% of the home’s value, the government will force the owner to demolish it and reconstruction will not be allowed.

Following a flood, home owners must have their homes evaluated to determine the degree of damage. The town will provide the owners with the names of three local evaluators to choose from. If the evaluator determines that the level of damage is less than 50% of the value of the building, the town can grant the owner a major renovation permit to repair the house. Otherwise, the house will have to be demolished.

In Hudson, you can get a major renovations permit to renovate up to 49% of a home, which can include implementing preventive measures like lifting the house, raising the foundation above the high water level or reinforcing the foundation to withstand flooding. Depending on the size of the house, these measures can cost $50,000 and up, but they can help ensure the living space stays dry. If you want to renovate more than the 49% of the house you may have to do it in stages, applying for a second renovation permit once you have finished the first phase of renovation.

In addition to the potential cost of preventing or repairing flood damage, it’s important to look into the availability of mortgages and insurance when considering buying a home in a flood zone. Some banks will not issue a mortgage for a house in a flood zone while others will require a risk evaluation. Insurance companies will charge higher premiums for flood protection or, increasingly, refuse flood coverage altogether.

Why buy in a flood zone?

A well-built older home that has been through previous floods with minimal damage may be an acceptable risk for some buyers. If the foundation is solid and the living area high above the water line, flooding can be an occasional inconvenience instead of a catastrophe. New products designed to protect homes from flood waters can also help minimize damage and subsequent repair costs.

So build it high, keep it dry and enjoy the view!

*The information contained in this article is for information purposes only. It is not, and should not be taken as, legal advice. It is not a substitute for the advice or services of a notary or lawyer.

Cause and Effect in Real Estate

Posted on by Tania Ellerbeck

The local real estate market is brisk and buyers are feeling the pressure to move quickly when a new listing becomes available. As a result, some buyers are calling the listing broker to book an appointment instead of waiting for their broker – who has been diligently searching for a home for them – to make the call. After they have visited the house with the listing broker, the buyers then call their broker to write their offer, thinking they’ve saved some time. What they don’t realize is that, per Quebec real estate law, they’ve just ensured that their broker is no longer entitled to their commission, even if they do all the work of crafting the offer and getting the best possible deal.

In real estate law, Cause and Effect says that the broker who is the cause and effect of you buying the house is the one who gets paid the commission, not the broker who did the paperwork. The listing broker you visit the house with will be considered the ‘cause’ of your purchase. Your broker, who will spend days writing the offer, overseeing the building inspection and doing the research to ensure you are protected, won’t get paid for their efforts.

Open houses

What about open houses? By law, it’s considered the same as visiting with the listing broker. However, if you tell the broker at an open house that you are working with another realtor, most brokers will respect that relationship.

Just a quick question…

“I will just call the listing broker to answer a quick question, then I will call my broker if I want to see the house.” Again, this can cause issues for your broker. Always tell the listing broker you are already working with someone if you call them with questions. Better yet, ask your broker to do it for you. They may even know the answers already!

Many buyers assume that if they visit with the listing broker they are unrepresented. In reality, according to real estate law, the listing broker automatically becomes their broker of record for that particular house.

If you like your broker and have a good working relationship with them, you should let them work on your behalf. After all, they’re in the best position to know your needs and wants and are more likely to represent you well in the negotiation process.

Get In Touch

Tania Ellerbeck
Tania Ellerbeck
Chartered Real Estate Broker
514-791- 5367

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