3. Duty to advise
The legal warranty of ownership and quality
3.1 Inspection
3.1.1 Pre-sale inspection
3.1.2 Pre-purchase inspection
3.2 Setting the market value of an immovable and the terms of sale
3.2.1 Comparative analysis
3.2.2 Modification of the price and terms of sale
3.3 The legal warranty of ownership and quality
3.3.1 The warranty of ownership
3.3.2 The warranty of quality
3.3.3 The exclusion of the legal warranty of quality
3.3 The legal warranty of ownership and quality
A person selling movable or immovable property must warrant that the property is free from any defect in title and any latent defects, except those declared before the sale. That is what is generally known as the ''legal warranty'', which has two components, i.e. the warranty of ownership and the warranty of quality. These warranties exist by operation of law, i.e. they do not have to be specified in the contract.
3.3.1 Warranty of ownership
The warranty of ownership assures the buyer that:
- 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
- The property does not violate any restrictions of public law, except those declared by the seller or those that the buyer should have discovered.
3.3.2 Warranty of quality
Under the warranty of quality, the 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. The seller does not, however, guarantee any defect known to the buyer or any defect that can be perceived by a prudent and diligent buyer. It is therefore important for a buyer to always have the property he is proposing to acquire inspected by a qualified expert. The fact that the seller ignores the defect, or that the defect is detected only after the sale, does not in any way diminish the warranty. However, if the seller was aware of the defect, his liability would be increased to include, in addition to the reduction in value of the immovable, all other losses sustained by the buyer.
3.3.3 Exclusion of the legal warranty
The licensee has a duty to inform and advise the seller and the buyer of the consequences of waiving the warranty of quality.
The drafting of legal warranty exclusion clauses is an exercise that must be done with care in order to accurately reflect the intention of the parties and not prejudice their rights.
Complete exclusion of the legal warranty of quality
In a 2022 decision, the Court of Appeal ruled that the complete legal warranty exclusion clause (“at the buyer’s own risk”) means the buyer’s intention to purchase the immovable without any warranty whatsoever.1 The buyer waived not only his immediate seller's warranty, but also all warranties offered by previous sellers of the immovable. This clause broke the chain of transmission of the legal warranties accessory to the previous sales of the immovable. A clause stating that the buyer purchases the immovable “without any legal warranty, at the buyer’s own risk” means the buyer’s intention to assume all risks and buy the immovable despite any defects that may affect it. The subsequent buyer who purchases with the legal warranty must be aware that it is granted solely by his immediate seller and that he will not be able to benefit from the warranties granted by previous sellers, since his immediate seller had interrupted the chain of transmission of warranties by purchasing "at his own risk."
The broker must check the previous sales. If, through title search, the broker finds that one of the transactions was carried out "at the buyer's own risk", it must be understood that from such a sale onwards, all legal warranties have been reset.
Because of the significant consequences that may result from a complete waiver of the legal warranty, it is only in special cases that it is appropriate to exclude the legal warranty completely. For example:
- At the time of a repossession or succession because of the limited knowledge of the seller as to the defects which could affect the immovable
- At the time of the sale of a property of poor overall quality or to be demolished, considering the complexity that would result from the disclosure of all the defects affecting it
- When the seller does not want to guarantee the conformity of his immovable with the buyer's proposed change of use
- The seller is an elderly person who wants to avoid being worried about the possibility of a legal action for latent defects against him or his succession
Possibility of waiving the immediate seller's legal warranty only
The buyer may waive the warranty of his immediate seller only, but not the warranties granted by previous owners. In this case, it is particularly important that a clear and unequivocal clause reflecting the intention of the parties be drafted.
The licensee may therefore recommend that such a clause be included to protect the seller from legal action for latent defects and the buyer who would retain his recourses against previous sellers (provided that they sold with the legal warranty).
The OACIQ strongly recommends that licensees no longer use the wording “without legal warranty, at the buyer’s own risk,” so as not to unnecessarily nullify the legal warranties granted by previous sellers, which could continue to benefit the buyer. The drafting of a partial exclusion clause specifying the nature of the excluded warranty (of quality) and the identity of the excluded sellers (immediate seller only or others) is recommended.
See standard clause 3.5 that has been broken down according to type of exclusion of warranties.
Waiving the legal warranty on certain components of the immovable only
It is also possible to exclude the legal warranty of qualify on specific components of the immovable, such as pool, fireplace, air conditioning or heating equipment, appliances or any other aspect concerning the lot.
See standard clause 3.5 that has been broken down according to type of exclusion of warranties.
Licensee's duties
If the immovable is sold without legal warranty of quality, the broker must ensure that all parties understand the following information:
- The legal warranty exclusion is an exception
- It deprives the buyer of remedies for latent defects against the seller
- It can have a downward impact on the selling price
- The exclusion of the warranty of quality does not protect the seller from legal action if he was aware of the defects affecting his immovable at the time of sale and did not report them
The warranty exclusion clause must be clear and unequivocal. Depending on the intentions of the parties, the clause can be modulated (see possible options above).
The warranty of quality waiver must be included both in the brokerage contract and the detailed description sheet, as well as the promise to purchase.
The seller may want the warranty of quality to apply only for a limited time. In such cases, the licensee must inform the parties to the transaction of the issues involved.
In all cases, given the serious nature of the consequences of excluding legal warranties on the rights and obligations of the parties, the broker must recommend that they seek legal advice.2
The seller's broker must inform and advise his client that:
- the information on the warranty exclusion must appear on the description sheet
- Depending on market conditions, the warranty waiver may reduce the interest of potential buyers and impact the selling price
- The warranty waiver will not protect the seller against legal action for defects of which he was aware and which he should have disclosed
- Depending on the circumstances, it may be appropriate to waive or reduce the legal warranty
If the buyer is not represented, the seller's broker (or collaborating broker without a contract) must complete the Promise to purchase form with the buyer and inform him objectively of the consequences of the sale without legal warranty.3 In particular, he must inform the buyer of the possibility of modulating the warranty exclusion clause so as to exclude only the immediate seller's liability, provided that the previous sellers have sold with the legal warranty and include the clause as desired by the buyer in the promise to purchase. The seller's broker must not automatically transcribe the clause from the property description sheet without explaining it to the buyer and obtaining his consent.
The buyer’s broker must inform his client and advise him that:
- Even if the buyer discovers a defect of which he was not aware, he will have no recourse against the seller, unless he can demonstrate that the seller voluntarily concealed a defect of which he knew the existence
- In the event of a complete exclusion, he will not be able to benefit from the warranties granted by previous owners of the immovable
- He must indicate in his promise to purchase the terms of the legal warranty which he agrees to waive with full knowledge of the facts
- He must have a pre-purchase inspection conducted in greater depth than the usual inspection when buying a property without warranty of quality. The building inspector hired for this inspection must be notified that the immovable is being sold without legal warranty, so that he can take this into account when conducting the inspection
- The price offered must take into account the absence of a legal warranty
When completing the Promise to purchase form, the buyer's broker must advise his client to exclude the legal warranty granted by the immediate seller only, but not to waive those granted by previous sellers, provided that they sold with the legal warranty.
As for the "warranty of ownership" component, the licensee must not recommend that it be waived, except in very rare cases.
1 S. 85 the Regulation respecting brokerage requirements, professional conduct of brokers and advertising ( C-73.2, r. 1 ) (RBR)
2 S. 80, 85, 80 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising ( C-73.2, r. 1 ) (RBR)
3 Blais v. Laforce, 2022 QCCA 858
