Legal Warranty of Ownership and Quality (Quebec)
What is a ''legal warranty''?
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.
The 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; and that
the property does not violate any restrictions of public law, except those declared by the seller or those that the buyer should have discovered.
The 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 is not bound, however, to warrant against defects known to the buyer or a defect that a prudent and diligent buyer could have perceived. This is why it is so important for a buyer to have a prospective purchase inspected by an expert. The fact that the seller is unaware of the defect, or that the defect does not become manifest until after the sale, in no way reduces 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.
Waiving the legal warranty of quality
The legal warranty may be increased, reduced or even waived upon agreement between the parties to a transaction. Except in rare cases, waiving the warranty of ownership (warranty of title) is never recommended. A more frequent occurrence is the waiving of the warranty of quality, including when an immovable is sold by an estate or following repossession. Under certain circumstances, it may even be a good idea to recommend to a seller to sell without a warranty of quality. This could be the case when selling the property of an elderly person who does not want to worry about a potential recourse for a latent defect on the part of the buyer, a recourse which could be exercised against the person’s estate. The warranty of quality may be waived for the entire property or only on certain components such as the pool or the appliances included in the sale. If the warranty of quality is waived on the entire property, the following clause must be included in the promise to purchase:
''This sale is made without legal warranty of quality, at the buyer’s risk.''
If the exclusion concerns only one or more components, the word ''concerning'' should be added at the end of the clause, followed by a description of the excluded component(s). If the warranty of quality waiver is required by the seller from the very beginning, words to that effect must be included both in the brokerage contract and on the detailed description sheet.
The real estate broker's duty
The real estate broker has a duty to inform the seller and the buyer of the consequences of waiving the warranty of quality. For example, a seller who wishes to sell an immovable without a warranty of quality must know:
that this information must appear on the description sheet and that, depending on the market at the time, this could reduce the level of interest on the part of prospective buyers.
that the warranty waiver may have an impact on the selling price and that it will not protect him from a lawsuit for defects of which he was aware and should have declared.
Declarations by the Seller
To this effect, in the case of a residential immovable containing less than five dwellings including divided or undivided co-ownership, the Declarations by the Seller of the immovable form disclosing any factor that could affect the value of the immovable must be duly completed under the same circumstances as the appropriate Brokerage contract – Sale form. Individuals buying a property without a warranty of quality must be informed that, should they discover a defect of which they were unaware, they will have no recourse against the seller, unless they can demonstrate that the seller acted in bad faith by purposely hiding a defect of which he was aware.
Such buyers must also be told that they should have the property inspected in greater depth than the inspection usually done on a property sold with a warranty of quality. Of course, the building inspector hired for this inspection must be notified that the immovable is being sold without legal warranty, so that he may take this into account when doing the inspection. Finally, the buyer should require that the seller provide him with a copy of the Declarations by the Seller of the immovable.