Failing to Disclose Known and Dangerous Defects

Sellers can be held responsible if they fail to disclose certain defects or problems with their property. That is what happened in Karner v. Kuhnke, 2021 BCSC 1942.

In Karner, the defendant-sellers had listed their rental property for sale. They hadn’t lived at the property for 8 years and it was tenanted at the time of sale. Six months before the property sold, several large rocks had fallen from an adjacent rock wall onto a deck causing significant damage. The sellers hired an engineer to assess the problem and were told they would either have to scale the rock face or install mesh over the rock face. The seller obtained an estimate for the mesh option, which came in at $70,000. Scaling of the rock would undoubtedly cost more.

Instead of proceeding with either option recommended by the engineer, the seller used a jack-hammer to remove some of the rock himself.

Soon after, the sellers listed the property for sale. The sellers disclosed that some rock had fallen on the deck and that some of the deck had been repaired. They didn’t disclose the problems with the rock wall, the engineering report, or estimate for the mesh option. The property was listed for $650,000. The listing agent adjusted the price to reflect the rock damage, but was unaware of the engineering report and estimate.

The plaintiff-buyers offered $660,000 to buy the house. This offer took into account the repairs that had to be made to the deck. The buyers did have the property inspected. The inspector commented the repairs that needed to be made to the deck and that he could not predict whether more rocks would fall onto the deck. As with the buyers and listing agent, the inspector did not have a copy of the engineering report.

The sale completed and the buyers began to renovate the property. Eventually, however, they spoke with the tenants who had occupied the building when the rock damage had initially occurred. The buyers were taken aback by the extent of what had happened and investigated. By happenstance, they hired the same engineer who had previously inspected the rock wall to give them an opinion. Given the seriousness of the issue, he disclosed his prior report.

The buyers were shocked and proceeded to have the recommended work completed, which came in at a price of $170,000. They then sued the sellers for damages.

At trial, the judge accepted that the sellers had knowingly made false representations about the rock face. While the sellers drew some attention to the problems caused by the rock wall, the judge noted that this could still amount to a misrepresentation. Partial information, while true to the extent offered, may still lead the recipient of the information to an incorrect conclusion. That is what the sellers did here. They didn’t disclose the engineering report or that the rock wall had been found to be dangerous. They didn’t disclose the mesh quote. Rather, they focused the buyers’ attention on the deck itself.

The judge easily concluded that the buyers had relied on the misrepresentations made by the sellers in deciding to purchase the property. Indeed, the buyers said they never would have offered to buy the property if they knew the extent of the problem. The inspector’s report did not detract from this conclusion.

The sellers argued the doctrine of caveat emptor or buyer beware. In this regard, the judge noted that sellers who knowingly make material misrepresentations are not entitled to rely on the doctrine. They would have been better off having made no representations at all.

In the end, the judge awarded the buyers all damages sought by them. He also awarded them punitive damages of $5,000 for having deceived the buyers in relation to the serious hazard posed by the rock wall. Such conduct was highly reprehensible and deserving of rebuke.