|Exclusion clauses in a deed of sale|
|Written by Me Bruno Bourdelin, LL.B, J.D.|
|Monday, 03 December 2012 17:24|
WHAT ARE THE LEGAL WARRANTY LIMITATION AND EXCLUSION CLAUSES AND HOW TO DIFFERENTIATE THEM?
Exclusion clauses are sometimes included into real estate deeds of sale. They have for purpose to limit or exclude the legal warranty against latent defects.
Different standard clauses are integrated into the promises of purchase and to the deeds of sale themselves without the parties really understanding what is their meaning and how they affect their rights.
1. In the absence of an exclusion clause of legal warranty
When there is no clause of exclusion, then the legal warranty against latent defects applies without any restrictions. Indeed, a buyer does not need to have a clause of legal warranty in his deed of sale in order to obtain a legal action against his seller. On the contrary, the legal warranty is the rule and its exclusion is the exception. For further information, one may consult our text “What is the legal warranty against latent defects?” to understand the extent of that warranty and its coverage, whether that the good purchased is affected by a latent or by an apparent defect.
2. The limitation or exclusion clause
The provision 1732 of the Civil Code of Quebec states “in no case may the seller exempt himself from his personal fault.” This means that whichever way the limitation or exclusion clause may be drafted in the deed of sale it may not be effective in the deed of sale, it cannot have for effect to help the seller in defrauding the buyer of his rights (i.e. when the seller attempts to hide the defects from the buyer). Therefore, the seller who has included a clause such as “without legal warranty” to the deed will still be held liable for any knowledge he had pertaining to the latent defect and the omissionto report it.
2.1 The clause of acceptance of the good
This clause is generally written as follows: “the item is sold as is.”
Although valid, this kind of clause has little or no effect. They are usually interpreted by the Courts of justice as a mere declaration from the buyer stating that he has found no apparent defect. This type of clause does not prevent the buyer from taking a legal action regarding latent defects.
2.2 The clause stating “with no legal warranty”
The purpose of such of clause is to eliminate the legal warranty awarded against latent defects. However, this clause actually does not exempt the seller for the latent defect that he knew about but failed or refused to report.
This clause applies primarily when the seller is a professional, due to the presumption that professionals know of the existence of the latent defect that affects the item sold, as stated by provision 1729 of the Civil Code of Quebec:
“A defect is presumed to have existed at the time of a sale by a professional seller if the property malfunctions or deteriorates prematurely in comparison with identical items of property or items of the same type; such a presumption is not made, however, where the defect is due to improper use of the property by the buyer.”
The advantage of this clause is that when dealing with a professional seller, the buyer does not have to prove that the seller knew about the defect. The burden of proof actually lies on the shoulders of the seller who has to demonstrate that he did not know about it.
2.3 The clause stating “the buyer buys property at his own risk”
This clause is the strongest of all as it is not only a limitation clause, but also a full exclusion clause. It exempts the seller from warranting the good sold from any latent defect, even those he knew or should have known of. This implies that the seller may be exempted from warranting a good, even when the seller knew about the defect but omitted to report it.
A distinction must be made however between the fraud by omission and the intentional fraud. The seller may not be exempted, even with this clause, if he committed an intentional fraud (i.e. purposely hiding the defect).
In order to benefit from the protection offered by the legal warranty on latent defects in this case, the buyer has to prove, cumulatively, that the defect :
(1) was latent;
(2) was known by the seller;
(3) the seller not only omitted to report the existence of the defect but actually contributed to hide it.
This is a heavy burden over the shoulders of the buyer.
However, as previously discussed one must distinguish whether a professional sold the good or not. Par. 2 of provision 1733 of the Civil Code of Quebec explains: “an exception may be made to this rule where a buyer buys property at his own risk from a seller who is not a professional.”
Therefore, the professional seller who included the clause stating that the buyer takes the good “at his own risk” in the deed of sale will not be exempted from the legal warranty if he actually knew about the defect. The fact that he omitted to report it or failed to report it on purpose is not relevant. Moreover, the presumption of knowledge of existence of the defect, as evoked previously in provision 1729 of the Civil Code of Quebec, applies.
The information provided on this page is general in nature and cannot compensate for the need to obtain legal advice specific to a particular situation.
|Last Updated on Tuesday, 12 February 2013 10:21|