**By Craig O’Brien
**In the residential real-estate market, many purchasers erroneously
believe that when they obtain a pre-purchase home
inspection for a few hundred dollars,
they are purchasing an enforceable guarantee that the
home is free of any and all defect.
When a defect is discovered subsequent
to purchase, the home inspector is sued in negligence and
breach of contract, with the allegation
that the home inspector should have uncovered the defect
in the course of inspection.
The success rate of claims against pre-purchase home inspectors
remains relatively low, but the volume of claims is causing significant
challenges to the home inspection industry.
The deductible on insurance policies for home inspectors often equates
to the gross income from ten home inspections and one unmeritorious
claim can easily negate months of profit.
From a purchaser’s perspective, the reasons for including the home
inspector in a claim for home defects are self-evident. Vendors
are liable for latent defects of which they were aware and did not
disclose to the purchaser.
The home inspector is liable for patent defects they failed to uncover
during the course of inspection.
The purchaser and their counsel rationalize that any defect uncovered
after closing is either latent or patent.
If latent, they deduce that the vendor should be responsible.
If patent, the home inspector is negligent or breached the contract.
Either way, innocent purchasers believe they will recover damages.
Contrary to this belief, there is a significant gap between the latent
defects known to the vendor and patent defects that the home
inspector should have identified.
Neither a vendor nor a home inspector is liable for a latent
defect unknown to the vendor at the time of sale.
Purchasers and their counsel often forget or ignore the fact that the gap between latent defects known to the vendor and
patent defects apparent to the inspector remains the municipal
address of caveat emptor.
Home inspector negligence cases are invariably fact-driven, but the matter of *Rayne v. Martin *[2006] B.C.J. No. 2040 is an apt
example of the many claims by purchasers for defects that fall
within the *caveat emptor *category.
The plaintiff purchased a mobile home and later discovered extensive
water and structural damage that made it worthless.
The vendor testified that she was unaware of the defects, and the defects were not uncovered during the course of inspection.
The vendor’s evidence was accepted and the court found
that furniture and a false ceiling hid the water damage. As a result,
the vendor was not liable as she did not know of the defect and the
home inspector was not liable as the damage was not readily
apparent during a visual home inspection.
The standard of care owed by a home inspector is
that of a reasonably prudent home inspector, and these standards
are codified in the standards of practice of the profession’s regulatory
bodies, based on Canadian Association of Home and Property
Inspectors standards.
For instance, *Brownjohn v. Ramsay *[2003] B.C.J. No. 43, held that home inspectors are not
required to be experts in pest infestation, and the inspector was not
liable for failing to uncover signs of an active termite colony.
The pre-purchase residential home inspection is a visual inspection of
accessible systems intended to uncover patent defects such as
water staining, cracks in foundations, or improper or inadequate
insulation that may be indications of serious deficiencies.
Home inspectors are specifically instructed not to undertake
“destructive” or “invasive” inspections, as there is a risk that the
inspection itself could cause property damage for which the inspector would
be liable. In *Li v. Baker Street Home Inspection Services Inc. *[2005] O.J. No. 3846,
the court held that a home inspector was not required to open
an attic hatch that was painted shut; to do so would cause damage
to the vendor’s premises.
He was therefore not liable for failing to uncover cracking and splintering
roof joists that were readily observable had the attic been
accessed. In *Martin *and *Brownjohn *this meant that the home inspector was not required to move
furniture, roof panels, cabinets or baseboards as part of an inspection.
As a result of the increased number of suits against home
inspectors, inspection reports now normally contain robust limitation
of liability clauses, descriptions of the purpose and scope of the prepurchase
home inspection, and lists of systems explicitly not covered
by the home inspection.
Too frequently home inspectors fail to insist that the purchaser read these
portions of the agreement prior to the inspection, only to have a
judge rule them unenforceable as a result.
In Brownjohn, the exclusion clauses were rescinded because the inspector did not draw
the purchaser’s attention to these clauses, whereas in *Martin *the
home inspector ensured that the purchaser read the inspection
agreement and was able to rely on its contents.
Home inspectors should ensure that the purchaser reads the agreement prior to proceeding with the inspection.
The standard form agreement of purchase and sale was intended
to reduce the number of purchaser’s claims by limiting vendors’
liability for subsequently discovered defects to latent defects of
which the vendor was aware and failed to notify the purchaser in the
declarations portion of the form, and by stipulating that the form
supercedes any oral warranties or guarantees.
The form therefore provides purchasers the opportunity to obtain a home
inspection to their satisfaction prior to purchasing a residential property.
This is intended to allow the purchaser to satisfy him or herself of the residence’s condition prior to purchase and to obviate the need to rely on the
vendor’s statements.
The result has not been a reduction in claims but rather to add the home
inspector to the list of defendants.
Purchasers think of home inspection services as an insurance
policy, but as often occurs with the insurance policy they don’t read
the limitations and exclusions clauses until it’s too late.
As in *Martin, Brownjohn, Li *and an a myriad of others, purchasers must be mindful that the principle of
*caveat emptor *still has a role to play in residential real estate.
*Craig O’Brien is an associate with Nelligan O’Brien Payne in
Ottawa and practices in the areas
of insurance defence, personal
injury and civil litigation.
***I N S U R A N C E
**Home inspectors found liable for defects
if exclusionary clauses not read by buyer
**Craig O’Brien
“Purchasers and their counsel often forget or
ignore the fact that the gap between latent
defects known to the vendor and patent defects
apparent to the inspector remains the
municipal address of caveat emptor.”
**Reproduced from the August 10, 2007 issue (p. 9) of The Lawyers Weekly with the permission of LexisNexis Canada Inc., 75 Clegg Road, Markham, Ontario, L6G 1A1
Thanks Roy thats a good one.
A client I have is fighting an old home inspector for negligence. He has a limited liability clause in his contract, which the lawyers don’t think will hold up, because the inspection was done without the client present and the contract was not available for viewing. I believe it was Roy or Ray that said to have your contract and SOP’s on your website, so they can be viewed. I think that tip is money in the bank.
Oh yeah! Thanks Roy, that was a good article.
Glen
I have my contract on my website. I refer my clients to it when ever I can prior to the inspection.
Here is another case with limitation of liability with some interesting claims and the finding of the court.
Insurance Newsletter, October 2003
**Home Inspection**
The liability of home inspectors in connection with home inspections undertaken for purchasers of residential homes was recently considered in the decision of Mr. Justice Coo of the Superior Court of Justice in *John DiSanto vs. Amerispec Home Inspection Service.* I had the privilege of acting for the defendant in this action.
In this action the plaintiff (purchaser) claimed that the defendant (home inspector) breached its contractual obligations in the way in which it conducted a home inspection. More specifically the plaintiff complained with respect to flaws and problems not seen, or at least not properly reported on, by the home inspector, despite the fact that they were all readily observable and accessible.
The plaintiff argued that had there been a proper report, he would have not have purchased the home, as the cost of required repairs would have put the real cost out of his reach. Accordingly, the plaintiff claimed the cost of the repair work to remedy the unreported problems.
Prior to conducting the inspection, the parties entered into a written inspection agreement which provided, among other things, that responsibility for observing and reporting on features or problems was limited to what could be seen.
The defendant argued that the inspection agreement limited liability to the return of the contract price paid by the plaintiff. The limitation clause in the agreement provided as follows:"Limit of Liability–if we [the defendant], or our employees, inspectors, or any other person, you [the plaintiff], claim to be our agent, are careless or negligent in making the inspection and/or preparing the Report, our liability to you is limited to the fee paid for the inspection services and, any releases from any additional liability. There will be no recovery for secondary or consequential damages by any person. By signing this agreement, you agree to this limitation on our liability." Additionally, in bold, centered and capitalized type, on the second line of the agreement the following words appeared: THIS AGREEMENT LIMITS OUR LIABILITY - PLEASE READ IT.The plaintiff argued that he did not read the agreement and therefore was not bound by its terms. The court did not accept this argument and found that there was nothing to prevent the plaintiff from taking whatever time he might have required to read the agreement before signing. The court found that there was "nothing done by the inspector to inhibit that reading or to pressure the plaintiff." Moreover the court found that the inspection obligations or limits on liability were in language that was readily understandable and in print that was readable. As such the agreement was not in a form that was in some way unfairly drafted or printed.
The plaintiff also argued that by the time the plaintiff arrived at the home site for the inspection, there was already an agreement between the parties made through a telephone conversation between the plaintiff's real-estate agent and the home inspection service. The plaintiff therefore argued the agreement between the parties was an oral one and not governed by the terms of the written inspection agreement for which no further consideration was provided. The court did not accept this argument.
Although the court did find certain aspects of the inspection may have been performed negligently, the limitation clause precluded a finding of liability in excess of the cost of the inspection.Nice, I wasn’t sure how bullet proof those words could be. I guess the important thing to do is make sure your client is well aware of the contract and its contents.
It has been said that a contract should not be overly worded and in every day language, and ideally not lengthy. Important clauses such a limit of liability should be at the begining of the contract rather than the end. Such clauses are weighed by their position in the contract so I have been told.
I have done recently 3 inspections for lawyers and not one has read the contract they just signed it .
I asked two why they would sign with out reading and they both said Contract does not matter if you do a bad inspection they will be after my a$$ .
Not quite those words but close to it .
All satisfied and pleased .
I did not do different with them then any one else.
… Cookie
Further insights from a lawyers pov. in cases against inspectors.
** The report identifies a problem condition, but NOT its significance or
meaning.**
** The report understates the significance or meaning of a problem condition.
**
** The inspector verbally dilutes the significance or meaning of a problem condition identified in the report.**
** The report fails to suggest that the client retain an expert to more fully evaluate a problem condition.
**
** The report fails to identify a limitation which prevents or hinders a more thorough inspection of an area.**
** The inspector does not obtain a signed contract from the client.
**
** The inspector presents the contract for the first time immediately before the actual inspection.**
** The contract DOES NOT contain a limit of liability provision.**
** The contract does not identify what services are being offered and excluded.**
** During a reinspection, the inspector makes some admissions of liability to the client or agent.**
Ditto, Cookie…good find…!
Comments like that from a lawyer must be hard to swallow Roy. I did a couple of inspections looking over Rob Parkers shoulder and I think that was a point he had mentioned, that do the same routine on every inspection and you’ll be less likely to miss anything.
I read a lot on these forums from vetrans like yourselves and I may not always say so, but I appreciate all the info and I’m sure I speak for most of us newbies.
What effect does Ontario’s “48 hour cooling off period” as it applies to any signed contract of sale.
Remember that oft quoted warning - “A contract is only as ‘good’ as the lawyer defending it.” or conversly " No contract is 'lawyer proof".
George
I think that only applies to consumer goods, like cars, vacuums, et ceteras.
This is just one more example where NACHI and its members are so far ahead of all other associations .
Some Canadians make fun of us none stop calling us 30 minute inspectors and those NACHOs .
This has gone on for a few years .
I have to laugh they then come and join NACHI and try to sell us on the great new secret system they have and how it is going to help Canadian Home inspectors and it will only cost NACHI members $1,100;00.
For $289;00 NACHI continues to grow and others continue to shrink.
Thanks for the encouragement it helps to show others how well NACHI works .
… Cookie
George,
Just out of interest I found this
Ontario boosts consumer protection with new 10-day cooling off period
Another interesting link I found
http://www.consumerbeware.mgs.gov.on.ca/catsct/start.do
There is a category for Home Inspections.
Thanks for that link Ray. This cooling off period extension to goods and services delivered at the time of sale may have a real impact on whether or not we need to have our contracts signed at the the beginning of the inspection or at the end. If the client has ten days to aquaint himself with our product and our contract he has plenty of time to address any issues he has with either before the contract is executed. So, it seems to me that a client cannot claim that he was unaware of any part of the contract, or that he did not have time to study the report, s.o.p. etc.
I will ask my lawyer about this at our yearly meeting. I can hear the meter running already! :shock:
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I guess you might try and argue that your contract is in the public domain if its on your website, and therefore if the client had done his due diligence, would have and could have very easily researched the inspector and his contract prior to the inspection. Sounds like a logical defence to throw back at the client should he claim he was under some form of duress.
I have communicated with many lawyers on this and they all said to get the contract signed before you say one word about the home or any thing to do with the it .
I do start almost all inspections before the client get there so I make sure I never mention a thing .
If I do have to defend my self I am so carefull on this point I should not get tripped up on it .
… Cookie
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