Selling without a legal warranty of quality in real estate

Between 2019 and 2022, the real estate market was booming because of the pandemic and low interest rates. Prior to this, the practice of selling without a legal warranty was limited but has now become increasingly common in real estate transactions.

The purpose of this article is to set out the main principles surrounding the concept of sale without legal warranty, so that buyers and sellers can better understand the consequences for their transaction.

The two types of legal warranty

The legal warranty of quality has two components, the warranty of ownership and the warranty of quality. These apply by the sole effect of the law, unless specifically excluded, meaning that they are included without the need for any contractual provision.

Warranty of Ownership

The warranty of ownership concerns defects in title, and it is the notary’s responsibility to verify the title. The seller must provide the buyer with a property that respects the following criteria:

-       Free of all rights, other than those declared by the seller, of all mortgages affecting it, except those assumed by the buyer;

-       Not encroached upon by the seller or a third party;

-       Does not violate any public law restriction, except those denounced by the seller or those which the buyer should have discovered[1]

The notary may recommend that the parties take out a title insurance to cover certain encroachments or minor derogations. However, the warranty of ownership should never be excluded.

Warranty of quality

Regarding the warranty of quality, the seller must ensure that the property is free of latent defects at the time of sale.

Sales without legal warranty at the buyers’ risk

In certain situations, it is possible that the seller may want to sell without a legal warranty, particularly when the seller does not know the history of the property, such as in the case of an inheritance sale or a sale under court supervision.

By proceeding this way, the seller protects himself from any claims that the buyer might make against him and the previous owners in the event of the discovery of a latent defect.

It is also possible to exclude the legal warranty of quality for only a portion of the building. Let’s take the example where a pre-purchase inspection reveals that the structure of a building’s front balconies has rotted and needs major repair in the short term. The parties could decide by mutual agreement to make a price reduction on the building to consider the amount the buyer will have to incur to remedy the problem. In this case, the parties should make a note in the preliminary contracts that the legal warranty of quality will not apply to the balconies in front of the building.

The latent defect remedy

In principle, a buyer who acquires a property without a legal warranty of quality cannot take recourse against the seller in the event of the discovery of a latent defect that was unknown to the seller.

If, however, the buyer has acquired the property with the legal warranty of quality, they will have recourse against the seller if they can demonstrate the following four elements:

1. The existence of a latent defect of sufficient importance that, had the buyer known about it, they would not have entered into a contract or would have done so on significantly different conditions;
   
   
2. That the defect was unknown to the buyer (was not disclosed or discovered upon inspection);
   
   
3. That the defect predates the sale;
   
   
4. That the defect was hidden (as opposed to an apparent defect that could be spotted by a reasonably diligent buyer under the same circumstances)
   
   

Pre-purchase inspection

Although a pre-purchase inspection is not mandatory, it should always be recommended to the client by a real estate broker. This recommendation is even more important when a good is purchased without a legal warranty. It is also an excellent way for buyers to fulfil their duty of care when purchasing a property.

The Court of Appeal summed up the state of the law regarding the buyer’s duty of care as follows:

“In short, when the property presents an indication of the potential existence of a defect, the prudent and diligent buyer, that did not call in an expert must do so or ensure to verify it in a different manner in a way that is satisfying to discover what is suspected. In the case of the buyer who has already called in an expert, the presence of signs of a potential defect obliges the expert to carry out an even more thorough inspection. If he fails to do so, and a latent defect is discovered, the conclusion that the latent defect was not hidden would be imposed.”[2]

Conclusion

In short, the fact that a property is sold without a legal warranty of quality should not necessarily be a disincentive to purchase, but rather a sign to be taken very seriously as to the measures to be taken before even  acquiring it. The buyer must exercise utmost diligence in their verification and ensure that the price paid is fair and reflects the absence of this warranty.

In all cases, it is wise to work with an experienced real estate broker to represent your interests in the transaction.

This article contains general information and should not replace legal advice from a lawyer or a notary that would take into account your specific situation.