Patent Defect: Everything You Need to Know
In the real estate and construction markets, patent defects are problems with a property that a buyer finds during an inspection. 7 min read
What Are Patent Defects?
In the real estate and construction markets, patent defects are problems with a property that a buyer finds during an inspection. Patent defects are caveat emptor, meaning it's the buyer's responsibility to find and fix them, if necessary. Sellers are not legally required to reveal patent defects.
Why Are Patent Defects Important?
You assume many risks when buying property. If you buy a property without identifying patent defects, for instance, then you must fix them at your expense.
Furthermore, the seller doesn't have to reveal patent defects. For example, if patio concrete is cracked or a deck railing is broken, it's up to you to find this during your inspection. Otherwise, you can't take legal action against the selling party. You might have legal options, however, if the seller tries to hide a patent defect fraudulently.
A patent defect is also known as an open and obvious danger defect.
How Does a Latent Defect Differ From a Patent Defect?
Latent defects are the opposite of patent defects. They are concealed flaws, such as mold, that a property inspection would not uncover. A seller must find these defects before the sale of the property. Not sharing this information is considered misinformation. The buyer might have legal recourse if he or she finds latent defects after buying a property. The seller should list latent defects in the real estate purchase agreement.
When a latent defect becomes obvious, it changes to a patent defect.
The Patent Defect Test
The patent defect test is an objective examination of a property or building to find out if there are any defects. It asks whether an average person could find the defect during a reasonable inspection. A reasonable inspection is circumstantial. If the inspection only reveals a problem and not its cause, that problem might not be a patent defect.
How Do I Protect Myself From Defects?
- Ask the seller about major concerns.
If you ask the seller about your concerns, his or her answer is essential to buying the property. If possible, get the answers to your questions in writing. You can then add these to the real estate purchase agreement or contract. Telling the seller that the answers will affect whether you will buy the home often works in your favor.
- Visit the property at different times during the week.
Some issues are only visible during certain times or weather. In the case of Trakalo v. Hodges (1995), a strong cat urine smell was only detectable during humid weather. Because the buyers only visited the home once for 40 to 50 minutes, they weren't aware of the smell. The court deemed this a latent defect. Visiting the home at different times could help you avoid a similar situation.
- Hire a home inspector.
A reputable home inspector is well worth the money. He or she can tell you about any defects before you sign the contract.
- Investigate on your own.
If you have more demands than a home inspector, do your own investigation at the home. Also, do all you can to get full disclosure from the real estate agent or seller.
- Incorporate warranties and representations into the contract.
Most real estate contracts have a no warranty or representation clause. This means if a seller promises something about the house and doesn't deliver, you have no recourse. Add anything you're uneasy about to a warranty or representation clause.
- Review the disclosure statement.
Most contracts will have a disclosure statement that shares facts about the home. This usually includes major parts such as the foundation or roof. If you have any other concerns, address these and add them to the final contract.
Buyers can file a claim against a seller for negligent misrepresentation. Negligent misrepresentation claims are successful if:
- The representation is untrue or misleading.
- There was a duty of care between the seller and buyer.
- The seller acted negligently in providing a representation.
- The buyer relied on negligent misrepresentation to buy the property.
- This reliance on the negligent misrepresentation resulted in damages.
In some cases, hired home inspectors might be negligent in their investigation if they did not find an existing defect. Therefore, most inspectors have the buyer sign a waiver releasing them from any blame.
Defects in the Construction Industry
Although closely related, defects in the construction industry have slightly different definitions. These patent defects involve work that's not carried out according to the construction contract. However, this definition is objective, not subjective. In the case of Sanderson v. National Coal Board, patent defects are observable, not observed. This is a huge distinction. Baxall Securities Ltd v. Sheard Walshaw Partnership takes this point further by saying a defect is patent if a skilled third party, such as an engineer or architect, can find it.
Baxall Securities Ltd v. Sheard Walshaw Partnership also states that a latent defect is one that's not discoverable following a third-party inspection.
A defects liability, also known as a rectification period or defects notification period, is the time following completion that the contractor is liable. This period is usually 12 months. During this time, the contractor is responsible for fixing all defects within a reasonable timeframe. The contractor's employer is not responsible for fixing them out-of-pocket.
In a defects liability contract, the employer must tell the contractor about any potential defects. If they don't, however, the contractor isn't off the hook. Defect liability is also not the only solution for defects. This is because defects are usually breaches of contract.
After the 12 months of defect liability, an employer can still receive damages from patent and latent defects. As seen in the case of Pearce and High Ltd v. Baxter and Baxter, an employer can only get back some losses if he or she doesn't disclose potential defects. For a contractor, this is a valuable argument. The employer might say that a third-party expert should have disclosed the defects. This makes them less likely to owe the full amount of damages.
Either way, it's in both the employer's and contractor's best interest to fix defects. However, patent and latent defects can both result in damages recovered by the employer.
The defects liability period is not the time to correct problems. Instead, it is a period during which the contractor must respond to and fix defects. If defects exist before completion, these should be fixed before the certificate of practical completion is issued.
Contract administrators handle some defects liability periods. This person brokers deals involving the handover of the property from contractor to employer. Contract administrators must also find out if an issue is a defect or general maintenance. At the end of the defects liability period, the contract administrator puts together a list of defects. The contractor must fix these defects before handing over the property. Once the schedule of defects is corrected, a certificate of making good is issued. This releases the contractor from any obligation. Then, both parties receive the final certificate.
If a patent or latent defect is found between the certificate of making good and the final certificate, the contract administrator can make the contractor fix the defects. The final certificate will not be issued until these problems are solved. Failure to fix the defects is a breach of contract. Any repairs done by the buyer get taken out of the contractor's pay.
If rectifying a defect is too costly, the certificate of making good might be issued anyway. However, the contractor usually assumes part of the cost for the employer to repair it.
If there's question about whether a product has a design defect, the term "state of the art" is used. This refers to any technology present when the product was made, including:
- Scientific knowledge at the time.
- Economic feasibility of creating a better product.
- The practicality of creating a better product design.
Patent Defects in Other Countries
Patent defect law has differences in other countries. In Canada (Ontario), the landmark case of Krawchuck v. Scherbak et al. 2001 ONCA 352 deals with real estate agents. These agents are bound to a code of ethics to reveal patent defects. In this case, a property had 17 years of plumbing problems, yet the seller and real estate agent refused to share this information. It wasn't stated in the Property Seller Information Statement, and it wasn't revealed at closing. This was negligence. Although a Property Seller Information Statement isn't mandatory in Ontario, they're now strongly encouraged for buyers because of this case.
In South Africa, the Consumer Protection Act (CPA) is designed to protect consumers. It says real estate agents are responsible for patent defects if they knowingly withheld information from the seller. However, the CPA only applies to vendors that sell property regularly. In addition, most South Africans are likely to take the seller's word. Hiring a building inspector is far more common in the United States. Because of the CPA's wording and the likelihood to believe sellers, buyers are at the courts' mercy. Under the CPA, buyers have six months to file a claim. If the CPA doesn't apply, the Prescription Act allows up to three years to file a patent defect claim.
Questions About Patent Defects
- Is there a statute of limitations for patent defects?
A statute of limitations protects sellers and contractors if the buyer finds a defect after a long time has passed. If it's a latent defect, the claimant has a longer time to file a claim. If it's a patent defect, this time is much shorter. California's legislature, for instance, has put into place statutes that protect developers from lawsuits and encourages people to make their claims in a timely manner.
- What's the difference between merchantability and defectiveness?
These legal concepts are sometimes used interchangeably, but they are different. A product is unmerchantable if it does not fit the purpose for which it's used. A risk-utility test determines defectiveness. A product can be unmerchantable and not defective. The opposite is also true.
- What defects must a seller's agent reveal?
Based on their code of ethics, real estate agents cannot misrepresent a property. They also cannot hide facts or be a party to concealing defects. Agents can withhold information but must provide any information the buyer asks for.
- What do I need to know about patent defect law in California?
In California, the state legislature has enacted several laws to protect builders, encourage construction, and make sure employers and buyers file defects claims in a timely fashion. The California Code of Civil Procedure 337.1 deals with patent defects. It states that any patent defects must be brought to court within four years after a project's completion. This includes design defects that cause damage to property. California Code of Civil Procedure 337.15 says action to recover damages must take place within at least 10 years of completion.
If you believe you have patent defect or latent defect issues, consult one of the highly experienced attorneys on UpCounsel. Post your legal need to UpCounsel today to get the answers you need.