Impact of Sales Without Legal Quality Guarantees: New Options After the 2022 Judgment

The real estate overheating during the pandemic reinforced the trend of sales without legal warranty, impacting the legal system with an increased number of disputes. A judgment handed down by the Quebec Court of Appeal in 2022 upheld an earlier Superior Court judgment handed down in the midst of the overheating in 2021, marking a turning point and making practices more complex. To understand this change, let's review the legal mechanics of a sale.

Two very different things happen when you sell a property with a legal warranty:

• The seller offers his own legal warranties to all future buyers, whether they are direct purchasers (immediate buyers) or sub-purchasers (future buyers).
• Le vendeur cède également à tous les acheteurs futurs les garanties qu’il a lui-même reçues lors de son propre achat, dans la mesure où elles existent encore.

The Superior Court judgment of 2021, confirmed by the Court of Appeal on May 20, 2022, ruled that :

• The exclusion may apply only to the immediate seller, or may also extend to one or more previous sellers in the chain.
• To retain the warranties of a previous vendor(s), this must be clearly stated in the exclusion clause.
• A warranty exclusion that does not clearly maintain the warranty of previous sellers in the chain voids these previous warranties. As a result, the purchaser loses any legal guarantee of quality. This is the effect of the frequently-used clause "at buyer's risk".

New opportunities for sellers

The typical clause is fraught with consequences for a buyer, and its use when a seller puts a property up for sale can certainly have an impact on the sale price. However, it can sometimes make sense to consider a sale without a legal warranty, depending on the seller's needs. Fortunately, following the ruling, several avenues are now available for such sales. These include the possibility of a :

• Exclusion in favor of all immediate and previous sellers (total exclusion).
• Exclusion limited to the immediate seller (partial exclusion), allowing the buyer to retain rights against previous owners.
• Exclusion limited in time (e.g. for two years, after which the sale becomes without legal warranty) or partial (certain items only).

The use of different options can thus satisfy the seller in terms of peace of mind, while increasing the rights and protections of buyers so as to minimize the cost associated with a sale without a legal warranty. There's something in it for everyone. However, this type of clause requires tact and precision on the part of your broker. Make sure he or she is well equipped to represent you.

If you have any questions, please do not hesitate to contact us. It will be our pleasure to assist you.