Is this the end of the legal guarantee of quality in real estate in Quebec?

The legal warranty of quality is designed to protect the buyer by ensuring that the property purchased conforms to its intended use and is free from hidden defects. Under article 1726 of the Civil Code of Quebec, this warranty gives buyers recourse in the event of hidden defects. To fully understand this type of recourse, here's what constitutes a hidden defect. The defect must be :

• Not apparent: The defect cannot be discovered by a simple visual inspection when visiting the property.
• Unknown to the buyer: The buyer was not informed of the existence of the defect prior to purchase.
• Existing at time of sale: The defect was present before the buyer became the owner.
• Makes the property unfit for its intended use or considerably diminishes its usefulness: The defect is sufficiently important to prevent normal use of the property or to significantly reduce its value.

It's important to note that the defect need not necessarily be known to the owner-seller, which makes the legal warranty often worrying for many owners, especially in the case of older properties. This should not be confused with a misrepresentation or deliberate oversight in the seller's declaration, as no one can guard against fraud.

Long used in a very simplistic way, sellers now have several options when it comes to using the warranty (see our article on recent changes in Quebec). Typically, the use of the clause "sold without legal warranty of quality, at buyer's risk" was the only option in common practice. Its use used to be reserved exclusively for sales made by estates, bank repossessions, curatorship, or other intermediaries unaware of the property's condition. According to research firm JLT, in 2009, less than 10% of sales were made without the use of the Civil Code guarantee.

But the accumulation of lawsuits, the increase in the value of real estate and, above all, the arrival of an unbalanced market during the pandemic completely changed the situation. Sellers found themselves in a position where it became easy to impose this kind of clause on buyers. We even saw buyers offer to withdraw the warranty, even when this was not requested, in order to improve their offer. This has had a significant dual effect: the prevalence of transactions without a warranty has become more acceptable to a broad public through habituation, and those who buy without the warranty don't want to resell with it, as they will then bear all the risk for all the previous owners.

No less than 41% of sales recorded in Montreal between 2022 and 2024 will be made without a legal guarantee of quality.*

The most recent study by JLR, published in 2021, shows a steady increase in the number of sales without a legal warranty. The proportion of such sales for the whole of Quebec rose from 17% in 2014 to 26% in 2020, finally reaching 32% in the first five months of 2021. Our own study of Centris data shows a far greater increase today. No less than 41% of sales recorded in Montreal between 2022 and 2024 are made without a legal guarantee of quality.

But at what cost?

It's obvious that two similar homes, one sold without a legal warranty and the other with, will sell for different prices, with the one with a warranty certainly selling for more. There is a cost associated with the additional risk for the buyer. But how much is this difference really? JLR's study sheds light on this question.

Studying all transactions in Quebec, the results show that the older the property, the smaller the discount for a sale at the buyer's risk. The explanation probably lies in the fact that the buyer more readily accepts a lack of warranty for an old building, accepting the argument of the owner-sellers. Buildings 100 years or older sell for an average of 3.1% less without a warranty, while those built after 1981 are sold at a 5% discount. Our own analysis of the Montreal market shows that the gap in 2024 is 6.1%. This has not prevented over 40% of sellers from withdrawing their legal warranty.

A question of risk

The figures above show that buyers are increasingly accommodating sellers' grievances, but this is clearly affecting the value of the property. For the seller seeking peace of mind, the question is whether it's worth the risk. For a $1,000,000 sale, the discount could be $60,000. What are the real risks of a potential lawsuit? What impact will a legal saga have on your quality of life? The discount can be seen as the amount you pay to insure yourself against the risk of a potential lawsuit, even if this remains exceptional. And what is the risk of the amount in question being higher than the discount on the sale price?

Between the complete withdrawal of the legal warranty and what the Civil Code provides, there are a whole range of options for the seller and the buyer, especially since a recent ruling by the Quebec Court of Appeal. I encourage you to read the article on the recent changes.

If this is an issue for you, don't hesitate to contact us for further advice. We'll be happy to assist you.

*Single-family homes only / source Centris.