7 tips relating to hidden defects when purchasing property

The last thing a buyer wants is to discover a hidden defect after purchasing a property. The buyer has a duty to inspect the property and should preferably engage a third party to carry out a thorough building inspection. Pre-purchase examination is essentail. This blog gives seven tips on how to deal with (potential) defects when buying a home.

1. Buyers may reasonably expect properties to have been built in accordance with construction regulations

In its judgment of 25 February 2005 (ECLI:NL:HR:2005:AR5383 [Fabels/Meenderink]), the Supreme Court ruled that the conformity requirement of Article 7:17 of the Dutch Civil Code entails that in principle – in the absence of agreements to the contrary – a home buyer can reasonably expect that the construction of a home or a renovation was performed in accordance with the regulations applicable at that time, even if those regulations do not directly relate to the features or safety aspects determining residential use. Based on this judgment, non-conformity might therefore also be the case if there are defects that do not impede normal residential use. Read more about the consequences of building in contravention to a permit.

2. Reporting the defect to the seller following an expert inspection

The buyer has an obligation to give notice of defects: they must report a defect to the seller as soon as it becomes apparent. In this case (Dutch), there was a defect in the load-bearing structure, but it wasn’t immediately apparent. An expert had to first examine the construction on behalf of the buyer.

The Court found that any buyer discovering that the house has defects that may be of such a nature that it is not in conformity with the sales agreement may commission an expert to perform an investigation into those defects, provided that, in doing so, the buyer acts with the diligence that, given the circumstances of the case, can reasonably be expected of them. In principle, they may subsequently await the outcome of that investigation before informing the seller – if the outcome of the investigation gives cause to do so, and in that case within a reasonable time – that the home is not in conformity with the sales agreement.

This also applies in a case like this one, in which the buyer had indeed noticed a defect, although (it could reasonably be accepted that) they were unable to establish the nature, severity and cause of the defect without further investigation by an expert, or communicate this to the seller with sufficient precision (ECLI:NL:HR:2007:AZ7617), with the result being that the buyer was also not yet aware of the extent of the non-conformity. See also our guidelines when buying a home.

3. Properly checking the risk distribution in case of an NVM sales agreement

Article 6.1 of the NVM (Dutch Cooperative Association of Estate Agents) sales agreement contains the basic rule that the seller is not liable for defects once they have handed over the home, with all visible and invisible defects, to the buyer, and the buyer has accepted the home with those defects. With Article 6.3 of the NVM sales agreement, the seller guarantees that there are no defects that impede normal residential use.

However, defects that impede normal use and that are known or discernible at the time of entering into the agreement are for the account and risk of the buyer. Only a serious defect is regarded as a defect that impedes normal residential use; for instance, if a defect jeopardises the safety of inhabiting the property immediately or within a foreseeable period if it isn’t repaired.

A serious impediment to the enjoyment of the property could also be an issue. The Court finds that the alleged absence of insulation, certainly in view of the house’s age, does not constitute a defect as a result of which the object did not possess the qualities that are necessary for residential use, as set out in Article 6.3 of the NVM sales agreement (which was Article 5.1 and 5.3 of the previous NVM sales agreement). If you are a buyer and you wish to avoid any risk of a hidden defect, it is vital to have a thorough purchase inspection carried out prior to signing a sales agreement. In this way you are fulfilling your duty to inspect. Read more.

4. Performing an additional inspection in the event of an age clause

This is what an age clause might look like:

The buyer is aware that the property is more than 150 years old, meaning that the requirements placed on construction quality may be considerably lower than in the case of new builds. By way of derogation from Article 6.3 of this purchase deed and Article 7:17(1) and (2) of the Dutch Civil Code, the whole or partial lack of one or more qualities of the property for normal and special use, and any other non-compliance of the property with the agreement, are for the account and risk of the buyer.

In this ruling (Dutch), the Court outlines how you as a buyer should take the age of the home into account: the buyer of an existing home must, depending on its age and price, in some measure take into account a certain degree of immediately necessary (overdue) maintenance and modification (e.g. of installations) in order to meet current requirements, even if the need for this was not immediately apparent at the time the purchase was concluded. The seller is not required to report any imperfections voluntarily, but if asked, may not make any incorrect statements. If they do, however, there may be reason to assume that the buyer did not need to doubt the presence of a certain quality or the absence of a certain defect. If this concerns serious defects, the seller must generally – if aware of them – also report these without being asked (see Court Arnhem, 4 December 1997, NJK 1998, 22). If the buyer is aware of a defect at the time of the purchase, they should perform a further investigation to find out how serious it is and how much the repairs would cost. Subsequent claims of non-conformity will no longer be possible with regard to this known defect.

5. Breaching their duty to inform: when the seller provides incorrect information

If the seller provided the buyer with incorrect information prior to entering into the agreement, or they ought to have provided certain information to prevent the buyer from making false assumptions, the seller is acting contrary to their duty to inform. Moreover, reasonableness and fairness generally preclude the seller from arguing – to defend against an appeal of error or non-conformity – that the buyer is partly to blame for the misrepresentation (Supreme Court, 16 December 2016, ECLI:NL:HR:2016:2885, NJ 2018/223 m.nt. Hijma). If the seller violates their duty to inform, this may lead to a misconception on the part of the buyer. A misconception resulting from a breach of the duty to inform requires – among other things – that the seller knew or ought to have known of the defects alleged by the buyer.

In this case (Dutch), for instance, the issue was wood rot, of which the buyer claims the seller was aware. The buyer must investigate the seller’s statements if there is cause to do so. Therefore, if the seller reports that the roof leaks when the east wind blows, or that there are a lot of flies in the garden in summer, then it is up to the buyer to conduct further investigations. This is because the risk of those issues transfers to the buyer once the home has been handed over.

6. Carrying out a thorough architectural inspection with an expert or contractor

If a buyer accepts the risk of hidden defects in the sales agreement, they must always engage someone to perform an architectural inspection. Make sure the building inspector examines everything, including the roof, the insulation, the presence of asbestos and functioning of the sewage system, etc. Also thoroughly check the building inspector’s terms and conditions. A visual inspection alone is often insufficient.

It is important to properly examine the inspector’s report, as it may impact the decision of whether or not to purchase. This means that if a section of the home is rated “mediocre”, the buyer should properly examine whether this is or can become a defect, and how much the repairs would cost. In this case, the buyer did not do anything in response to the assessment that the floors and the wooden construction elements were classified as “mediocre”. They disregarded the recommendation to further investigate.

When, some years later, they lodged a complaint against the seller due to rotting floorboards, the Court rejected their claim. And their appeal of non-conformity and warranty provisions was dismissed. The Court found that the buyer failed in their duty to inspect. Read more about inspecting a building when purchasing a home.

7. Severity and extent of a hidden defect partly determines buyer’s liability

A defect in a home is not automatically a reason to assume the seller’s liability or non-conformity. For example, the Hague Court of Appeals (Dutch) ruled that the mere existence of mould or fungi in the crawl space does not necessarily mean that the home is unsuitable for normal residential use. If, however, the floor or the beams are or have been affected by fungal growth, whether or not the house is still suitable for normal use depends on the extent of deterioration of the floor, even if the floor can be used as usual at the time of transfer of ownership.

This is because the adverse effect that, at the time ownership was transferred, foreseeably necessitated repair works to prevent the floor from becoming an actual hazard means that it will not comply with the aforementioned element of “durability”. In other words: if, at the time ownership was transferred, it was already clear that the floor would lose its bearing capacity in the foreseeable future, the home fails to comply with the requirement that it is suitable for normal residential use.

While the seller did not literally fall through the floor at the time of ownership being transferred, the serious adverse effect to the floor/floorboards and the experts’ reported (urgent) need for repair nevertheless lead to the conclusion that there was a serious issue with the floor/floorboards that needed to be repaired in the short term. However, since the defect was discernible at the time of purchase, and was thus not a hidden defect, the claim was not upheld.

Blenheim’s real estate law team is happy to advise you in situations involving hidden defects.