Understanding Material Latent Defects in Real Estate
{Update} Revised Disclosure Form and Legal Context (2025)
Since this article was originally published, the British Columbia Real Estate Association (BCREA) has released an updated version of the disclosure form—now renamed the REALTORS®’ Disclosure of Material Latent Defects form (formerly the Seller’s Disclosure of Material Latent Defects form).
This name change highlights a key legal point clarified in recent guidance: REALTORS® have an independent duty under Section 59 of the Real Estate Services Rules to disclose known material latent defects, regardless of the seller's position. The change underscores that disclosure is not solely a seller obligation, but also a regulatory responsibility of the REALTOR®.
This update was made in response to the Sewell v. Abadian decision from the B.C. Court of Appeal, which emphasized that even a Property Disclosure Statement (PDS) left blank or struck out may still be interpreted as a representation by the seller—potentially exposing them to liability if known defects are not disclosed.
The revised form strengthens language around disclosure obligations, better defines what qualifies as a material latent defect (including unpermitted work and municipal orders), and provides clearer guidance to sellers about seeking advice when uncertain. Formatting and signature sections have also been improved to ensure both sellers and buyers clearly understand and acknowledge the information being disclosed.
In practice, REALTORS® are expected to have a thorough conversation with their clients before completing the form. This includes explaining both the seller’s common law duty to disclose and the REALTOR®’s regulatory obligations. If a REALTOR® is unsure how to address the seller’s legal obligations, they should recommend the seller seek independent legal advice.
While the core intent of the form remains unchanged, these enhancements better align disclosure practices with legal expectations and help protect all parties involved in a real estate transaction.
[View the updated REALTORS®’ Disclosure of Material Latent Defects form here.]
{original article 2025-02-03}
If you're navigating the real estate market in North or West Vancouver, the term "material latent defect" might come up. Understanding what it means is crucial for both buyers and sellers. Here’s a breakdown to answer common questions.
Disclaimer: The information provided here is for general guidance only and does not constitute professional or legal advice.
What is a Material Latent Defect?
A material latent defect refers to a significant issue with a property that cannot be identified through a reasonable inspection. Such defects include problems that could:
- Make the property dangerous or potentially dangerous to occupants.
- Render the property unfit for habitation.
- Make the property unsuitable for a specific purpose known to the licensee (e.g., if a buyer intends to use the property for a daycare and it doesn’t meet required standards).
- Require great expense to remedy.
- Involve a circumstance where local authorities have issued notices indicating that a problem must be resolved.
- Include the lack of proper municipal building permits for additions or alterations.
What Are the Disclosure Obligations for Licensees?
Under Section 59(2) of the Real Estate Services Rules, real estate licensees representing sellers must disclose known material latent defects to all parties involved in the transaction. This disclosure must occur promptly and before any agreement is finalized, unless the defect has already been disclosed in writing by the seller.
If a seller instructs their agent to withhold disclosure, Section 59(3) mandates that the agent must stop representing the seller in that transaction.
How Is a Material Latent Defect Different from a Common Law Latent Defect?
- Common Law Latent Defect: Under common law, a latent defect is one that cannot be detected through a reasonable inspection and makes the property dangerous or uninhabitable. Disclosure by the seller or listing Realtor is required, but it may be done verbally (though written disclosure is best practice).
- Material Latent Defect Rule: The Real Estate Council of British Columbia expands on this concept. Written disclosure is mandatory, and the definition includes not only defects affecting safety or habitability but also issues like significant repair costs, municipal notices, and lack of proper permits.
What Happens If Disclosure Isn’t Made?
Failing to disclose a material latent defect can have serious consequences:
- For Sellers: You may face liability under common law if you fail to disclose known latent defects. For example, in McKenzie v. Smith, sellers who did not disclose a history of sewer issues were held responsible for damages when the defect caused significant problems for the buyer.
- For Buyers: If material latent defects are not disclosed, you could unknowingly purchase a property with hidden issues, leading to unexpected repair costs or safety concerns.
- For Agents: Real estate licensees who fail to disclose material latent defects in writing may face disciplinary action from the Real Estate Council.
What Should Sellers and Buyers Do?
- Sellers: Be transparent. Disclose any known issues with the property to your agent. If you’re unsure of your obligations, consult your designated agent or seek independent legal advice. Full disclosure not only ensures compliance with the law but also helps avoid future disputes.
- Buyers: Don’t rely solely on disclosure. Conduct thorough inspections and ask questions about the property’s history, permits, and condition. Understanding your rights to disclosure can help you make informed decisions and avoid costly surprises.
Understanding material latent defects and the rules surrounding their disclosure is essential for both buyers and sellers in any real estate transaction. Knowing these terms can help sellers fulfill their legal obligations and avoid future liability, while also helping buyers make informed decisions before finalizing a purchase. By being aware of what constitutes a material latent defect and how disclosure works, all parties can navigate the process with greater confidence and transparency.
For sellers, proper disclosure ensures a smoother transaction and builds trust with potential buyers. For buyers, understanding these terms can help you ask the right questions and avoid unexpected issues after closing. Whether you’re buying or selling, having clarity on material latent defects can protect your investment and ensure a fair and transparent transaction.
For more information on disclosing material latent defects, you can download a copy of the Seller’s Disclosure of Material Latent Defects form, provided by the BCREA, which helps sellers and agents document and communicate known defects to potential buyers.