Sellers obligation to disclose latent and patent defects

FAILURE TO DISCLOSE LATENT AND PATENT DEFECTS WILL RESULT IN DAMAGES

The Consumer Protection Act 68 of 2008 ("CPA") came into effect on 1 April 2011.The CPA specifically includes the rights of a consumer to be informed of all the details regarding the property being purchased which must include any defects in the property sold.  Defects can be described as latent or patent defects.  A latent defect is one which is not visible or discoverable upon reasonable inspection of the property and substantially impairs its utility or effectiveness, a common example is a leaking roof or structural defects in the foundation of a property. It must be distinguished from a patent defect, that is to say, a defect that is clearly visible to any reasonable person inspecting the property. When entering into an agreement of sale it is important for the Seller and the Purchaser to ensure that prior to signing the agreement of sale the correct due diligence has been followed.

From the outset we note that the CPA is applicable to a consumer as defined in Section 1 of the Act.  A consumer in terms of the Act can be summarized as a natural or juristic person who does not exceed the annual value or annual turnover thresholds of the Act and will enjoy the protection offered by the Act.

The problem we encounter with industrial and commercial property sales is that the consumer may have an annual value or annual turnover of more than 3 (three) million rand which entails that the CPA will not be applicable to the transaction and therefore the purchaser will not be afforded the protection offered by the CPA. Should the CPA not be applicable the parties will need to rely on a thorough agreement of sale and the common law.

To summarize, if the CPA is applicable to the transaction and the purchaser is classified as a consumer the only way sellers can get past the implied warranty of quality is to describe the condition of the property in specific detail to make it clear in which condition the property is being sold. The purchaser then has to "expressly" agree' to accept the property in its current condition. Only if the purchaser knowingly acted in a manner consistent with accepting the property in a less than ideal condition will the implied warranty of quality fall away. Every defect must be described in the sale agreement that the purchaser signs. This means that the sellers will need to amplify their sales agreements in order to make provision for any and all defects that could possibly be present in the property being sold. A voetstoots clause included in the agreement of sale will not exonerate the seller's liability. The seller has a duty to reveal any latent defects to the purchaser. The effect of the CPA has been that the voetstoots clauses will have little power to save a dishonest seller.

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1. In respect of any particular goods or services, means-

1. a person to whom those particular goods or services are marketed in the ordinary course of the supplier's business;
2. a person who has entered into a transaction with a supplier in the ordinary course of the supplier's business, unless the transaction is exempt from the application of the Act by section 5(2) or in terms of section 5(3);
3. if the context so requires or permits, a user of those particular goods or a recipient or beneficiary of those particular services, irrespective of whether that user, recipient or beneficiary was a party to a transaction concerning the supply of those particular goods or services; and
4. a franchisee in terms of a franchise agreement, to the extent applicable in terms of section 5(6)(b) to (e)..."

Should the CPA not be applicable to our transaction the common law position can be summarized as follows:

• if the seller has given the purchaser an express written warranty that the property sold is free from a particular defect the seller can be held liable by the purchaser if it is established that the property indeed has that defects.
•  Should the seller have made a misrepresentation about the condition or quality of the property sold he or she can be held liable by the purchaser.

 A purchaser can set a contract a side on the grounds of misrepresentation even if the misrepresentation was not made by the seller personally but by the estate agent instructed by him or her to sell the property. The seller is liable for any latent defect in the property that existed at the time of conclusion of the sale even if he/she had no knowledge of it.

When a latent defect is present the purchaser can depend on the circumstances cancel the contract and or claim repayment of a portion of the purchase price.

We recommend that prior to entering into an agreement of sale an appropriate warranty should be drafted and inserted by the seller. Further, we note that various suspensive conditions can be inserted into the agreement of sale providing the purchaser with a period of time in which to perform due diligence on the property. 

This article should not be construed as legal advice and has been produced for marketing purposes.

This article was written by M Van Heerden Attorneys, Notaries and Conveyancers.