Executive Summary: Key Legal and Evidentiary Issues

• Placements Om inc. sued the defendants for latent defects affecting two residential multi-unit buildings purchased in August 2018 for a combined price of $3,870,000.
• Central to the dispute was whether the sale's contractual "as-is" clause — excluding the seller's legal warranty of quality — validly barred the buyer's claims.
• Three categories of defects were identified: the absence of heating and hot water in unit 460-2A, water infiltration and fungal contamination in basement units 450-BA and 460-BA, and defective concrete slab and drainage design.
• Water damage defects in the basement units were found to be apparent rather than latent, as visible signs of infiltration and mold were observable by a prudent and diligent buyer prior to sale.
• Placements Om's fraud (dol) argument failed on all three criteria: no intent to deceive was established, the seller's declarations were not determinative of the buyer's decision, and the buyer itself lacked due diligence.
• Both the buyer's action in latent defects and the defendants' counter-application for abuse of process were dismissed by the court.

Facts of the case

On 24 August 2018, Placements Om inc. acquired two residential buildings located at 450 and 460 Avenue Bourke in Dorval from defendants Frank Zhu, Wen Hong Wu, Liqun Li, and Hong Zhu, for $1,935,000 per building, totalling $3,870,000. The defendants had owned the properties since 2013. Each building contained 22 residential units, including one basement unit. The sale was made expressly without the seller's legal warranty of quality and at the buyer's own risk. Placements Om was represented by Samnang Om, who held training in architecture and commerce, a general contractor's licence, and a real estate broker's licence, and had managed multi-unit buildings for himself and his family for several years.

Prior to completing the purchase, Mr. Om received the sellers' declaration, which stated there had been no water infiltrations, pipe breaks, drain backups, foundation cracks, or mold or condensation in the buildings. The declaration also represented that all units had been converted to electric heating and that 22 water heaters had been installed per building. Mr. Om also received a pre-purchase inspection report dated 4 April 2018, prepared by George Papanagiotou of Inspection V.S.L., which covered only the building at 450 Avenue Bourke. That report noted that more than half the units were in very poor condition, with mold from water damage, cracked ceramic tiles, and other deficiencies. Despite this, Mr. Om waived his right to a pre-purchase inspection in the final offer. The sale price had been reduced from $1,950,000 per building to $1,935,000 to account for required repairs to flashings that could allow rainwater entry.

In February 2019, Placements Om learned from its caretaker that a sewage backup had occurred some years prior, causing contaminated water to reach approximately six inches in height in the basement units and corridors of both buildings. The firm Enviro-Option was retained to conduct air quality testing and found significant and dangerous fungal contamination. Architect Louise Coutu subsequently visited the properties in July 2019 and again in February 2020, identifying defects in the basement units 450-BA and 460-BA, as well as the complete absence of heating and hot water in unit 460-2A. Placements Om formally notified the defendants of the defects on 8 May 2019 and 20 June 2019, but the defendants took no remedial action. Remediation work began in early 2020, at which point removal of flooring revealed additional defects in the concrete slab. Placements Om filed the present action on 14 January 2022, claiming $319,512.59 for repair costs, $96,252 for lost rental income, and $10,000 for disturbance and inconvenience.

Contractual clauses at issue

The central clause in dispute was the contractual exclusion of the seller's legal warranty of quality. Clause 4.1 of the deed of sale provided that the transaction was made without legal warranty and at the buyer's own risk. Mr. Om acknowledged full awareness of this clause and did not contest its validity. The sellers' declaration (Exhibit P-4) was also at issue, particularly responses to clauses D3.1, D6.3, and D8.1, in which the defendants denied any history of water infiltrations, mold, or plumbing-related problems. Under Article 1733 of the Civil Code of Québec, a non-professional seller may contractually exclude the warranty of quality, even in respect of defects the seller knew of or could not have been unaware of, unless fraud or intentional fault is established.

Court's reasoning and analysis

The court first confirmed that the three identified defect categories were serious enough to render the affected units unfit for residential rental. Expert testimony from biochemist Patrick Champagne and architect Louise Coutu — neither contradicted by defence experts — established that the water damage, fungal contamination (including Chaetomium sp., Stachybotrys sp., and Serpula sp.), and structural deficiencies pre-dated the sale, given that damage of that magnitude requires prolonged exposure over several years.

On the question of whether the defects were latent or apparent, the court reached different conclusions for each category. The absence of heating and hot water in unit 460-2A was found to be a latent defect: the tenant had locked the unit and held the only key, the defendants themselves lacked access, and Mr. Om was unable to inspect the unit before purchase. This was confirmed by a Tribunal administratif du logement judgment dated 28 May 2019. The concrete slab defects — including broken sections, perforated sewage pipes, and a slab poured at the same level as the footing — were also found to be hidden, as they were not visible without removing the flooring, and even the plaintiff's own experts could not identify them on initial inspection.

By contrast, the water damage and fungal contamination in the basement units 450-BA and 460-BA were found to be apparent defects. The pre-purchase inspection report already noted widespread mold from water damage. Expert Champagne identified signs of water activity — mold, metal corrosion, wood warping — visible to the naked eye in multiple locations. Architect Coutu noted a nauseating odour upon entry, a floor that literally sank underfoot, widely cracked ceramic tiles, and visible water damage and vermin in unit 450-BA. Visible mold was present above and beside windows in unit 460-BA. The court found that these signs should have prompted a prudent and diligent buyer to conduct a more thorough inspection, particularly given the as-is clause, the buyer's professional background, and the knowledge that a prior buyer had withdrawn after requesting a significant price reduction.

The court then addressed whether the as-is clause should be set aside on grounds of fraud. Placements Om alleged two fraudulent misrepresentations: the sellers' denial of water infiltrations in the declaration, and their representation that all units had been converted to electric heating with individual water heaters. On the first point, the court accepted that Wu and Zhu had conceded water damage incidents — a cracked drain collector in 2014 at 450 Avenue Bourke requiring the slab to be broken open, and a blocked vertical drain in 2016 at 460 Avenue Bourke — making the declaration responses inaccurate. However, the court found no intent to deceive: Wu's explanations, while not fully convincing, were not incompatible with a genuine misunderstanding of the questions asked. The defendants had also disclosed invoices for all works exceeding $1,000, including invoices referencing drain and sewage repairs, which had been transmitted to Mr. Om before the sale. Mr. Om admitted receiving them. Furthermore, the declaration itself contained multiple items unfavourable to the sellers, and the defendants had not retained a pre-purchase inspector when they acquired the buildings. The court also found the declaration was not determinative: Mr. Om himself testified he was unconcerned by water damage because it "can be repaired" and acknowledged his family had previously purchased buildings with prior water damage and mold. Even if he had known of the 2014 incident, the court concluded it would not have dissuaded him from proceeding. Finally, the court found that Mr. Om had failed to exercise reasonable diligence, having ignored the inspector's recommendation to conduct a more thorough inspection, and had not investigated the source of the water damage. On the second alleged misrepresentation — the heating and water heaters — the defendants testified they genuinely believed all units had been converted, as the tenant of unit 460-2A had never allowed access, and neither they nor the buyer held a key to the unit. The court found no basis to doubt their good faith on this point.

Ruling and outcome

The court dismissed Placements Om's action in its entirety. Although the absence of heating and hot water in unit 460-2A and the concrete slab defects were found to be latent defects, Placements Om failed to satisfy the conditions for relief: the cost of repairs to unit 460-2A could not be quantified because Mr. Om had performed the work himself, and the slab-related claims were precluded by the valid as-is clause, as fraud had not been established. The claims related to the basement water damage defects failed at an earlier stage, as those defects were apparent. The defendants' counter-application for abuse of process was also dismissed, without costs, as the court found the plaintiff's claims, while ultimately unsuccessful, were not clearly and manifestly without foundation given the inaccuracies in the sellers' declaration. The action was dismissed with costs against Placements Om, and no monetary award was granted in favour of either party.