The myth of ‘as-is’ clauses and the shield it provides to sellers

There is often a misconception in the real estate industry that an “as-is” clause operates as a shield and provides absolute immunity to sellers who sell their properties and include “as-is, where-is” language in the agreement of purchase and sale (APS). Likewise, buyers are often more cautious and wary of the condition of a property being sold “as-is, where-is” and often believe that they have no recourse in the event they discover a defect in the property after closing. In fact, neither assumption is correct.

It is true that holding a seller liable when a property is sold “as-is, where-is” creates additional challenges, but it certainly does not operate as a complete shield whereby the buyer forfeits all legal recourse if something goes wrong.

For real estate salespersons and brokers advising clients, understanding how Ontario courts interpret these clauses – and how they interact with latent versus patent defects – is essential to managing risk and avoiding post-closing litigation.

Patent vs. latent defects: The critical difference

To understand the significance of an “as-is” clause, one must start with an understanding of the legal doctrine known as caveat emptor. Caveat emptor is the doctrine whereby the buyer is expected to complete its own due diligence to satisfy itself regarding the condition of a property, also known as buyer beware. Despite any “as-is, where-is” language in the APS, a seller may still be required to disclose certain defects. The courts have established two categories of property defects:

1. Patent defects: Patent defects are defects that are visible and readily discoverable by the buyer or a home inspector. These defects can include a crack in the ceiling, a missing tile in the kitchen or a broken window. Under the doctrine of caveat emptor, the buyer assumes the risk of patent defects, and the seller has no obligation to disclose them.
2. Latent defects: Latent defects are defects that are not readily discoverable by the buyer or a home inspector. These defects include water penetration concealed by paint, roof damage concealed by insulation or a crack in the foundation that was concealed or not readily discoverable.

What protection is afforded by an ‘as-is’ clause?

Typically, the “as-is” clause will shield the seller from liability by disclosing that the seller is not providing any representations or warranties, and the buyer should assume all risk. In essence, the “as-is” clause reinforces the idea and doctrine of caveat emptor as the seller makes no representations regarding the fitness, state or condition of the property.

When can a seller be held liable despite an ‘as-is’ clause?

Ontario courts have consistently held that an “as-is” clause does not protect a seller in three specific scenarios:

Known latent defects impacting safety or habitability

If a seller has knowledge of a latent defect that makes the property dangerous, hazardous or unfit for human habitation (e.g., toxic mould, serious structural damage or a faulty electrical system that creates a fire hazard), then the seller would have a duty to disclose it. If the seller fails to disclose, it cannot avoid liability by including an “as-is” clause.

Active concealment by the seller

If a seller takes active steps to conceal a defect, it cannot avoid liability by including an “as-is” clause. Examples include installing drywall to conceal structural integrity issues with the property or painting a wall to conceal toxic mould issues prior to listing the property for sale. Fraudulent concealment invalidates the protections otherwise afforded to the seller.

Misrepresentation or fraud

If a buyer directly asks a seller or listing agent a specific question, such as, “Has the basement ever been flooded?” and the seller lies or provides a misleading partial truth, the seller can be held liable for fraudulent or negligent misrepresentation. The clause will not protect a seller who makes a misleading statement to a purchaser to induce the purchaser to enter into an agreement.

Best practices for agents

If you are acting in a transaction whereby an “as-is” clause is being included in the agreement, then consider the following to reduce conflict and your own liability.

If you are acting for the seller:

• Absolute immunity: Do not provide the impression that your seller client has absolute immunity and can avoid liability by including an “as-is” clause. 
• Encourage full disclosure: If you or your seller becomes aware of a hidden or not readily discoverable defect, then encourage your seller client to disclose the latent defect.
• Exercise caution with SPIS (Seller Property Information Statement)

If a seller insists on selling “as-is,” consider whether completing the SPIS form is advisable, as inconsistent statements can create liability exposure.

If you are acting for the buyer:

• Insist on due diligence: An “as-is” clause should immediately prompt a thorough and independent home inspection. If your buyer client insists on not completing a home inspection, ensure you have those instructions in writing.
• Ask questions in writing: If you or your buyer have specific questions regarding the condition of the property, such as water damage, roof damage or plumbing issues, then ensure you ask all your questions in writing to the listing agent. Sellers are legally required to answer truthfully or state that they refuse to answer.
• Draft custom covenants: Despite the seller’s intention to sell the property “as-is,” it would be prudent to include clauses that will protect your buyer. For example, if your client has raised concern about the roof or water damage in the basement, it would be advisable to include warranties regarding these concerns to protect your buyer client. Although these clauses may ultimately be struck and not included in the APS, the fact that you turned your mind to it by inserting the clause demonstrates that you have fulfilled your professional duties as a Realtor in protecting the best interests of your buyer client.

In summary, in order to minimize risk and minimize disputes post-closing, it is incumbent on you as the agent to encourage disclosure of hidden defects and ensure your client understands the limits and boundaries of avoiding liability by including an “as-is” clause.

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