Defects in single-family houses

Breach of contract

The assessment of whether a defect falls within the seller’s liability takes into consideration the contract between the parties. The characteristics of the real estate must be as agreed.

Rather than relying on verbal agreements, all essential details should be registered in the contract of sale.

In the sale of property its components and accessories are considered to belong to the real estate, unless otherwise agreed. For example, the plants in the garden, firewood, oil in the oil tank or the mailbox are included in the sale unless otherwise agreed. The same applies to accessories of real estate, including the fridge, freezer, dishwasher and stove.

The seller’s liability for defects may be derogated from by agreement, but this restriction must be in detail. The liability may not be restricted by general clauses of limitation of liability, but the liability of the seller may be restricted only by an agreement which indicates in detail how the status of the buyer differs from that provided by law. A clause often used in contract of sales stating that “the property is sold as is” may not be binding while estimating the liability of the seller.

Defect in providing information

In the Code of Real Estate, great emphasis is placed on the seller’s obligation to disclose information concerning the quality of the property and other pertinent details in a broad-based manner before concluding the transaction, and this information is considered to have influenced the transaction.

The seller has prior to the transaction, especially, provide the buyer with information on the property is different from properties of similar type.

The seller has prior to the conclusion of the sale provide the buyer, among other things, with information:

• if the condition or structure of the buildings are different from what can generally be expected from properties of similar age
• a characteristic, which typically has an effect on the use of similar real estate
• fault in one of the appliances or gadgets that are included in the sale.

The seller must provide the buyer with information on both the deficiencies the seller knew and the deficiencies that the seller had concrete doubts. If the seller is uncertain if the information provided is correct, the seller must inform this to the buyer to avoid liability for defects.

The condition for the liability of the seller is reason to believe that the information has had an effect on the sale. In practice, this means that the buyer would not have concluded the sale for the agreed price if the buyer has had the correct information.
The seller is not liable if the failed information is of minor significance. When estimating the seller’s liability, in addition to repair costs, the significance of the defect may be considered otherwise, for example its impact on inhabitable and comfort.

The seller is also liable for the information or failed information, when the information was provided by the seller’s real estate agent. The estate agent’s indemnity for the buyer may not release the seller from liability for defects.

Read more about selling a single-family house

Hidden defect

Hidden defects are in question if defects could not have been detected by the buyer in a standard inspection and the seller was not aware of them either. For example, moisture and mould damage are often hidden defects.

The law emphasises the significance of the defect in provisions pertaining to hidden defects. Compensation may be claimed if the hidden defect results in the house being significantly different from houses of similar age, price and condition.

When estimating the quality that the buyer can justifiably be expected of the property, especial attention must be paid to the age of the buildings and major overhauls completed to them. If the building is new, the better quality may be expected and modern building system used when constructing it.

The buyer may expect that the buildings belonging in the property have been built according to building system in common use and acknowledged at the time of construction, and the repairs completed subsequently have been performed in the building system acknowledged at the time of repairs.

The significance of a hidden defect is estimated case by case in overall judgment. The significance of a hidden defect may affect, in addition to the age and price of the property, if the damage was unpredictable, the extent of the damage and the time period of repairs.

In the estimation has been essential typically the comparison between the repair costs and the price of the property. In order for a significant defect hidden, the repair costs must mostly be more than one percentage of the price of the property. If the defect causes health detriment, it may normally be considered significant in spite of the repair costs.

Defect in possession and defect in title

Real estate may have a defect in possession, if official decision restricting the use or possession of the real estate and there is reason to believe that the information has had an effect on the sale. The seller has an obligation to obtain and disclose information of the official decisions that affect possession of the real estate. For example, the seller has prior to the conclusion of the sale provide the buyer with information on a current plan, building prohibition, conveyance restriction and an official permit.

Real estate may have a defect in title, if the buyer may lose title to the real estate, or other object customarily affixed to the real estate, in favour of the rightful titleholder, or the seller has prior to the conclusion of the sale provided the buyer with false or misleading information of a lien over or other special right to the real estate in favour of a third party, and there is reason to believe that the information has had an effect on the sale.

Repairs resulting from the aging of a house do not fall within the seller’s liability. A single-family house requires maintenance and repairs as it ages. The renovation needs are already accounted for in the price of the house. The price of an old single-family house on roughly the same size of plot in the same area is significantly lower than that of a new or fairly new house.

For example if a 1950s single-family house, bought in its original condition, has a leaking metal sheeted roof, the floor drain in the washroom has leaked water into insulation or cast iron drains tend to get completely clogged up, there are no legal grounds to make claims regarding such defects to the seller. They are all considered standard repairs required in an aging house.

However, if the seller has been aware of a leaking roof, perhaps rectified some damage caused by it and clearly concealed the matter, he may be partially liable for the associated repair costs.

The most common consequence of a defect is a price reduction. When claiming a price reduction from the seller, the sum should be realistic. While the purpose of a price reduction is to adjust the price of the property to a level that corresponds with the value of the defective property on the transaction date, dispute resolutions generally do not recommend that price reductions cover 100% the costs of defect rectification in full.

When a used single-family house is repaired or renovated, the value of the house generally goes up compared to the purchase price. The greater the increase of the house value and the lengthening of the durability are, the older the house is after the repairs have been made. You should also note that only the costs necessary to rectification of the defect are considered when assessing the price reduction. Other renovation services completed at the same time of rectification must be demerged for the costs claimed in price reduction.

In transactions for used houses the buyer may not demand that the seller rectifies a defect. The seller, for his part, is not entitled to rectify a defect to avoid having to pay monetary compensation. The parties may agree that the seller rectifies the defect.

In some cases, the buyer may also be entitled to compensation for damages. In the case of a concealed defect that was not known to the seller, compensation for damages does not apply.

In a case of an essential defect the buyer may have the right to cancel the sale. The buyer’s demand that the transaction be annulled requires an essential defect. This only applies when the defect and its costs of rectification are very significant.