In real estate, caveat emptor is the Latin phrase for "let the buyer beware". This means that a buyer purchases a property at their own risk and must conduct their own due diligence before an agreement of purchase and sale is firm.

The exceptions to this doctrine are latent defects, fraud, deceit, misrepresentation by a seller. Latent defects are where a property is unsafe or dangerous. Fraud would entail obtaining the sale under fraudulent circumstances where you are deliberately misleading a party. Deceit involves intentionally concealing material facts to a party. Lastly, misrepresentation is where a seller is making false claims about a property. Should any of these exceptions arise in a purchase/sale transaction, the principle of caveat emptor would not apply.

These exceptions were brought to light in a recent case, 1000425140 Ontario Inc. v 1000176653 Ontario Inc. 2023 ONSC 6688, where an NBA player, Shai Gilgeous-Alexander's bought an $8.45 Million mansion in Burlington. This mansion was formerly owned by directors of a numbered company, Ray Gupta and Sandeep Gupta, who had strong affiliations with, Crypto King, Aiden Pleterski, also a former resident of the property.

A few days after closing on the purchase transaction, an individual knocked on the mansion's door looking for Pleterski. Shai Gilgeous-Alexander and his wife quickly determined that Pleterski had been involved in fraud, bankruptcy proceedings, defrauded some 'very bad people', and received threats to burn down the house. Pleterski was being accused by investors for defrauding over $25 million, and that $1 million of stolen money had been used towards the property. The Gupta's were also aware that Pleterski had been kidnapped in December 2022 by the same people. For a short period, the Gupta's even permitted another family to live in the property, who were dealing with the same type of harassment. All of which was known by the sellers of the property, but not disclosed in the marketing to potential buyers. The property was rather marketed as 'private and secure'.

Upon receiving these threats, Shai Gilgeous-Alexander and his family stayed in the home for less than a week, and wished to void the purchase transaction. At Paragraph 35 of the case, Justice Centa discusses the limitations on the doctrine of buyer beware as adopted by Ontario in 1979 case law i.e. "absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug-infested or otherwise uninhabitable or deficient in amenities, unless he protects himself by contract terms". Both parties agreed that fraudulent misrepresentation and latent defect were present in this transaction.

Justice Centa at Paragraph 37 further discusses the elements of fraudulent misrepresentation are false representation of a fact, knowing the statement was false, making a representation with the intention that it would be acted upon, ensuring that the buyer relied on the statement, and that the buyer suffered damages as a result of the fraudulent misrepresentation. The key points here noted that the property was not private and secure, and there was a failure to disclose the safety risk at the property.

For a latent defect, it had to be determined whether the property was unfit for habitation or dangerous. The ongoing safety risk, the sellers knowing about the risk, and the fact that it was not disclosed to the buyers deemed a latent defect to exist. It can also be noted that a seller has the duty to disclose a latent defect such as this.

Therefore, the Agreement of Purchase and Sale was rescinded ruling in favour of Shai Gilgeous -Alexander. Amidst a real market where buyers are often warned about unconditional offers and firm deals, this case will now remain a key example of where a buyer beware principle does not apply.

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