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Latent Defects, Negligent Misrepresentation and Real Estate Litigation

Tue, 24 Feb 2026 15:21:41 GMT

Caveat Emptor vs. A Well-Drafted Contract

Purchasing a home is quite often the largest financial commitment a person will make in their lifetime. While Ontario real estate transactions are traditionally governed by the doctrine of caveat emptor (“ buyer beware ”), that principle has clear limits. Where a seller makes misleading representations, actively conceals defects, or is willfully blind to serious issues, the courts will intervene. The Ontario Superior Court of Justice’s decision in Austin v. MacFarlane, 2026 ONSC 463 (" Austin ") provides a concise and instructive roadmap for understanding how latent defects and negligent misrepresentation operate in modern real estate litigation.

A Post-Closing Discovery of Serious Defects

In Austin , the purchaser acquired a home in North Bay, Ontario. The transaction was typical: real estate agents were involved, a home inspection was conducted, and no direct communication occurred between buyer and seller. Shortly after closing, water seeped up through the basement floor when a piano was placed on it. Further investigation revealed:

Significant foundation cracking
Long-standing water infiltration
Mould behind basement walls
Evidence of prior drywall removal and repairs

The repairs cost the purchaser more than $119,000. The purchaser sued the vendor for breach of contract and negligent misrepresentation, alleging the vendor either knew of the defects or was willfully blind to them.

Latent Defects and the Limits of Caveat Emptor

The first principal is whether the defects were, or at least ought to have been, obvious or not. Ontario law distinguishes between:

Patent defects – discoverable through reasonable inspection
Latent defects – hidden and not discoverable through ordinary diligence

A vendor is generally not liable for patent defects – the purchaser ought to have discovered these. However, caveat emptor does not protect a seller who:

Conceals defects,
Makes misleading representations, or
Is wilfully blind to serious problems

The court affirms limits to home inspections: structural defects hidden behind finished walls or obscured by decks may not be discoverable. The fact that the purchaser had an inspection performed does not insulate a vendor from liability for latent defects about which the vendor had actual knowledge.

A Well-Drafted Contract: Warranties That Survive Matter

A key feature of Austin was the language in the contract. The Agreement of Purchase and Sale contained warranties that:

The building suffered no damage since the purchaser’s inspection; and
The vendor’s warranties would survive closing

The existence of the warranties combined with the fact that the warranties survived closing was significant. The default rule in contract drafting is that warranties and representations merge on closing. In Austin the warranties did not merge due to some sound drafting. The fact the warranties survived closing strengthened the purchaser’s contractual and negligent misrepresentation claims. For vendors, this case is a reminder that surviving warranties materially increase post-closing exposure. For purchasers, warranties that survive closing provide a legal foundation for recourse in the event defects emerge later.

The Test for Negligent Misrepresentation

The Court applied the established five-part test:

A duty of care arising from a special relationship
An untrue, inaccurate, or misleading representation
Negligence in making the representation
Reasonable reliance by the purchaser
Resulting damages

Ontario courts recognize that a special relationship exists between vendor and purchaser in a real estate transaction. In Austin , the MLS listing described the home as “very well maintained” and in “move-in condition.” The vendor’s representations were found to be misleading considering the defects were long-standing. The court in Austin concluded that the vendor was, at minimum, wilfully blind to serious water infiltration issues and therefore negligent in her representations

Credibility and Circumstantial Evidence

Latent defect cases often turn on credibility and circumstantial proof. In Austin , the court relied on:

Drywall date stamps inconsistent with the vendor’s testimony
Inconsistent insulation and vapour barrier repairs
Physical evidence suggesting prior remedial work

There was no direct proof of concealment. There was, however, evidence that supported an inference that the vendor had knowledge of the defects or else was willfully blind to same.

Damages: Repair Costs and Beyond

The Court awarded the purchaser:

$119,595.75 for repair costs
$10,000 for inconvenience and mental distress

The purchaser was found to have mitigated damages by acting promptly and remaining in the home during repairs. Notably, insurance proceeds did not reduce the damages award consistent with Ontario’s private insurance exception. Punitive damages were sought but denied. While the vendor’s conduct was criticized, it did not rise to the exceptional level required for punitive relief.

Key Takeaways for Real Estate Litigation

For Sellers:

Marketing language such as “move-in ready” can have legal consequences
Cosmetic work does not shield against findings of concealment
Surviving warranties significantly increase liability risk

For Purchasers:

A home inspection does not eliminate claims for latent defects
Including warranties in the contract and having them survive closing can be critical
Repair costs, mitigation efforts and disruption may all be compensable

For Counsel:

Credibility findings are central
Circumstantial construction evidence can be decisive
Failure to challenge damages in evidence (not just submissions) can be costly

Conclusion

Austin reinforces that caveat emptor is not a licence that allows a vendor to mislead. Where latent defects are concealed or ignored—and particularly where warranties survive closing—Ontario courts will hold vendors accountable. For those involved in real estate transactions or disputes, the decision underscores a central truth of modern real estate litigation: representations matter, documentation matters, and silence in the face of serious defects can result in substantial liability.

- Oliver Cooper

Joint Tenancy vs. Tenants in Common

Wed, 11 Feb 2026 22:28:54 GMT

How to navigate co-ownership of real property.

When two or more people buy property in Ontario, they must decide how they will hold title. That choice is often made quickly during a purchase, but it has important consequences for estate planning, family law, and taxes. The two main options are joint tenancy or else tenancy in common.

Joint Tenancy

In a joint tenancy, each owner holds an equal interest in the entire property. The key feature is the right of survivorship. When one co-owner dies, their interest passes automatically to the surviving owner(s). The deceased co-owner’s interest in the real property does not form part of the deceased’s estate and does not pass under their Will.

Joint tenancy is the common option for spouses. A joint tenancy simplifies matters on death because the real property transfers automatically and avoids the Estate Administration Tax (also known as “probate fees”). A joint tenancy overrides the deceased co-owner’s Will, even where they purport to deal with their co-ownership interest. Clients must be careful that their choice of tenure aligns with broader estate planning goals or where the co-owners have contributed unequally to the purchase of the real property.

Tenancy in Common

Tenancy in common offers greater flexibility, but no survivorship. Owners can hold unequal shares, often based on how much value each person contributed toward the purchase. While each owner has a defined share, all have the right to use and occupy the entire property.

Without survivorship, a deceased co-owner’s share passes into their estate and is subject to their Will (or Ontario’s intestacy rules if there is no Will). This preserves control over who inherits the interest. Estate Administration Tax will almost certainly apply.

Tenancy in common is often appropriate where:

Owners contribute different amounts
Co-owners are not spouses (or do not intend to benefit their co-owner on death)
The property is primarily an investment
One co-owner wants their interest to pass to someone other than the other co-owner

Because co-owners may have different goals or timelines, a written co-ownership agreement is advisable. Such an agreement can address expense sharing, mortgage obligations, use of the property, and how disputes or buyouts will be handled. Without one, disagreements can lead to court proceedings under the Partition Act (Ontario), which may result in a forced sale.

Changing Ownership Structure

A joint tenancy can be converted into a tenancy in common by “severing the joint tenancy”. This can be accomplished by agreement of the co-owners. But more often than not, one co-owner takes unilateral steps to terminate the joint tenancy.

Moving from tenancy in common to joint tenancy requires the co-owners to agree.

Choosing the Right Approach

There is no universal solution. The right structure depends on factors such as:

Who should inherit each co-owner’s share
How much each co-owner is contributing
Estate planning and probate considerations
Family law implications
Whether a co-ownership agreement is needed
Long-term plans for the property

While these issues are best addressed at the time of purchase, ownership can be restructured later if circumstances change. Co-owning property can work well — but only if the legal structure aligns with the owners’ financial and estate planning objectives. Careful planning at the outset can prevent unintended consequences later.

- Ian Keay

Gifting Farm Property: A Tax-Driven Strategy

Tue, 10 Feb 2026 19:40:20 GMT

When you want to keep the farm in the family.

The Rollover Provision

The Income Tax Act (Canada) (the “ ITA ”) provides special rollover rules for farmers when transferring property. “Qualified farm property” can be transferred by the farmer to a child on a tax-deferred basis, either during the farmer’s lifetime or on death. Subsection 73(3) of the ITA permits a rollover of qualified farm property to a child at the parent’s cost base rather than at fair market value provided specific conditions are met. These conditions include:

1. the property is situated in Canada;

2. the child receiving the property is a resident of Canada immediately before the transfer; and,

3. the property was used principally in a farming business in which the farmer, their spouse, their child, or their parent was actively engaged on a regular and continuous basis (See Section 73(3) ITA; see also CRA, Intergenerational Transfers of Farm Property , RC4060).

When these conditions are satisfied, the transfer does not trigger an immediate capital gain for the farmer and the child receives the property with the same adjusted cost base as the farmer.

So how can a farmer use this rollover provision under the ITA when developing their estate plan?

Ex. The farmer wants to leave the farm to the child who is actively farming. In an effort to equalize between the farmer-child the non-farmer-child, the farmer could sever land from the farm and rely on Subsection 73(3) to convey the severed lot to the non-farmer-child at the farmer’s cost base. This is typically done in an effort to make up for the fact that (A) the farm land is valuable, and (2) the farm land will be bequeathed to the farmer-child.

The advantages of the Section 73(3) rollover are significant. From the farmer’s perspective, the transfer can be completed without incurring immediate income tax. From the child’s perspective, the land is received without having to pay fair market value. Given current land values, this strategy can be very valuable.

Be Careful: The Anti-Avoidance Rule

One important consideration: the anti-avoidance rule found at Subsection 69(11) of the ITA. The non-farmer-child cannot sell the severed lot within 3-years of the transfer. Otherwise, the farmer must pay retroactive income tax at fair market value that would be assessed in the year of transfer.

This rollover provision is a useful tool for farm succession planning. It is assistive when trying to keep farmland within the family, minimizing tax exposure and equalizing between farming/non-farming children. It is important to involve a tax-professional early on when attempting to develop a meaningful estate plan.

- Ian Keay

Understanding Henson Trusts in Ontario: A Plain-Language Guide for Families

Tue, 03 Feb 2026 14:13:57 GMT

When a loved one collects government benefits, there is a risk that receipt of an inheritance could result in disqualification. Families want their loved one to live a safe, comfortable life—without accidentally causing the loss of vital government benefits. In Ontario, an effective legal tool for protecting a disabled loved one is by including a Henson Trust in the Will.

1. When Helping is Actually Hurting

Many people with disabilities receive government support, such as:

i. ODSP (Ontario Disability Support Program)

ii. Subsidized housing supports

iii. Prescription / medical benefits

(the “ Benefits ”)

Qualification for and receipt of the Benefits are often based on the applicant’s financial eligibility. In simple terms: If the applicant has too much money / resources / assets in their own name, they may not qualify / lose access to the Benefits. So how do family members (often parents) leave an inheritance for their disabled loved one? A badly drafted Will can result in an inheritance that risks the recipient's disqualification from the Benefits.

2. A Solution: The Henson Trust

A Henson Trust is a special type of trust purposefully designed to help a person with a disability receive financial support without owning the assets personally. A Henson Trust provision is written directly into a Last Will & Testament. A key feature of a Henson Trust is that it is a fully discretionary trust. The Will-drafter (parent) appoints the trustee of the Henson Trust in their Will. The parent also identifies the beneficiary (disabled child). The important concept for a Henson Trust is that the trustee has sole and absolute discretion:

i. whether to make payments to the beneficiary

ii. how much or how little to pay or whether to make a payment at all

iii. when to pay

iv. what the money can be used for

The beneficiary does not have the legal power to demand the money. The trustee has total authority over the Henson Trust. The term “fully discretionary” references that it is the trustee that has total discretion in all decisions surrounding payments out of the trust to the beneficiary.

3. How Does a Henson Trust Protect Access to the Benefits?

When a Will includes a Henson Trust clause, it requires the inheritance to be set aside for the disabled beneficiary. The "setting aside" is what prevents the disqualification. This is because the fully discretionary nature of the Henson Trust means whatever inheritance lands inside the Henson Trust can never be considered to be owned by the disabled beneficiary:

i. The trust owns the inherited assets

ii. The trustee controls the inherited assets

iii. The beneficiary receives only whatever help from the trust that the trustee decides in their sole discretion

Only once a payment is made from the trust to the beneficiary does the beneficiary own that property, but only in the amount of the payment that is actually advanced. The goal of the Henson Trust is to ensure the trustee only makes payments in amounts that keep the disabled beneficiary qualified.

4. The Trustee – Tell Me More

These are the important considerations when creating the Henson Trust. In particular, who should be named as the trustee. Factors to consider are:

i. The trustee is in charge of the disabled child’s inheritance

ii. The trustee will:

a. manage the money

b. make investments

c. keep statements / records

d. ensure the rules governing the Benefits are not breached during the management of the Henson Trust

iii. Who should be trustee?

a. a sibling

b. a trusted family member

c. a trusted friend

d. a trust company

e. a lawyer

f. an accountant

iv. Should I appoint multiple trustees?

5. How is a Henson Trust Created?

In this context, a Henson Trust is created in a Will. If parents have a disabled child who collects ODSP, then the parents make an appointment with their lawyer to draft their Wills. In the Will, the lawyer prepares a clause that causes the share of the estate destined for the disabled child to be placed in the Henson Trust rather than go directly to the disabled child. By doing so, the parent is taking the correct steps to protect their disabled child’s qualification for their Benefits.

6. Important Considerations

i. ODSP in particular has rules about income / gifts received during a disabled person’s qualification – not following the rules will result in disqualification

ii. Whomever is appointed trustee must be reliable – a poorly managed Henson Trust can result in all kinds of different problems, not the least of which is disqualification from the Benefits

iii. Registered Disability Savings Plan (RDSP) is an investment that could be used by the Trustee – but is not typically used instead of a Henson Trust

iv. If a person has a family member who:

a. receives ODSP (or might in the future)

b. is or could be financially vulnerable (i.e. susceptible to influence or exploitation)

c. makes poor / questionable financial decisions

d. requires support

then a Henson Trust may make sense in those circumstances.

7. Final Thoughts on Henson Trusts

A Henson Trust is about more than the money. It’s created by someone who wants to provide an inheritance to a vulnerable person in order to:

i. preserve dignity

ii. provide stability

iii. provide necessary supports

iv. avoid interruption of government supports

v. ensure that the support provided endures for years and decades

The best time to set up a Henson Trust is before the crisis occurs – you do not want to die and leave your executors / beneficiaries scrambling. A well-crafted estate plan will protect both your estate assets and your vulnerable loved one.

- Ian Keay

Draft Wills, Digital Files, and When Validation Can’t Help

Tue, 03 Feb 2026 14:13:57 GMT

Ontario’s Will validation rules are meant to prevent unfair outcomes where a person clearly intended a document to be their final Will, but the signing formalities weren’t perfect. However, there are limits — especially when the only “Will” is an unsigned draft that exists as a digital document only. A recent Ontario case, Madhani v. Fast, 2025 ONSC 4100, is a reminder that an unsigned electronic draft generally cannot be validated under Ontario law.

The common scenario:

lawyer takes instructions to draft a Will for Client
lawyer prepares draft Will
a signing appointment is booked
the client dies before the Will is signed
Will was not printed out - it exists in digital form only

In Madhani , the draft Will was never printed and never executed. The draft existed only as an electronic file.

Can the Court “validate” the draft anyway?

Ontario’s validating provision is found at Section 21.1 of the Succession Law Reform Act (“ SLRA ”). Section 21.1 allows the Court to validate a document that does not comply with execution formalities provided it reflects the deceased’s testamentary intentions. In Madhani , the Court held Section 21.1 cannot be used to validate a Will that exists only in electronic form.

Why not?

Another piece of Ontario legislation, the Electronic Commerce Act, 2000 (“ ECA ”) explicitly limits the Court’s validating power. Section 31 of the ECA excludes Wills from electronic recognition. Section 21.1(2) of the SLRA explicitly makes Will validation subject to the exclusion under Section 31 of the ECA. In short: Ontario law still requires a physical testamentary document for validation to even be possible.

Testamentary intention still matters

Nevermind the “electronic draft” problem, which is significant on its own. There must also be evidence before the Court that supports that the digital draft was a valid reflection of the deceased Client’s fixed and final intention. Did the Client read the final draft? Did the Client sign the final draft? What evidence can be produced that shows what was drafted is an accurate reflection of the Client's "fixed and final intention"?

Ontario courts often use the “deliberate, fixed and final intention” test drawn from George v. Daily, 1997 CanLII 17825 (MB CA). In Madhani , the draft Will was to be reviewed and confirmed at the signing meeting — only the signing meeting never happened – which means no evidence could be produced to decide whether the draft Will reflected the deceased Client’s fixed and final intention. The Court was not reasonably satisfied in Madhani .

How this differs from other validation cases

Ontario courts have validated Wills with execution defects where the document was physical and clearly authentic, for example:

Cruz v. Public Guardian and Trustee , 2023 ONSC 3629
Vojska v. Ostrowski , 2023 ONSC 3894

But those cases involved paper documents that were physically present and clearly connected to the deceased’s fixed and final intention.

Practical takeaways

The Madhani case is a caution for both lawyers and families:

print important drafts (especially when a signing meeting is imminent)
try to obtain direct confirmation from the client (not only through intermediaries)
digital drafts on devices may not be legally usable as Wills in Ontario

Bottom line

Madhani confirms that Ontario’s Will validation paradigm under Section 21.1 SLRA is helpful — but it is not a workaround for electronic-only drafts. Until legislation changes, a Will must exist in physical form before Ontario’s courts can consider validating the unsigned draft under SLRA s. 21.1.

Could an Inheritance Disqualify your Child’s ODSP Eligibility?

Tue, 03 Feb 2026 14:13:57 GMT

In Ontario, ODSP recipients are generally not permitted to hold more than $40,000 in non-exempt assets without risking their benefit qualification. As a result, receiving an inheritance—especially an unexpected one—can be stressful and confusing. Many recipients are left wondering whether the inheritance will reduce or interrupt their ODSP support.

When families don’t know whether their intended-beneficiary collects ODSP or not, it can lead to the preparation of a Will that includes no planning to structure the gift properly-to protect the recipient's qualification for ODSP benefits. When that happens, the recipient (or, if they are incapable, their legally appointed representative) must consider whether there are ways to protect the intended beneficiary’s qualification.

The ODSP $40,000 asset limit applies to non-exempt property and funds. However, certain exempt assets are not counted when determining ODSP eligibility. If an inheritance is not planned properly, a recipient who wants to remain eligible can consider whether enough of the inheritance can be transferred into exempt assets. This would mean that their non-exempt total stays within the allowable $40,000 limit.

Examples of exempt assets under ODSP include:

An interest in a principal residence
One motor vehicle
Funds held in a Registered Disability Savings Plan (RDSP)
A trust created by the ODSP recipient using inherited funds, provided the trust capital does not exceed $100,000
A pre-paid funeral
Household goods and furnishings required for the reasonable enjoyment of a home

There are a number of planning tools available to skillful Wills practitioners to assist in protecting a beneficiary’s entitlement to ODSP - a prime example is a Henson Trust. If you are preparing your Will and you have a family member collecting ODSP benefits, getting good advice early is crucial.

- Ian Keay