Sale With vs Without Legal Warranty: What Every Buyer Must Know
In Quebec, the warranty regime applicable to a real estate sale is a fundamental element of the purchase contract. Unlike other Canadian provinces governed by common law, Quebec applies the Civil Code of Quebec (CCQ), which provides a specific protection framework for property buyers. Understanding the differences between a sale with legal warranty and a sale without warranty is essential for every buyer, seller, and mortgage broker.
The Legal Warranty: Dual Protection for the Buyer
The legal warranty under the CCQ includes two distinct components. The warranty of ownership (articles 1716 to 1725 of the CCQ) ensures the seller is truly the property owner, that the property is free of any undisclosed real rights (easements, legal hypothecs, charges), and that no violation of public law limitations diminishes the use of the property. The warranty of quality (articles 1726 to 1731 of the CCQ) protects the buyer against hidden defects existing at the time of sale that render the property unfit for its intended use or so diminish its usefulness that the buyer would not have purchased it or would not have offered the same price.
Under this warranty, the buyer has recourse against the seller if hidden defects are discovered after the sale. The time limit to exercise this recourse is subject to the three-year prescription (article 2925 of the CCQ), starting from the discovery of the defect. This protection is automatic in every sale in Quebec unless expressly excluded in the deed of sale.
Sale Without Legal Warranty: Buyer Beware
When a sale is made without legal warranty, the seller is relieved of responsibility for hidden defects and, in the case of a sale at the buyer's own risk, also of the warranty of ownership. The buyer then assumes all risks related to the property's condition and the validity of the title. This clause is common in several contexts specific to the Quebec market.
- Estate sales: heirs, who have often never occupied the property, cannot guarantee its condition. The estate liquidator typically sells without legal warranty to limit the estate's liability.
- Foreclosures: when a financial institution repossesses a property following default, it systematically resells without warranty, having never occupied or maintained the property.
- Institutional and government sales: public bodies, municipalities, and Crown corporations generally sell without warranty to limit their legal exposure.
- Private sales with exclusion: some sellers negotiate the exclusion of warranty, often in exchange for a reduced price.
Impact on Mortgage Financing
The warranty regime applicable to the sale directly influences mortgage financing conditions. Lenders assess the risk associated with the property, and a sale without legal warranty signals a higher risk level. Several Canadian financial institutions apply additional requirements for properties sold without warranty: mandatory inspection by a certified professional, required title insurance, certified appraisal rather than an automated valuation system, and sometimes a reduced loan-to-value ratio.
AMF-certified mortgage brokers play a crucial role in informing buyers of these implications before signing the purchase agreement. Denied or conditionally approved financing can significantly alter the total acquisition cost. Some monoline lenders and caisses populaires are more flexible than major chartered banks for this type of transaction.
Recommendations for Buyers
If you are considering purchasing a property sold without legal warranty, several precautions are essential. Have a thorough pre-purchase inspection performed by a certified building inspector, including if possible pyrite testing, radon testing, and water quality verification for rural properties. Obtain title insurance from a recognized insurer. Consult an independent notary before signing the purchase agreement to understand your limited rights in case defects are discovered after the sale. Adjust your purchase offer to reflect the additional risk you are assuming.