Yes. A seller who conceals a known latent defect like water damage can be held liable for negligent misrepresentation in Ontario, even after the deal closes, and ordered to pay the full cost of repairs.
That is what the Ontario Superior Court decided in Austin v. MacFarlane, 2026 ONSC 463. The seller nearly got away with it. A manufacturer's date stamp on a sheet of drywall is what undid her.
Key takeaways
- A seller who actively hides a defect, by painting over damage or concealing a repair, can be liable even without an intent to deceive.
- Buyer beware stops protecting a seller once concealment becomes a misrepresentation, and an express warranty drafted to survive closing keeps the buyer's claim alive.
- Statements in an MLS listing, such as "move-in condition," can be treated as representations the seller has to stand behind.
- A home inspection does not move the risk of latent defects onto the buyer, because an inspection is not designed to find them.
- Damages can include the entire cost of repairs, and the buyer's own insurance payout does not reduce what the seller owes.
This applies to home buyers, sellers, real estate agents, and lawyers involved in residential real estate transactions in Ontario.
What happened
Dale Austin bought 113 Sable Crescent in North Bay from Lynn MacFarlane in May 2019. The two never met. Both worked through real estate agents.
Austin had viewed the house in January, with snow on the ground. His home inspector could not reach the west side or get under the deck. The report flagged minor items, a few outlets without ground-fault protection and some bulging basement windows. Austin closed on May 1.
Two days later, the movers carried a piano into the basement. Water came up through the floor where they set it down. Austin paid the movers $800 to dig out a corner and patch a crack, then hired a contractor and a structural engineer.
A foundation crack near the top was wide enough to fit a person's fingers. There was mould behind the drywall and a block wall pushed in about two inches. The deck footings sat three feet six inches deep, where North Bay frost depth requires four feet.
Then came the detail that decided the case. Six or seven sheets of drywall along the basement's north wall carried manufacturer date stamps from 2015 and 2017. The studs did not match, the insulation came in two types, and a vapour barrier had been cut and re-taped. Someone had done real work in that basement and covered it over.
The repairs came to $119,595.75. Austin's insurer paid $15,594.88 for interior work and denied the rest under policy exclusions.
What the court decided
The Ontario Superior Court found MacFarlane liable for negligent misrepresentation and ordered her to pay for the repairs.
A latent defect is a hidden flaw that a reasonable inspection would not reveal, one that makes a property unsafe or unfit to live in or that materially affects its value. Water infiltration behind finished basement walls is a textbook example.
To win, a buyer must prove the seller knew or ought to have known about the defect and either concealed it or was reckless about the truth. The standard is the balance of probabilities.
Buyer beware, or caveat emptor, is the starting point. In Kelly v. Pires, 2015 ONSC 2871, the buyer lost because nothing in the deal survived closing, so the claim had to be built on fraudulent misrepresentation to get past that rule. Austin's deal was different. Both the agreement of purchase and sale and the Warranties and Bill of Sale stated that the warranties survived closing, which kept his claim alive.
The court then applied the five-part test for negligent misrepresentation from Queen v. Cognos, [1993] 1 S.C.R. 87: a special relationship between the parties, an untrue or misleading representation, negligence in making it, reasonable reliance by the buyer, and resulting damage.
The listing as a representation
The MLS listing described the home as "very well maintained," in "move-in condition," and "economical to operate." MacFarlane had initialled every page of the listing data behind those words. Together with the agreement and the warranty, the listing created a duty of care between buyer and seller of the kind accepted by the Court of Appeal in Krawchuk v. Scherbak, 2011 ONCA 352. The long, hidden history of water made the move-in-ready picture untrue.
This is the mirror image of the case where an entire agreement clause overrode a listing detail. There, a clause walling off the listing protected the seller. Here, nothing walled off the listing and the warranty was written to survive closing, so the words on the listing came back to bind the seller.
Wilful blindness was enough
MacFarlane said she had only touched up baseboards her dog had chewed. The judge did not accept that she could have painted those basement baseboards without seeing the water damage around them. He rejected her father's evidence that he had replaced only two small sheets of drywall, after the father admitted he would do anything for his daughter. Intent to deceive was not required. Active concealment of a defect that a buyer would otherwise see is treated as fraudulent, and the contract becomes voidable.
The damages
The court awarded the full $119,595.75 in repairs. The $15,594.88 insurance payment did not reduce the award, because a wrongdoer cannot benefit from the victim's own insurance. Austin had asked for $100,000 for stress and inconvenience and received $10,000, since he led no medical evidence and his elderly mother, who lived through the renovation, was not a party. His claim for $100,000 in punitive damages was refused. Judgment came to $129,595.75, plus interest.
Why this matters for Ontario real estate deals
Caveat emptor still protects sellers from defects a buyer could have found. This case shows where that protection ends.
If you are selling, what you hide can cost you more than what you disclose. Painting over damage or concealing a problem is active concealment, and it turns a defect that a buyer might never have discovered into the basis for a lawsuit. You do not need to have planned to deceive anyone. The work MacFarlane's father did years earlier was still enough. When you sell a home in Ontario, the safest path is disclosure in writing.
If you are listing a property, treat the words in the listing as promises. "Move-in condition" and "well maintained" are not throwaway marketing. A court read them back as representations and used them to help find the seller liable. Write a listing you could defend if you had to explain it under oath.
If you are buying, understand what survives closing. Most contract rights end when the deal closes. A warranty written to survive closing does not, and it can be the difference between a claim that lives and one that dies. A claim for misrepresentation can also survive. So can your right to be paid for repairs even after your insurer has already covered part of the bill. Courts hold parties to the contract as written, for better or worse, as a buyer who tried to rewrite his deal after a pre-closing fire learned when he forfeited his deposit.
And do not assume a home inspection protects either side. An inspection is not built to find latent defects. It did not shift the risk to Austin, and it will not shift the risk in your deal.
Practical checklist
For sellers and listing agents:
- Disclose known problems in writing. A defect you reveal cannot become a concealed defect later.
- Do not conceal damage. Patching, painting, or hiding a repair can be treated as active concealment, even if the work was done years ago.
- Write listings you can stand behind. Phrases like "move-in condition" and "well maintained" can be treated as representations.
- Know which promises survive closing. A warranty stating no damage has occurred since inspection, drafted to survive closing, creates exposure that outlives the deal.
For buyers and their lawyers:
- Save the listing. The MLS description and the data behind it can support a misrepresentation claim.
- Confirm the warranty terms. Check whether the agreement and any bill of sale state that the warranties survive closing.
- Keep your inspection records. They show you acted reasonably, which supports reasonable reliance.
- Act fast and limit the damage. Austin called his agent immediately, repaired only what was damaged, and stayed in the home during construction. Quick, reasonable steps protect the full claim.
A lawyer's review before you sign is where most of these problems get caught. If you are buying a home in Ontario, we read the agreement, the schedules, and the warranties before they bind you.
Common questions
What counts as a latent defect in Ontario?
A latent defect is a hidden flaw that a reasonable inspection would not reveal, one that makes the property unsafe or unfit to live in or that materially affects its value. Water infiltration behind finished walls is a common example.
Does buyer beware protect a seller in Ontario?
It protects a seller from defects the buyer could have discovered. It stops protecting a seller who actively conceals a defect or makes a representation that turns out to be untrue.
Can you sue a seller after closing in Ontario?
Most contract rights end at closing. A claim for misrepresentation can survive, and an express warranty drafted to survive closing also survives. In Austin v. MacFarlane, both applied, which is why the buyer could recover after the deal closed.
Is a seller off the hook if the buyer had a home inspection?
No. A home inspection is not designed to find latent defects, so it does not move the risk of hidden problems onto the buyer.
Do you have to prove the seller intended to deceive you?
No. Active concealment of a defect that a buyer would otherwise see is treated as fraudulent whether or not the seller meant to deceive.
Does an insurance payout reduce what the seller owes?
No. Under the private insurance exception, the money your own insurer pays you does not reduce the damages the seller has to pay.
Sources and decision link
Read the full decision on CanLII: Austin v. MacFarlane, 2026 ONSC 463.
The decision also discusses Queen v. Cognos, [1993] 1 S.C.R. 87; Krawchuk v. Scherbak, 2011 ONCA 352; Kelly v. Pires, 2015 ONSC 2871; and Hamel v. Racioppi, [1993] O.J. No. 1393 (Gen. Div.), aff'd [1994] O.J. No. 2499 (C.A.). Prejudgment and post-judgment interest were awarded under the Courts of Justice Act, R.S.O. 1990, c. C.43.
If you want a second set of eyes on a listing, an Agreement of Purchase and Sale, or a warranty before it binds you, get a free quote. We catch the things that turn into court cases.