FAQ
Q: What qualifies as “substantial damage” to a property?
A: Substantial damage is damage that materially affects the use or value of the property. Minor wear and tear, or damage that doesn’t prevent use, is generally not considered substantial.
Q: Does the cost of repair determine if damage is substantial?
A: Not always. Even small repairs can constitute substantial damage if they prevent the buyer from occupying or using the property as intended.
Q: Who is responsible for property damage before possession?
A: Typically, the seller bears responsibility until possession, unless the contract specifies otherwise.
Q: What should I do if I notice substantial damage on possession day?
A: Notify your lawyer immediately. You may be able to hold funds in trust, terminate the contract, or negotiate remedies depending on the situation.
Q: Can a minor accident during move-out be considered substantial damage?
A: No. Minor scratches, dents, or similar wear from moving furniture usually do not qualify as substantial damage.
SHIT HAPPENS!!!
In the context of Real Estate Law, that means sometimes properties get damaged before the Possession Date.
But how much damage is substantial damage?
First, we should ask “Why do we care”? There are two obvious reasons.
The property suffering “substantial damage” is one reason a buyer can choose to terminate the contract and get a return of their deposit. Clause 10(d) indicates that “If, after the formation of this contract, any part of the Property suffers substantial damage which materially affects the use or value of the Property and the damage is not repaired before the Possession Date to substantially the same condition it was in prior to the damage occurring, the Seller shall provide the Buyer with an opportunity to have a pre-closing inspection to assess the damage and consider remediation options. If a remediation plan is not agreed upon on or before the Possession Date, the Buyer may terminate this contract and have all monies paid returned or may accept the Property in its damaged condition, together with the proceeds of the Seller’s insurance policy, if any, and complete the transaction.”
The other reason is that the standard trust conditions exchanged between lawyers at the time of closing includes a condition that if the property sustains substantial damage, the money can not be released to the seller. That condition reads as follows:
“Retention of Funds: If, prior to the release of funds, we provide you in writing with prima facie evidence that: b) the Property has suffered substantial and unremedied damage which materially affects the use or value of the Property, then you will continue to hold the enclosed funds pending agreement of the parties or an order of the court as their disposition, provided that if, within 30 calendar days of your receipt of such evidence, the Buyer has not commenced court proceedings and obtained an order for the payment of the enclosed funds into court, the enclosed funds may be released.”
Knowing whether the damage caused to the property is substantial or not tells you what rights a buyer may or may not have.
The question remains, what is considered “substantial damage”?
The Manitoba case of Cassie v. Bazilewich, 2007 MBQB 277 provides an often-followed explanation. Starting at paragraph 16 the court says the following:
The Concise Oxford English Dictionary, 10th ed., revised, defines the term “substantial” as:
1 of considerable importance, size, or worth. ➢ strongly built or made. ➢ important in material or social terms; wealthy. 2 concerning the essentials of something.
3 real and tangible rather than imaginary.
Where a property has been totally destroyed or the monetary value of the damage constitutes a high percentage of its worth, that evidence alone will ordinarily prove that the damage is substantial. However, I am satisfied that the phrase “substantial damage” is not restricted to a definition based solely on the cost of repair. The quality, character and consequences of the damage must also be considered.
Minor damage that is consistent with abnormal wear and tear will usually not be substantial. Similarly, even significant damage that does not affect the ability of the purchaser to enjoy the basic benefits of the property while it is being repaired will ordinarily not qualify as substantial.
In contrast, however, there may be situations where the damage can ultimately be repaired for a small fraction of the total value of the property but, in the interim, the damage prevents the purchaser from occupying the property or using it for its intended purpose. When the damage will deprive the purchaser for a significant period of time of one or more of the essential benefits of ownership, then it may be fair to characterize that damage as substantial.
In Cassie, approximately 5 days prior to the possession date, one side of the duplex was damaged by a police raid. The police broke the lock of the main entrance door and caused damage to the door itself. The doors were essentially boarded up and the property had no operating doors. The Court found, at paragraph 20, that although the cost was not substantial, the absence of working doors made the damage not merely cosmetic or irritating, but rather made the property uninhabitable. As such, the damage was substantial as it substantially impacted the right of the buyer to use or occupy the property.
Where substantial damage occurs, it is important for a buyer to find it quickly. A seller should disclose it to the buyer before possession but in cases where they do not, a buyer has a limited opportunity to find substantial damage, and stop the flow of money to the seller.
Although an actual determination of substantial damage is determined by the courts, on a case-by-case basis, which could lead to a right of the buyer to terminate the contract, finding prima facie (based on the first impression, accepted as correct until proved otherwise) evidence of substantial damage can provide some leverage for a buyer to negotiate a remedy for damage caused to the property .
This is a good reason to leave the possession time at 6:00 p.m. as it gives the buyer the evening to inspect the property for substantial damage and notify the seller’s lawyer, by the morning, not to release the money to the seller as per trust condition no. 6.b).
One last note, the ability to stop the payment of money to a seller is limited to substantial damage only, not merely damage. If a seller banged up the wall moving out, that would not stop the flow of money.
Practical Applications
If any substantial damage has occurred, the seller should disclose it to the buyer before possession is taken. In cases where they don’t do that, a buyer has a limited opportunity to find substantial damage and to prevent money from going to the seller.
So, as a buyer, what are your options?
First, it is always a good idea to set the possession time in the evening, so the buyer can inspect the property on the possession date and notify their lawyer if there is any substantial damage.
Just note, the damage needs to be substantial. If the seller dinged the walls while moving out their furniture, that does not constitute substantial damage.
This article is for educational purposes only and is not legal advice. Laws change and vary by location; please consult a real estate lawyer for guidance on your specific situation.
