Warranty for Hidden Defects in Sold Real Estate

Ideally, before signing the purchase contract, the buyer thoroughly inspected the property and was informed of any potential defects. However, no matter how cautious a buyer is, they cannot “x-ray” the walls, so after taking possession, unpleasant surprises may arise with the costly acquisition.

The question arises: under what circumstances and for what defects can the seller be held liable?

According to Article 1707 of the Civil Code, the seller has an obligation to provide warranty, meaning they are responsible for ensuring the sold property is suitable for its intended use. The seller may also be held liable if hidden defects diminish the value or intended use of the property to such an extent that the buyer would not have contracted had they known.

A hidden defect is one that could not have been identified at the time of transfer by a prudent and careful buyer without expert assistance.

A defect is known or identifiable if the buyer was actually aware of it or if it could have been detected through simple observation and caution.

Warranty is only applicable if the defect, or its cause, existed at the time of transfer, and the buyer was unaware of it at the time of signing the contract. It does not matter if the seller was aware of the defect or not.

The parties can limit liability or fully exempt the seller from warranty obligations arising from defects unknown to them. However, if the seller knew of and discreetly withheld information about the defects, such agreements are declared void by law.

In the case of properties bought through enforcement proceedings, the seller is not liable for warranty.

The buyer may enforce their warranty claim within 3 years from taking possession. Any identified defect must be reported to the seller without delay, within a reasonable timeframe and in a verifiable manner; failure to do so may result in forfeiting the claim.

Among the ways to enforce the warranty right, the most straightforward and common in real estate is the demand for defect repair. If the seller disputes their responsibility or refuses to make the repair at their own expense, the buyer may address the defect themselves and claim the costs from the seller.

The buyer may also demand replacement of the defective property, an appropriate proportional price reduction, or termination of the contract.

The buyer may choose from these options, but their choice must be proportionate to the extent of the defects and the purpose of the contract; otherwise, the court may order a remedy different from the one requested by the buyer.

A seller acting in bad faith, who was aware of the defects at the time of signing, may also be required to pay damages in addition to the above remedies.

In contrast, a good-faith seller is only liable to reimburse the purchase price and transaction costs in addition to reducing the price or terminating the contract.

Warranty provisions also apply if the property does not meet the quality standards set in the contract, and, exceptionally, the buyer’s warranty claim may be enforceable even in cases of force majeure.