Understanding Seller Warranties and the Timing of Disclosure Obligations
The Ontario Superior Court’s recent decision in Coppendale v. Mills, 2025 ONSC 5192, provides important guidance for transactional real estate lawyers about the interpretation of standard warranty clauses in agreements of purchase and sale. This case serves as a stark reminder that the precise wording of these clauses matters and that assumptions about their operation can prove costly for buyers and sellers alike.
The Facts
Adam and Tracey Mills listed their 1958-built Hamilton home for $1,089,000 in May 2023. After viewing the property, prospective buyers Cole Coppendale and Jordanna Cvitkovic noticed some staining on the cold cellar walls but attributed it to humidity and dampness, a concern they considered minor. Notably, the buyers waived their right to a home inspection, with Mr. Coppendale citing his extensive construction background. They ultimately agreed to purchase the home for $1,075,000 with a closing date of July 24, 2023, and paid a $20,000 deposit.
The agreement included a non-standard “detrimental condition clause” whereby the sellers warranted that “to the best of the seller’s knowledge and belief, there exists no detrimental physical or psychological condition affecting the property that might negatively affect the value of the property, or influence the Buyer’s decision to proceed with the completion of this Agreement of Purchase and Sale.”
On their third pre-closing visit on July 2, 2023, a rainy day, the buyers discovered what they described as considerable water pooling (approximately one inch deep) on the cold cellar floor. They promptly refused to close the transaction, arguing that the sellers had breached the detrimental condition clause. The sellers disagreed, having never experienced water penetration during their five years of ownership, only occasional condensation on the walls.
The Central Legal Issue
The dispute hinged on the proper interpretation of the detrimental condition clause. The buyers argued that once the sellers became aware of the water issue before closing, they could no longer warrant that the property was free of detrimental conditions. In their view, the warranty operated continuously up to the closing date.
The sellers contended that the warranty related only to their knowledge and belief at the time they signed the agreement, not at closing. Since they had no knowledge of any water problem when executing the agreement, they argued they had not breached the contract.
The Court’s Analysis
Justice I.R. Smith conducted a thorough analysis, drawing heavily on the Court of Appeal’s decision in Beatty v. Wei, 2018 ONCA 479, which examined a similar clause in a purchase agreement. The court applied three key principles from Beatty:
- Plain Language Interpretation
The detrimental condition clause contained no language suggesting it applied to the sellers’ knowledge at closing. Unlike other provisions in the same agreement that explicitly referred to conditions “on completion” or “at closing,” the detrimental condition clause was silent on timing.
- Reading the Contract as a Whole
Justice Smith noted that the agreement contained three other clauses that explicitly extended warranties to the closing date, including warranties about non-resident status, work orders, and chattels and fixtures being “in good working order and free from all liens and encumbrances on completion.” The absence of similar language in the detrimental condition clause suggested the parties intended it to operate only as of the date of execution.
- The “Survives Closing” Language
The buyers placed particular emphasis on the clause’s final sentence: “This warranty shall survive closing of this transaction, but shall only apply to circumstances existing at or before closing.” They argued this extended the warranty to closing day.
The court rejected this interpretation. Following Beatty, Justice Smith held that the “survives closing” language merely preserves the right to sue after closing—it doesn’t extend the content or temporal scope of the warranty itself. As the court stated, this language “does not assist in ascertaining the content and meaning of the representation or warranty given.”
The Decision
Justice Smith ruled in favor of the sellers, finding that the warranty was “limited to the sellers’ knowledge and belief as it existed when they executed the APS.” Since there was no evidence the sellers knew of any detrimental water condition when signing the agreement in May 2023, they had not breached the contract. The buyers, by refusing to close, were in breach.
The court awarded damages of $206,703.56 to the sellers, comprising the $160,000 difference between the contract price and the eventual resale price, $21,600 in rental costs for temporary accommodation, $12,450.68 in thrown-away costs, and $12,652.88 in lost investment income. The buyers’ $20,000 deposit was forfeited.
Practical Takeaways for Transactional Lawyers
- Timing Matters in Warranty Clauses
Standard warranty clauses typically speak to the seller’s knowledge at the time of signing, not at closing. If your client wants ongoing disclosure obligations, you must include explicit language requiring the seller to update their warranties or provide a “bring-down certificate” (a document that certifies that the seller’s representations and warranties from the original agreement are still true and accurate as of the closing date).
- “Survives Closing” Doesn’t Mean What Buyers Think
The phrase “survives closing” preserves post-closing remedies but doesn’t transform when the warranty operates. Don’t assume this language extends the warranty’s temporal scope.
- Home Inspections Remain Crucial
The buyers in this case waived their inspection condition—a decision that proved costly. While inspection waivers may be strategically necessary in competitive markets, they expose buyers to significant risk, particularly with older homes.
- Document Knowledge Carefully
Sellers should document the extent of their knowledge about property conditions at the time of signing. The sellers’ consistent testimony that they experienced only occasional condensation—not water infiltration—proved decisive.
- Distinguish Between Different Standard Clauses
Not all standard clauses operate the same way. Compare the language in the detrimental condition clause with the language in the chattels and fixtures clause. While the detrimental condition clause was silent as to timing, the chattels and fixtures clause explicitly stated that items “will be in good working order…on completion.” Understanding these differences is essential for advising clients.
Conclusion
Coppendale v. Mills reinforces that contract interpretation requires careful attention to specific wording, context, and the agreement as a whole. Transactional lawyers must understand how courts interpret standard clauses and, when necessary, modify them to achieve their clients’ objectives. In a market where pre-closing discoveries can dramatically affect transaction dynamics, precision in drafting disclosure obligations is more important than ever.
