Hidden Defects in Real Estate – Advice for Buyers

Buying real estate is one of the most important financial decisions in a person’s life. Before making the purchase decision, the condition of the property is usually checked to a greater or lesser extent. However, despite all precautions, hidden defects may appear after the transaction. These can cause significant costs, disappointment, and disputes. In this article, we will explore what hidden defects are, how to detect them, what rights the buyer has, and what options there are to protect yourself against hidden defects.

What are hidden defects?

According to Supreme Court practice, hidden defects are non-conformities with the terms of the contract that the buyer could not have discovered through the diligence expected from them by generally inspecting the property externally. Hidden defects in real estate are flaws that were not visible or known to the buyer at the time of purchase and could not reasonably have been discovered during a normal inspection. Hidden defects may be structural, technical, legal, or related to the use of the property.

Examples of hidden defects include:

• moisture damage inside walls or under the floor;
• mold or fungal damage in the building structure;
• faulty electrical or plumbing systems;
• illegal renovations;
• foundation problems;
• noisy and problematic neighbors.

Hidden defects generally do not include those flaws that are easily visible or result from normal wear and tear – such as peeling paint, scratched floors, or outdated kitchen furniture.

Legal framework in Estonia

The Estonian Law of Obligations Act sets out the general rule that the item delivered to the buyer must conform to the contract, particularly in terms of quantity, quality, type, description, and packaging. The documents accompanying the item must also conform to the contract. An item does not conform, for example, if it lacks agreed properties or, in the absence of such agreement, is unsuitable for the purposes for which such items are normally used. Additionally, a used item must meet the ordinary requirements for used items, i.e., average quality.

It is important to note the Supreme Court’s position that if the object of sale is a house that has been used as a dwelling for decades, then it is not correct to assess its conformity by applying modern building standards, conditions, or other Supreme Court case law on new buildings. Instead, its conformity must be assessed based on the typical condition of houses of similar age and purpose. If the condition of the house is worse than what the buyer could reasonably expect given its age, use, and actual prior usage, it constitutes non-conformity with the contract.

If the item does not conform to the contract (e.g., it has hidden defects), the seller is liable for such non-conformity if it existed at the time the risk of accidental loss or damage passed to the buyer, even if it becomes apparent later. In such a case, the buyer may choose between different legal remedies. The buyer has the right, for example, to demand the defect be remedied, claim damages and/or expenses, reduce the price, or in certain cases withdraw from the contract.

It is important to know that the buyer must notify the seller of a hidden defect within a reasonable time after discovering it. In practice, this usually means within a few months. To avoid later disputes, the notification should be in a form that allows for written reproduction (e.g., email).

How to protect yourself against hidden defects?

1. Professional inspection
   
   Before making a purchase, it is advisable to order an expert assessment of the property’s condition. A construction expert or certified appraiser can identify signs that may indicate problems and hidden damage.
    
2. Legal advice
   
   Before signing a notarized sales contract, it is recommended to consult a specialized lawyer, regardless of whether you are the seller or the buyer. For sellers, a lawyer helps assess the situation, identify risks, and minimize possible liability. For buyers, a lawyer helps clarify the situation, assess risks, and explain the seller’s liability. Often, people are reluctant to incur the additional cost of legal advice. However, considering the value of the property, potential costs in case of a dispute, and the stress involved, legal advice is highly recommended. Our attorneys at Lepmets & Nõges Law Office will gladly help you.
    
3. Notarial contract terms
   
   The sales contract may include clauses that either extend or limit liability. Contract terms tailored to the situation can be very helpful in the event of a dispute.
    

What to do if you purchased a property and discover a possible hidden defect?

1. Document the possible defect and gather evidence
   
   Take photos and videos of the situation. It is important to act quickly and gather evidence immediately. Then contact a specialized lawyer and discuss the situation. If you conclude that an expert opinion on the condition of the property and/or defect identification is needed, arrange for it.
    
2. Notify the seller
   
   The seller must be notified within a few months of discovering the possible defect. If you have commissioned an expert assessment that takes longer than expected, inform the seller that you have discovered a possible defect and sought an expert opinion. Also state that you want the defect remedied.
    
3. Collect cost estimates for remedying the defect
   
   Discuss the situation with the seller to try to resolve it by agreement. Keep in mind that a settlement is a mutual compromise, not blind acceptance of one party’s demands.
   
    
4. If no agreement is reached, consider filing a lawsuit
   
   If the conditions are met, the buyer may choose to reduce the price, demand contract performance, claim damages and/or expenses, or withdraw from the contract. Note that litigation generally lasts for years and entails costs. As a general rule, the losing party bears the costs.
    

Conclusion

Hidden defects in real estate can cause significant problems and costs. Although the law provides protection for buyers, the best approach is prevention through careful inspection and properly drafted contracts. The seller must disclose all known circumstances honestly. When necessary, experts should be involved, and the transaction should not be rushed. If a problem arises, it is important to remain calm, gather evidence, and seek resolution through legal remedies. Our attorneys at Lepmets & Nõges Law Office will gladly help you.