How to make a Notice of Defect in Trade of Real Estate

Provisions concerning the trade of real estate and possible cases of defects in properties are found in the Code of Real Estate. There are also provisions concerning the time limit of giving a notice of defect. The buyer is not entitled to invoke a defect if they do not notify the seller of the defect and adjoining claims within a reasonable time after discovering the defect or being able to find out of it in bona fide. In addition, the buyer forfeits the right to invoke a defect if they do not give a notice of defect to the seller within 5 years after the

the possession of the property Is transferred to the buyer. The seller however shall be regarded being liable of the defect even if the aforementioned time limit for notice has passed, should they have acted in bad faith (mala fides) or in gross negligence.

Time Limit for Notice of Defect

The provisions concerning the time limit of notice of defect are aimed at resolving disputes quickly. The time limit has been decreed to safeguard the seller. If the buyer wishes to invoke a defect they cannot wait indefinitely. As to material defects, the five-year deadline safeguards the seller from unexpected claims that are made only after several years since the closing of the transaction. It is justifiable that after a certain amount of time has passed the liability of defects is transferred to the buyer for good, even if material defects (defects in quality) can be discovered over a long period of time. The reasonable time limit, when concerning the buyer, includes the ability to inspect the property, discover any possible defects and get a professional to inspect the property if needed. A notice of defect must include both the description of the defect(s) as well as any claims the buyer wishes to make. For example, when determining the cost of repairs professionals might be needed to provide expertise and this usually takes some time. The time limit as set in the Act begins when the buyer should have been able to discover the defect and understand its relevancy. The reasonable time as set in the Act is quite broad a definition does not provide much insight nor does it give a single solution when a notice of defects has been given on time. The question about reasonable price must be answered discreetly on a case-by-case basis. Customary law as set in the precedents by the Supreme Court of Finland prescribes that the quality, scope and other circumstances all affect what is considered a reasonable time to report a defect. This time is longer if the discovery of the defect requires some special measures to be taken by the buyer.

Right to Invoke a Defect

The time limit to file notice begins at the moment when the buyer discovers a defect or should have discovered it. If the buyer has acted in negligence when inspecting the property after the closing of the transaction they might lose their right to invoke a defect. A property is an expensive investment, thus the buyer is required to inspect it carefully. If the defect is such that the buyer should have been able to discover it right away the buyer might lose their right to invoke it if they report it only after a year after closing the deal. A matter of significance is to ask when the buyer should have discovered a certain defect. The buyer is nevertheless entitled to invoke a defect if the seller has not acted in good faith. This may include e.g. not disclosing information concerning the property or concealing its defects or disclosing false information on purpose. In these kinds of cases the seller does not require protections from even late notices of defects, because the seller did not act in good faith. A claim is not unexpected to the seller. On the other hand it would be unreasonable to the buyer if they could not claim a defect of which the seller at least partially was aware. Acting in bad faith, however, is rather rare in contractual relationships.

Generally, a reasonable time to file a notice and claim is regarded being a few months. Four to seven month period until a notice is filed have been considered being borderline cases and notices filed later than this are often overdue. On the other hand a long time to file a notice may be acceptable if examination of the defect consumes a lot of time. When assessing reasonable time, all affecting facts must be taken in consideration as every case is different. Due to the inaccuracy of the idea of reasonable time, the seller usually claims that the notice is overdue to be on the safe side. Another thing to be noted is that the law requires that claims are filed along with a notice. Thus, it is not enough that the buyer files a notice of a defect; they must also claim reduction of price, voiding the contract or damages.

English translation by Lasse Jelekäinen

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