Law Times

Page 10 FOCUS January 13, 2014 Law Times • Cases serve as reminder about zoning pitfalls BY CHARLOTTE SANTRY Law Times G Your source for new issues and emerging law New editioN the CoNdomiNium ACt: A user's mANuAl, 4th editioN Audrey Loeb, LSM, b.A., LL.b., LL.M. Well-known condominium authority Audrey Loeb brings you up to date on all of the opportunities and challenges of the Condominium Act, 1998 – as well as other complex issues arising in condominium law. Written for lawyers, property managers, boards of directors and unit owners alike, the Condominium Act: A user's manual, 4th edition is the most convenient and accessible source of answers to the questions that arise on a daily basis. whAt's New iN this editioN • extensive updates to case law and commentary for the Condominium Act, 1998 • New case law for the Ontario New Home Warranties Plan Act and expanded commentary to reflect changes to the delayed occupancy provisions in o. reg. 165/08 • updated 2012 Tarion Addenda for delayed occupancy to be included in all purchase agreements: Firm occupancy date and Tentative occupancy date • Includes all legislative amendments to the Condominium Act, 1998 and regulations, and the Ontario New Home Warranties Plan Act and regulations since the last edition order # 985536-65203 $101 Softcover approx. 800 pages November 2013 978-0-7798-5536-0 Shipping and handling are extra. Price subject to change without notice and subject to applicable taxes. available risk-free for 30 daYs Order online at www.carswell.com Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 rand plans to relocate or expand a business in Canada can grind to a halt if real estate transactions hit unexpected zoning obstacles. In a case that could reach the Supreme Court of Canada, a company spent $14.7 million on land to build a big-box department store and residential properties but was thwarted by planning rules. The vendor in 0759594 B.C. Ltd. v. 568295 B.C. Ltd. had reduced the sale price by $2 million as it wanted to buy back part of the land after two years. Under the deal, the buy-back would go ahead only if the city of Salmon Arm, B.C., agreed to rezone the land for commercial and residential use. The purchase and sale closed on Oct. 15, 2007. Some of the land was within a flood plain and was crossed by the Salmon River. The authorities ruled a third of the land couldn't be developed due to restrictions under the riparian areas regulation. There was also strong local opposition to the development of a large department store in the area, and the Salmon Arm planning department said rezoning would be deferred pending the development of other areas in the municipality. When the property wasn't rezoned within two years, the vendor demanded repayment of the outstanding $2 million and, on April 14, 2010, sued the buyer. The buyer launched a counterclaim for $3.3 million, arguing the vendor had overstated the possibility of gaining approval for the rezoning. It highlighted an e-mail sent from the vendor stating: ". . . In preliminary meetings with the Salmon Arm Planning Department, [the vendor] has received full support and approval in principle with having the lands rezoned for commercial/residential use." The agreement between the parties had contained a warranty that the vendor had disclosed "all material facts" to the buyer. However, the trial judge held that the vendor had not been aware of the limitations on development of the property, or the strong local opposition to the development of a big box store. The statement of approval in principle wasn't material, he ruled. The court also held it would be "extraordinary" for a party to warrant that it had disclosed all material facts — even those outside its knowledge — and concluded the warranty provision was "ambiguous." Judgment was awarded to the vendor, and the buyer's counterclaim was dismissed. But this wasn't the end of the story as the buyer then successfully appealed the decision. In a British Columbia Court of Appeal decision on Aug. 28, 2013, Justice Edward Chiasson concluded: "The warranty provision was not ambiguous." The vendor's claim that the planning department had given "full support" to the rezoning wasn't correct, he stated. Chiasson added: "I do not suggest dishonesty on the part of the vendor. In my view, the vendor must have misinterpreted the position of the planning department." The case demonstrates the roller-coaster momentum that zoning issues can lend to real estate transactions. George Cadman, a litigator specializing in corporate/commercial, securities, and real estate disputes at Vancouver firm Boughton Law Corp., represented the vendor. He has submitted an application for leave to appeal to the Supreme Court of Canada. The case "poses substantial issues for real estate professionals and for counsel advising others," he says. He adds: "The question really is how does this decision potentially alter the law of caveat emptor [buyer beware]? Wherever we go across the country, what we find is that, in essence, buyers bear the burden of ensuring that the property they want to acquire is [actually] what they want to acquire." The decision is good news for buyers, but not sellers, of commercial property, he believes. What's his take away for counsel involved in buying or selling commercial properties? "I would recommend they look very closely at the warranty language and at due diligence provisions." Jason Park, a partner with Dentons Canada LLP's municipal and property development group, says the first thing to check when buying commercial real estate in Canada is that the existing uses of the site are legal and conform with zoning rules. If prospective buyers want to do something with the site that doesn't comply with current zoning rules, they can apply for rezoning or a minor variance approval. This could be relatively simple. For example, a minor variance could be completed within three to six months. However, a full rezoning might take between nine and 12 months and can be a "very public process," says Park. The risk of failing to check whether the current use of the land complies with zoning rules is illustrated in an Ontario Court of Appeal decision from May 15, 2013. In Lee v. 1435375 Ontario Ltd., the vendor and purchaser entered into an agreement for purchase and sale of the vendor's dry-cleaning business. The agreement stated the parties should seek independent advice regarding zoning changes. The vendor didn't realize that, under a bylaw amendment, the zoning had been changed two years beforehand to mixed-use commercial, which didn't list a dry cleaning facility as a "permitted use." Justice George Strathy's decision said: "There was no evidence of any communications between the parties, either during the negotiation of the agreement, or prior to closing, concerning the zoning of the premises. "The parties admitted that they never turned their minds to the possibility that there was a zoning issue." After the execution of the purchase documents and delivery of funds, the buyer's lawyer learned of the zoning change. The buyer said the transaction hadn't closed, and See Buyer, page 11 www.lawtimesnews.com

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