Law Times

Page 12 June 9, 2014 • Law Times www.lawtimesnews.com Building permits a significant pitfall Ontario cases show need to deal with issues in advance By marg. Bruineman For Law Times he status of a residen- tial real estate deal could be on the line when there's an open building permit for the home at city hall. Ontario courts have dealt with the issue in the past year in cases highlighting the need for sellers to ensure they've completed any outstanding work and have taken care of any building-permit issues. Failing to do so can allow a subsequent buyer to back out of the deal. Sellers can avoid problems during a transaction if they deal with any open building per- mits through, for example, the purchase agreement or a seller property information state- ment, according to Matt Mau- rer. "If the real estate agent could put in a simple clause . . . this would have been dealt with well in advance," says Maurer, a com- mercial litigator with Minden Gross LLP in Toronto. "Things could be structured leading up to the closing to avoid going to court." In 1854822 Ontario Ltd. v. The Estate of Manuel Martins, the buyer knew the garage was in poor condition, but it was only after executing the pur- chase and sale agreement that the purchaser's counsel discov- ered an active building permit for proposed work on it. The buyer wanted the permit cleared by the inspector prior to closing. But the seller, the es- tate of Manuel Martins, denied the request and later argued a building permit wasn't a work order or a notice of violation. The judge, however, didn't see it that way. "The existence of an open building permit which enables the city to inspect premises and make work orders does make a difference to the purchaser," Jus- tice Darla Wilson of the Ontario Superior Court of Justice deter- mined, adding that the $110,000 cost to tear down and replace the garage wasn't insignificant. "Clearly, an inspector has the authority under the Build- ing Code Act to make an order that certain work be undertaken immediately to bring the ga- rage into compliance with the code." Wilson found the open building permit created po- tential risk and exposure to the buyer and constituted a valid objection to title. Wilson relied upon Thom- as v. Carreno, a case involv- ing an agreement of purchase and sale of a property with an open building permit for construction. In that case, construction was complete and title insurance was avail- able, but the issue was also whether an open building permit constituted a valid objection to title. Justice Sidney Leder- man of the Ontario Superior Court of Justice found the permit related to a fairly sub- stantial renovation. While it was complete, there was still a risk the city could impose oner- ous work orders as a result of the open permit. "The possibility of a work order is always there if there is an inspection, but such a pos- sibility is not a title defect," says lawyer Lisa Laredo. "The court here has raised the possibility of a work order into a title defect where a building per- mit has increased the likelihood of an inspection. The greater likelihood of a work order, given the existence of an outstanding building permit, is such that it constitutes an impairment to the peaceful use by the buyer of her property and therefore con- stitutes a defect in title." She notes it may be possible to argue the building permit isn't a title matter and the defect is a contractual issue in that there's an inability to continue with use in an unhindered manner. Karina Frost sees the po- tential for the issue to widen in scope given the increasing de- sire of homeowners to renovate older homes instead of relocat- ing, particularly in expensive real estate markets like the Greater Toronto Area. The two cases also highlight the need to address and look for open building permits in residential real estate transactions prior to closing. "An open building permit al- lows the city to inspect the prog- ress and make work orders. The city may force a homeowner to remove walls, ceilings, cabinets or other finishes so that an in- spector can determine if the work complies with the build- ing code or, in the worst-case scenario, remove the renova- tions completely," says Frost of Frost Law PC, a boutique law firm concentrating on residen- tial real estate. "It's one of those things that people don't think about." The fact that title insurance wasn't available in the transac- tion involving the dilapidated garage allowed the purchaser to walk away from the deal. In the situation of the renovated home, because title insurance was available, the purchaser couldn't terminate the transaction de- spite the open building permit. The distinction is that in the case of the renovated home, insurance protecting against any consequences caused by an open building permit was an option. LT FOCUS REACH ONE OF THE LARGEST LEGAL AND BUSINESS MARKETS IN CANADA! AVAILABLE ONLINE AND IN PRINT With more than 264,000 page views and 60,000 unique visitors monthly canadianlawlist.com captures your market. FOR MORE INFORMATION CONTACT Colleen Austin T: 416.649.9327 | E: colleen.austin@thomsonreuters.com www.canadianlawlist.com Get noticed by the lawyers, judges, corporate counsel, finance professionals and other blue chip cilents and prospects who find the contacts they need for Canadian legal expertise at canadianlawlist.com with an annual Gold or Silver Enhanced listing package. ENCHANCE YOUR LISTING TODAY! 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Practical coverage of the principles of liability connected to contaminated real estate T 'A simple clause' dealing with any building permits can help avoid legal problems later on, says Matt Maurer.

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