Real Estate transactions can be a stressful process for both purchasers and sellers of real property. One issue that can be easily overlooked during a real estate transaction that has serious ramifications is if a seller has an Open Building permit on their property.

What is a Building Permit?

A building permit is required when you wish to construct, renovate, demolish or change the use of a building. Building permits are issued by the body responsible for enforcing Ontario’s Building Code in your area, which is typically the municipality where the property is located. Some examples of the type of work that requires a building permit can be found here.

Building permits are issued to ensure that the project complies with the building code, local zoning bylaws, planning controls on buildings and other applicable legislation including conservation authority and certain requirements under the Environmental Protection Act.

Once a Building Permit is obtained, the proposed work can begin. The Building Code sets out stages of construction when different types of buildings must undergo mandatory inspections. It is the responsibility of the permit holder to contact the municipality for any and all inspections. When the work is completed, a final inspection will be conducted to ensure that the work was completed in accordance with the Building Code Act. This final inspection closes the building permit. If the project is not completed and there has been no final inspection, the building permit remains open.

Judicial Interpretation

If an open building permit exists on a property during a real estate transaction, there may be significant issues if the permit is not closed by the completion date of the sale. From the perspective of a purchaser, it is important that any property you acquire has good title. Good title is one which is free from litigation, palpable defects and grave doubts and couples a certainty of peaceful possession with a certainty that no flaw will appear to disturb its market value (Holmes v Graham).

Open building permits, while not specifically a title issue, can be considered a title issue if the requisition included in the Agreement of Purchase and Sale goes to the “root of title”.

Thomas v. Carreno provides significant insight into how the court approaches the issue of open building permits. In this case, the Purchaser’s solicitor discovered an open building permit roughly 2-3 weeks before closing. A requisition letter was sent advising the Vendor’s solicitor that the permit had to be signed off before closing. The requisition was not satisfied, and the Purchaser refused to close. The Vendors argued that they were able to close as they secured title insurance and were willing to have a substantial holdback while the permit remained outstanding.  The purchaser instead demanded a return of the deposit and $3,100 in wasted expenses. Litigation resulted as the Vendor claimed that they were willing to close. Justice Lederman found that the encumbrances associated with open building permits can be considered a cloud on title. However, he also held that the actions taken by the Vendor to counter this issue by obtaining title insurance was sufficient to have the deal close.

Another significant case on the issue of open building permits is 1854822 Ontario Ltd. v. Martins Estate. In this case the Vendor was completing work on the Garage of the Property. The purchaser was fully aware of the work being done but not of the open building permit. A requisition was made with regard to the garage on the subject property by the Purchaser. The Vendor argued that it was not a valid requisition on the grounds that the open building permit was a minor defect. Justice Wilson in this case held that the requisition was valid as the building permit went to the root of title. This decision was largely grounded in the facts of the case as the open building permit presented a risk of future litigation and the purchaser’s right to enjoyment of the property.  

More recently in MacDonald v Chicago Title Insurance Company of Canada, Justice Hourigan interpreted a title insurance policy which provided coverage related to work orders, defects, liens and so on. The issue facing the court was whether the defects faced by the property owner had rendered the title unmarketable in accordance with the title insurance policy. Justice Hourigan held that the open building permit did make the title unmarketable within the meaning of the title insurance policy. 

Conclusion

The Case Law signifies the court’s willingness to accept the serious implications associated with open building permits. The court takes a holistic approach in assessing the factual scenario and whether the open building permit will significantly impact the purchaser’s title rights.

As a purchaser buying property, it is important to have your solicitors check to make sure there are no outstanding building permits on the property and if there are to have a requisition made that the permits be closed. Purchasers must be wary of any construction done on the property as the construction may have required a permit, but no permit was obtained. This further complicates the issue as it is uncertain if the changes were made in accordance with the Building Code Act.

If you would like more information regarding the purchase and sale of real estate or would like legal advice to ensure you are in compliance with all building permits, please contact experienced Real Estate lawyer Paria Rad, Woitzik Polsinelli LLP at 905-668-4486 ext. 230 or paria@durhamlawyer.ca.

This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs

This blog was co-authored by Summer Law Student, Jason Corry.