What is a building permit?

Whenever you are constructing, demolishing, or renovating your property, you need a building permit from the municipality, which is in charge of the Building Code in that jurisdiction. The work being done must follow the building code and adhere to the zoning bylaws, environmental legislation, and planning controls. Inspections will be conducted by the municipality at different stages to ensure that the work complies with the Building Code. The permit holder must coordinate with the municipality to facilitate these inspections and remediate wherever required, and only after the final inspection will the permit be closed. If the work is incomplete or the final inspection was never conducted, the permit stays open.

What is the root of the title?

The root of the title refers to the “good and sufficient chain of title,” attributing the ownership to the property. To satisfy the requirements of being a good root of title under law, it must meet the following criteria:

• It must clearly demonstrate the ownership or equity of the property.
• There should be a proper description to identify the property.
• There should not be anything that can be deemed a defect in the title.

The background of the case:

On October 18, 2019, the Purchase and Sale Agreement (APS) was signed between the seller, EPRF Holdings Limited, and the buyer, Fergus Bloor Inc., for a two-storey Real Estate Lawyer for the total purchase amount of $7 million, and a $350,000 deposit was paid for the same. The closing date for the real estate transaction was set at April 1, 2020. It is worth noting here that the APS executed between the parties followed the standard format and included the clause for holding the seller responsible for remedying any valid objections to the title, any deficiency notices, or work orders. In the event that the seller failed to meet these requirements, the buyer had the right to terminate the agreement and demand the return of the deposit amount.

Further to this, as the real estate lawyer for Fergus Bloor Inc. was doing a title search as part of the due diligence for the property, he came across two open building permits, 11129871 and 10125752, on it. On March 17, 2020, Fergus requisitioned EPRF to clear these open permits before the closing. On March 18, 2020, EPRF informed the buyer that both the open permits had been cleared, and they could verify the same with the office of the City of Toronto inspector. Meanwhile, the buyer reached out to the seller on March 27, 2020, requesting an extension until August 21, 2020, citing the effects of the COVID-19 pandemic. This request was rejected by the seller.

With the closing date just around the corner, Fergus informed EPRF on March 31, 2020, that on the City of Toronto website, the open building permit was still shown as outstanding. EPRF replied on the same day that the said permit was not related to their property, and it was an error committed by the City of Toronto administration. On the day of closing, the buyer maintained the position that with these unresolved issues, it was not possible for them to move forward with the transaction, and they were unable to secure title insurance against the outstanding permit. The agreement thus stood terminated. In fact, within a few days of the deal falling through, the City of Toronto removed the open building permit from their website on April 6, 2020. Soon after this, EPRF sued Fergus for breaching the agreement, for the right to retain the $350,000 deposit, and for a further $100,000 towards damages.

Why did the Court rule in favour of Fergus Bloor Inc.?

EPRF Holdings lost the case in the trial court and subsequently appealed the judgment in the Ontario Court of Appeal. The appeals court also agreed with the trial court’s judgment in favour of the respondent. In the trial court proceedings, ERPF submitted the following facts concerning the case before the court:

• The open building permit was for the subway station across from the commercial building.
• The City of Toronto made the error in filing it against their two-storey commercial building.
• The soon-to-be-deleted permit did not affect the property at all.
• It should not be considered a title defect and does not affect the title of the property in any way.
• The wrongly assigned permit was irrelevant to the real estate transaction in question.
• There was no risk of any future litigation from this open building permit.
• The city administration had assured them that it would be deleted from the site soon.
• The buyer had used this as an excuse to get out of their contractual obligations and to recover their deposit amount.

However, the trial court, in its judgment, observed that:

• While the seller confirmed to the buyer that there were two outstanding permits against the property and that they were both closed, the buyer found out that one of them remained open and active.
• After the seller had requested the city to remove both outstanding permits, they removed only one of them and retained the other on their website. This signalled to the buyer that there might be some unresolved issues regarding the property.
• Since these permits had been active since 2011, the buyer felt that they were not likely to be closed anytime soon. The buyer felt that this would jeopardize their plans to sell or lease the property in the future.
• The buyer understood that if the city administration refused to remove the disputed permit, they would have to file a lawsuit against the city.
• While the seller claimed that it was a minor and easily resolvable issue, they failed to get the City to remove the permit, even one month after their initial request.
• The buyer wanted to avoid any potential future litigations arising from unresolved issues.

By dismissing the appeal, the Ontario Court of Appeal has confirmed that an open building permit is indeed a valid reason for terminating the agreement. The seller could have extended the agreement and offered title insurance to the buyer if they were sure that the disputed permit would be deleted by the city without legal action. As of now, EPRF Holdings is moving forward with the litigation, and they have already started the appeal proceedings with the Supreme Court of copyright. Until the Supreme Court issues the ruling, the precedent set by this Ontario Court of Appeal judgment stands.

How can our real estate lawyer help you in such cases?

This ruling clearly demonstrates the importance of due diligence before closing in a real estate transaction. If you are planning to buy or sell a real estate property, you need to get tailored legal guidance from our experienced real estate lawyers to protect your investment. Our knowledgeable real estate lawyers will conduct proper due diligence of the property, including compliance with the zoning bylaws, checking the environmental site assessments, and a thorough title search to ensure there are no title defects associated with it. Protect your real estate investment today by reaching out to our legal team at 905-405-0199 for a quote.