Buying a Property with an Open Building Permit

Homeowners are required to obtain building permits to complete construction/renovation work on their property. The requirement to apply for and obtain a build permit includes where demolitions, additions, structural or other mechanical modifications (i.e., plumbing, electrical, HVAC system) are made. The purpose of the building permit is to ensure all renovation work complies with municipal by-laws and the Building Code. The process for obtaining a building permit involves, typically using a draftsmen or engineer to submit draft plans for approval to the City, completing the work, and eventually receiving a final inspection to ensure the work has complied with the building permit, at which time the permit will be closed.

What Happens If I Buy A Property With An Open Work Permit?

As noted a building permit provides permission to the homeowner to complete construction work in accordance with an approved set of drawings. With an open permit, a purchaser of a house will not know how much of the work has completed or whether it was completed in accordance with by-laws. The consequence is that municipal inspectors could issue work orders to remedy deficiencies at the property, which would be costly to a buyer. In the case of 1854822 Ontario Ltd. v The Estate of Manuel Martins, the purchasers’ real estate lawyer discovered an open building permit for work on a dilapidated garage on the property. The garage had to be demolished and rebuilt at an estimated cost of $110,000.00. This case provides an example of how open building permits can pose a serious financial risk and lead to litigation.

In the standard OREA Agreement of Purchase and Sale (“APS”), the purchaser of the property has the right to conduct various searches and “requisitions” on title, to identify and deficiencies or work orders on title. The purchaser will then request that the vendor rectifies the issue prior to closing. The standard form APS does not address the searching of open building permits and whether they would be considered a defect of title which would permit the purchaser from rescinding the APS. However, recent Court cases have held that an open building permit went to the “root of title.” In the 2013 Ontario Superior Court decision in Martins, the purchaser was aware of the condition of the garage prior to executing the APS, he was not aware of the existing open building permit relating to the garage. Significant amount of work was required to close the permit. The open building permit was found to not be a minor defect but rather went to the root of title and impacted the purchasers right to enjoyment of the property. Although no work order was issued by the City, the mere existence of a building permit could have a significant impact on the purchaser.

Conclusion

Whether a purchaser would be able to rescind an APS or otherwise claim damages from a vendor due to an issue related to an open permit depends on the facts of each case and the extent of the “title defect.” Title insurance should be obtained to cover issues related to open building permits on the property. The takeaway, in particular from the case law in the area, is that courts will analyze the materiality of the defect caused by the open building permit to determine whether the purchaser received what it had ultimately bargained for, as a matter of the law of contract. Open building permits, when their status is unknown, can lead to significant risk, including undesired litigation.