If a Building Permit is Not Closed – The Sale May not be Final

What does an Open Building Permit Mean for your Real Estate Transaction?

An open municipal building permit (where the city has not done a final inspection and closed the file) may be a serious title defect, and allow a purchaser to back out of a real estate transaction. 

Building Permit

A June of 2013 decision Ontario Superior Court of Canada, 1854822 Ontario Ltd. v. The Estate of Manuel Martins, 2013 ONSC 4310 highlights this issue.  In this case, 1854822 Ontario Ltd. signed an Agreement of Purchase and Sale to purchase a home from the Estate of Manuel Martins. 

Prior to closing the buyer’s lawyer discovered an open building permit for work on the property’s rundown garage. The buyer’s lawyer requested that the permit to be cleared by a city inspector prior to closing. The garage on the property had to be demolished and rebuilt at a cost of approximately $110,000.  The purchaser knew of  the condition of the garage when the agreement of purchase and sale was signed

The seller’s lawyer replied that an open building permit was not a valid title objection and said that although the permit was issued, no work was ever done and the permit did not force the buyer to perform any work.

The issue in this case was whether an open building permit, which has not been acted upon, affects title.  Justice Wilson held that an open building permit creates potential risk and exposure:

 “it is not clear that the permit can be closed quickly and easily; it is not clear what type of work needs to be done to satisfy the City that it is appropriate to close the permit; if demolition and construction is required, it is not clear what needs to be undertaken and its cost; and it is not clear whether the City will be satisfied by the work proposed or completed to make the changes or whether a work order will be issued.”

Further, Justice Wilson concluded that the open building permit creates a risk of litigation, and is not a minor defect, but rather it goes to the root of title and constitutes a valid objection to title, and the buyer is not obliged to close. 

Does an open building permit facilitate a potential “out” for buyers?

An open building permit does not have to signal the end of a deal as evidenced in the March 2013 decision in Thomas v. Carreno, 2013 ONSC 1495.  In this case, Ms. Thomas signed an agreement to purchase a house in Toronto from Ms. Carreno and Mr. Jennings.

Prior to closing, Thomas discovered that there was an open building permit for construction on the property that took place in 2007. Her lawyer wrote to the sellers’ lawyer requesting a final building inspection by the city of Toronto so that the outstanding permit file could be closed.

Acting under the terms of the purchase contract, the sellers’ lawyer arranged for a title insurance policy and a $100,000 holdback of funds to be used to repair any problems so that the deal could close.

While in this case, the deal did not close, the issue for the Court was whether the existence of the open building permit placed the sellers in default, and if so, did the fact they arranged title insurance for the buyer remedy that default?

In the end, the court ruled that the buyer was not entitled to kill the transaction once the seller had arranged for title insurance and a holdback of funds.

Hiring a real estate lawyer that will protect your rights is vital.  Contact Us to ensure your rights are protected. 

Why You Should Hire a Home Inspector

Think Twice Before Making an  Unconditional Offer

So you found the perfect home.  Even if this property has stolen your heart, it is important to have a home inspector examine the home to know just what you are purchasing, and that there are no unwelcome surprises.

In today’s market, many purchasers are getting caught up in the bidding wars, and pressures to make a “clean” offer.  In other words, they are not placing any conditions on their offer and waiving their right to have a home inspector examine the home.

Some vendors have already gone through the expense of a home inspection in order to attract clean offers.  I recommend that you read inspection report carefully, and make sure to ask questions of the sellers if you uncover any issues.  Of course, you can still make the offer conditional on your own inspection, if you feel that you want another opinion. Keep in mind that not all home inspectors are created equal.  If there is something that troubles you, or that is of particular concern, you may want to arrange your own home inspection. 

Why You Should Hire a Home Inspector

You might know a thing or two about home remodeling and repairs. You may be an HDTV addict, and think you would spot any potential problems.  However, unless you are not experts on the inner workings of a home, you should hire a home inspector to search for potential furnace issues, electrical wiring mishaps, plumbing weaknesses or roofing deterioration to name a few.Home Inspector

While the property might look like it’s in perfect condition on the surface, there could be major issues that you have missed. In addition, hiring a home inspector helps you budget for future repairs, or may allow you to reduce the purchase price if the inspection reveals defects.  This is why it is important for your safety, and for your budget, to hire a home inspector to scrutinize the bones of your home.

When to Schedule the Home Inspection

It’s important to make the purchase conditional on a home inspection.  There will be a date by which you have to wave all conditions in the Agreement of Purchase and Sale.  Make sure you schedule a home inspection before this period has ended.   Even though you’ve signed the offer, an inspector could just find something that you just cannot live with or afford to fix.

Even if you think you know a lot about the structure, plumbing and wiring of houses, don’t let this stop you from getting a second opinion.  Sometimes emotions get the best of us, and it is possible to miss something. You’d hate to end up with a home that needs major renovations that you would have known about had you hired a home inspector.

If you are worried that you will not get the property if you do not make a “clean offer”,  there is another option.  You can have the home inspection completed prior to making the offer.  With permission of the vendor of course.   The risk is that your offer is not accepted, and the price of the inspection was for nothing.  However, it could also save you from costly surprises in the future.

Note: It is important to remember that a home inspector can only provide valuable insight in regards to visible defects in the property.  They cannot see behind walls.  If there are any issues that are not visible without tearing down walls or looking under the floors, they will not be in the home inspector’s report.  This is why it is important to ask questions of the seller and his/her agent.

 Click Here for more information about what must be disclosed to a potential purchaser.

 Contact Us to ensure your rights are protected. 

What must be disclosed to potential purchasers? Patent Defect and Latent Defect

We have all head the story of someone who purchased a house, only to have extensive renovation bills due to basement flooding shortly after closing.  The question that is often asked is what must be disclosed to a potential purchaser? 

What Information Must a Seller Disclose?

The courts have determined that what a vendor must disclose is determined on whether the information is patent (obvious) or latent (hidden). 

Patent v. Latent Defects:patent defect or latent defect

There are two categories of defects.  Patent Defect and Latent Defect. 

A Patent Defect, is an obvious flaw, that would be discovered by a superficial inspection of the property by an ordinary purchaser, for example, a hole in the wall, or a crack on the side of the home.  It is assumed that a potential buyer can observe this defect and raise any concerns as they see fit. 

The general principle here is caveat emptor, or “buyer beware.” This means that as a purchaser, if the problem would have been revealed by an inspection, (either by yourself or a licensed inspector) it is your obligating as a purchaser uncover the defect.  A seller has no obligation to advise a potential purchaser of patent defects. 

A Latent  Defect is one that is not known to either the seller or purchaser at the time of sale.  Sellers do not generally have to voluntarily disclose most latent defects, the Courts have found an obligation on sellers to disclose material latent defects of which they are aware.  Particularly those that pose a serious health or safety risk, for example, mould.  . 

A seller is not liable for any defect that they had no knowledge of. 

Sellers can be liable for misrepresenting the property, which would include lying when specifically asked about something or actively concealing known defects. 

What if the property is stigmatized, for example, if a murder or suicide had taken place in the basement of the property?  The sellers have no obligation to volunteer this information.  However, if asked directly, they are required to be honest. 

What Information Must the Seller’s Agent Disclose?

Disclosing defects is a more difficult issue for real estate agents since they are bound by their Code of Ethics. 

Real Estate agents are not permitted to knowingly make inaccurate representations of any property, nor shall they be party to any agreement to conceal facts pertaining to a property. 

Therefore, if they are aware of any defects of a property, they have an obligation to advise potential purchasers, if they are asked.  This is an important distinction.  Generally speaking,

 An Ontario Court of Appeal Decision looked at the liability of Real Estate Agents in Krawchuck v. Scherbak et al. 2011 ONCA 352.  The agent was aware that the home had plumbing issues and settling problems dating back some seventeen years.  The vendor failed to disclose these issues in the Property Seller Information Statement, and, the agent, having knowledge, failed to make the purchaser aware of the defects prior to the sale.  The Court in this case found that the real estate agent’s lack of diligence in reconciling the misleading statements in the Property Seller Information Statement amounted to Negligence.  The real estate agent was found to be 50% at fault for failing to warn the vendors of the implications of false statements, and failing to bring these issues to the attention of the purchaser. 

Note:  Property Seller Information Statements are not mandatory in Ontario.  However, as a purchaser, this form is beneficial if after the deal closes, issues arise with the property. 

As a purchaser, ask questions AND get a home inspection to protect yourself as much as possible from any unwelcome surprises.  Remember, if it is not in writing it does not exist.

Contact Us to discuss how you can protect yourself when purchasing or selling real estate. 

 

Ontario Consumer Minister proposes increased transparency in the real estate bidding process

We are all familiar with the scenario of someone coming in to make an offer on a property, and suddenly, there is another “better” offer.

Ontario’s consumer services minister’s is considering increasing the transparency of the bidding process by eliminating “phantom bids”

A recent Toronto Star Article called Ontario moves to protect consumer in real estate deals , written by Susan Pigg discusses a scenario where last year a purchaser bid $90,000 over asking on an almost million dollar home, under the impression that there were other offers on the table.  When the agent later found out they were the only offer, the sellers agreed to accept $45,000 instead.

Scenarios such as these are not an anomaly.  It is all too easy to fall victim to the pressures of a bidding war when finding your “perfect property”.

The old adage caveat emptor or buyer beware is still the law of the land.  Exercise caution when you are told of sudden interest in a property.  Especially when it has sat on the market for some time.

It’s about time that consumers are protected from misleading and deceptive practices.

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