Taking the Bite Out of Zoning

Post by: Evan Holt199

A property is often acquired for the purpose of continuing the existing use of the property, redeveloping an existing building(s) for a new purpose or developing a vacant site. In any of these cases, it is prudent to make the agreement of purchase and sale conditional on confirming the property zoning permits the existing or proposed use. It is also prudent to obtain competent legal and planning advice early on in the process.

The recent Ontario Superior Court decision of Meron v 2182804 Ontario Ltd., illustrates the impact zoning regulations may have on the use of a building and how an unconditioned offer can prejudice a buyer. The case also highlights the need to do more than rely on general oral statements made by a property seller or preliminary municipal responses when deciding whether to proceed with a transaction.

In the Meron case, the buyer brought an action for return of deposit and damages from the property owner for breach of the purchase agreement. The buyer’s action was dismissed. The seller’s counter claim against the buyer for failing to close the transaction was successful.

The purchase price of the property was $3.5 million. The seller required the offer to purchase to be free of conditions. The agreement was drafted by the buyer’s agent.

The buyer alleged a representative of the seller made the following representations before the agreement was signed:

  • that the property could be used as a restaurant and there would be no issues with the City of Toronto providing approval for such use; and
  • if for any reason the property could not be used as a restaurant, the representative of the defendant (or possibly the representative personally) would return the deposit and purchase the property back from the buyer.

The seller denied making either representation.

Before the agreement was signed, the buyer was informed by the City Planning Department there would be no problem with respect to zoning and the proposed restaurant.

The agreement had no warranties or representations with respect to zoning of the property.

Before closing the buyer was advised by the City that the building only allowed for a 2,000 square foot restaurant and not the proposed 4,000 square foot restaurant. It became clear the buyer would not be able to proceed with the proposed 4,000 square foot restaurant. The transaction did not close. The mortgagee of the property then exercised its power of sale and sold the property.

The buyer submitted it relied on the seller’s oral representation about returning the deposit and repurchasing the property if the proposed restaurant was not approved.  The buyer argued this gave rise to a collateral agreement to the agreement of purchase and sale.

The Court found that the seller may have made a general representation that the property could be used as a restaurant but there had been no representation as to the permitted size of such restaurant

As stated above, the buyer checked with the City before signing the offer to purchase to determine if the zoning would allow for a restaurant. The City provided information that appeared to satisfy the inquiry of the buyer . It was found the buyer relied on the information provided by the City and not the assurance made by the representative of the seller with respect to zoning.

The buyer did not consult a lawyer before presenting the agreement.

The Court was not persuaded the seller had promised to return the deposit and repurchase the property if the proposed restaurant was not permitted.

The Court found the alleged representations lacked clarity in any event and refused to find the existence of any collateral agreement as alleged.

The seller brought a counter claim against the buyer for damages resulting from the failure of the buyer  to close the transaction.

The take away

This case illustrates how important it is for a buyer to not rely solely on oral representations about a property’s zoning compliance from anyone, be it the seller or the municipality.

We suggest that for significant transactions, such as the one described in this case, a buyer should retain a competent planning firm to investigate the property and provide a report on significant items such as zoning so that a buyer does not end up with a property that can’t be used for the buyer’s intended purpose.

The buyer should do this before submitting the offer to purchase or, as is more typical, have the agreement of purchase and sale conditional for a reasonable period of time upon being satisfied with the property zoning.

The agreement of purchase and sale language needs to be very clear as to what is desired by the buyer.

Sometimes, as in the Meron case, the seller will not consider a conditional offer. This forces a buyer to clearly confirm the zoning before submitting the offer to purchase, walk away from the property, or take its chances. Unfortunately for the buyer in the Meron case the decision to take its chances did not work out.

A buyer should also have the offer to purchase either prepared or reviewed by a lawyer with the appropriate level of applicable experience . Some realtors do not have the necessary experience or skill to properly draft such an agreement.

To read the full decision click here.

Unresolved Warranty Claims Under The Ontario New Home Warranties Plan Act

Post by: Evan Holt

A recent decision of the Ontario Superior Court of Justice – Blair v Tarion Warranty Corp. (Tarion) –  confirmed that warranty claims under the Ontario New Home Warranties Plan Act (ONHWPA) can only be pursued by the current owner of a home.

The appellant, Blair, took possession of the subject property in February 2010 and complained to Tarion with respect to insufficient heating in the home. Tarion conducted an investigation that was completed in the summer of 2012 and concluded that duct modification needed to be completed.

After the investigation, in November of 2012, Blair installed within her condominium unit, a gas fireplace at a cost of $17,000.00. This installation was completed without the approval of Tarion. Blair claimed the cost of installation but Tarion denied compensation on February 28, 2013.

Blair appealed the refusal of reimbursement to the Tribunal. During the proceedings, Blair disclosed that she had sold the subject property on October 15, 2013. However, Blair stated that as part of the agreement of purchase and sale she had entered a collateral agreement with the purchaser to maintain her claim against Tarion. The Tribunal dismissed the appeal stating that when Blair sold the subject property she lost standing to continue her action against Tarion.

In this appeal, Blair alleged the Tribunal failed to recognize that the collateral agreement assigned the rights of the current owner to Blair.

Blair relied on the decision of the Tribunal in Liddiard v Tarion Warranty Corp., which included the following statement:

Nothing in this decision should be constructed as denying the Applicants the right to approach the current owners of the home and to seek some form of assignment of their claim.

Liddiard v Tarion Warranty Corp. was appealed to the Divisional Court where it was confirmed that a warranty “runs with the home”. The ONHWPA does not extend warranty coverage to previous owners. Additionally, the consumer protection nature of the ONHWPA is best served though fixing buildings and not compensating individual owners.

The court noted that the claim presented by Blair only dealt with the installation of the fire place and not with the insufficient heat provided to the unit. The current owners never assigned the right to pursue a claim with respect to the insufficient heat, such assignment would violate s. 13(6) of the ONHWPA.

In this case, the court concluded that as the purchaser of the subject property from Blair had no right with respect to the fireplace claim against Tarion, and therefore, such a claim could not be assigned. The purchaser acquired the property with the fireplace and benefited from its presence. Thus, when Blair sold the condominium unit she was compensated for the presence of a fireplace.316

Tarion submitted that a previous owner of a home subject to warranty coverage may be compensated for an unresolved warranty claim without contravention of the statutory warranties framework so long as:

  • any warranty claims are pursued by the then owner of the home; and
  • the arrangements still allow for the possibility of the builder or Tarion to remediate any valid defect, as opposed to providing only for the payment of compensation from Tarion.

Tarion goes on to provide 3 examples of how such a resolution could be reached:

  1. the purchase price could be discounted to reflect the uncertainty the purchaser may face with respect to the outstanding claim;
  2. the purchase price of the home is set to reflect the price of the remediated home. The purchaser would pursue the warranty claim and retain any compensation paid. This may also include a risk mitigation clause in which the vendor would be entitled to a portion of the compensation received by the current owner above a certain amount; and
  3. the vendor could provide Tarion with a signed appointment and acknowledgement explicitly stating that the vendor has been appointed an agent for and in the name of the current owner with respect to unresolved warranty claims. Additionally there should be provisions relating to accessing the home, and the authority of the agent. An agreement would need to be in place between the vendor and the current owner so that the vendor could recover any compensation granted to the current owner.

The consumer protection nature of the ONHWPA is for the protection of an owner or subsequent owner within the warranty period of a new home. This decision illustrates that although a previous owner may benefit from a claim brought by the current owner, the rights of the current owner to pursue an outstanding warranty claim may not be assigned.

To read the full decision click here.