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Article

Real Estate Transactions: due diligence and land use bylaws

Date

May 1, 2001

AUTHOR(s)

Louis-Martin Dubé


Introduction
The importance of zoning, subdivision and construction bylaws in real estate transactions cannot be denied. However, particular attention is seldom paid to verifying the statutory obligations of compliance resulting from such bylaws, despite the fact that they may have a major impact on the transaction. All too often, the future buyer settles for a general representation on the part of the vendor to the effect that the property in question complies with the relevant land use bylaws and that there is no order limiting the enjoyment of the property. The same applies to the borrower who makes a similar representation to the lender in the case of a mortgage transaction.

This type of representation merely gives the transaction a superficial guarantee in the sense that, most of the time, either the buyer or the lender must take recourse in order to remedy a defect. Such detachment is surprising considering the dramatic consequences that may result from a failure to comply with zoning bylaws. In fact, as illustrated by the Superior Court decision in the case of Municipalité de La Pêche vs Chartrand, S.C. Hull, Nos. 550-05-008633-995 and 550-05-009864-003, dated June 27, 2000, an order to demolish a building can be effective against a subsequent owner, whether that order was published in the land registry or not. It seems clear that research into the statutory obligations of compliance that could affect the viability of the transaction would be an important tool that could be used to secure the transaction. Although it is not possible to make a detailed verification of all of these obligations, certain tools do exist that can be used to verify those referred to as “public law limitations.”


The nature of the public law limitations to be examined

Municipal zoning, construction and subdivision bylaws as well as bylaws which certain municipalities have adopted with respect to site planning and architectural integration, limit and govern how a parcel of land can be developed or how a building can be used. In effect, land use bylaws stipulate which uses are authorized, the density or land use standards for the land, the minimum and maximum heights for buildings, the parking standards that apply, the conditions that apply to subdividing a piece of land, and the rules governing the architectural appearance and landscaping of the land. Simply drawing up this list of items makes it clear how many obstacles could adversely affect a transaction. Moreover, surveyors enjoy only limited powers with respect to examining statutory compliance. Under Decree 1412-92, which amended the Regulation respecting standards of practice relative to the certificate of location, the surveyor’s sole obligation with respect to municipal zoning bylaws is to ensure that the position of the structures on the property complies.

In the event that any of these standards are violated, the municipality, the Solicitor General or any interested party can take action in the Superior Court to request that the non-compliant use be stopped, that work be undertaken and that the site be returned to its original condition or, ultimately, that the building be demolished. Generally, such recourse will be undertaken pursuant to Section 227 of the Land Use Planning and Development Act. Unlike Section 118.2 of the Environment Quality Act, which provides for the publication of any order rendered under that law with respect to a property, an order rendered under Section 227, as cited above, is not published at the land registry office of the registry division in question. In this way, an order may have been rendered with respect to a property without the buyer or lender being notified prior to signing the purchase or mortgage contract. Can such unpublished orders be effective against the subsequent owner of the property or the lender? The new owner of the property (and of course his mortgage lender) is directly concerned by these limitations to his enjoyment of his property since he is responsible for ensuring that the property complies with land use bylaws. Doctrine and jurisprudence consistently claim that such limitations and any orders imposed under public law follow the property when it is transferred to a new owner. This rule applies whether the order was published or not or whether it was revealed by the vendor.


The effect of an order sanctioning a deviation from land use standards

An order rendered under Section 227 of the Land Use Planning and Development Act or a court order to demolish a building issued under Articles 1601, 1602 and 1603 of the Civil Code of Quebec appears to include a hidden method of sanctioning a violation to the public law limitations that could take the form of a charge against the property or an administrative servitude. Since the sanctions in question concern the manner in which the property is used, the courts tend to attach such sanctions to the property rather than to the owner of the property. In fact, it is acknowledged that land use bylaws benefit, to a certain extent, each of the properties affected since they are reciprocal and make each of the properties dominant land as well as servient land (Donskill Construction Ltd. vs Karoly, [1977] S.C. 1147; P.G. du Québec vs. Désourdy Construction, [1976] S.C. 1316). If the concept of acquired rights can be applied to the way in which a building is used, it appears that the same can be said for the rights and obligations that arise out of land use bylaws which, in any case, have consequences that are more “real” than “personal”.

That said, the person who purchases a property that is covered by an order or court decision that has not been published will be responsible for ensuring that it complies with the applicable bylaws or, as the case may be, for enforcing the order or the court decision rendered against the former owner of the property as a result of the real character of the effects of such a decision (see Municipalité de La Pêche vs. Chartrand). Subject to the recourse to which he is entitled against a vendor, the purchaser is obliged to ensure that the property he acquires does not violate any bylaws. As a result, with respect to both the municipality and any interested party, the fact that the violation or the order pre-dates or post-dates the transmission of the title shall not have any effect on the owner’s responsibility on the date that the violation is noted or on the date when he is asked to ensure that the property in question complies.


Conclusion

It is possible to ensure that a property involved in a transaction complies with the various land use bylaws that apply. An examination of the bylaws and a search with respect to the various authorities concerned, both courts and administrative organizations that apply national construction standards, can be very useful with respect to securing a real estate transaction and determining the reliability of the information provided by the vendor. As a result of the firmness of the courts in such matters and the increasingly strict application in recent years of environmental and land use standards, such a verification will serve to complement the traditional title search and will become increasingly important as a result of the drastic consequences of any violation of such standards.

Every effort has been made to ensure the accuracy and timeliness of this publication, but the comments are necessarily of a general nature. Clients are urged to seek specific advice on matters of concern and not to rely solely on the text of this publication.


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