Why You Need to Worry About Open Building Files
If you are purchasing a property, you should be sure to ask your lawyer to find out if there are open building permit files with the municipality affecting the property. Similarly, if you are selling your property, before closing, you should be aware that you may be required by the buyer to have any open permit files closed. The Ontario courts recently decided that open building permit files pose a significant risk for buyers and form the basis for valid objections to be made of a seller (see link below). If a seller is unable to have the permit file closed, the buyer may be entitled to back out of the purchase.
With home renovations, extensions, demolition and construction on the rise, it is not uncommon for properties to have open building permits (i.e. ones where the final inspection has not been done and the file closed). Be mindful that this can be the case whether or not the work has begun. Both buyers and sellers should be aware that closing existing files can add time and cost to the overall deal, as municipalities are not required to automatically close open building permit files upon request and may require that one or more inspections and additional work first be completed.
The standard form purchase and sale agreements deal with “work orders” and “deficiency notices”; however, this arguably may not cover open building permit files where no notice has been issued by the municipality. Therefore, it would be wise to add a clause to the agreement that there will be no open permit files on closing, except as specifically set out in the agreement. Note that, in respect of residential transactions, title insurance might provide the protection that a buyer needs, but only if no searches in respect of the property have been done. If the buyer knows of a problem with an open building permit file, then title insurance will likely not cover it.
For the link to the recent Ontario Superior Court application finding, please visit: http://canlii.org/en/on/onsc/doc/2013/2013onsc4310/2013onsc4310.html
application building permit buyer final inspection inspections municipality Ontario Ontario Superior Court permit files purchase and sale agreements seller