Is an Open Building Permit a Title Defect?

In 1854822 Ontario Inc. v. Martins Estate, the interesting issue was whether an open building permit – relating to work that had never actually been done – was a defect in title which could form the legal basis for the buyer’s valid title objection.

The buyer and seller executed an agreement of purchase and sale with a May 2013 closing date. The buyer later learned from the City that there was an active building permit relating to certain work proposed for the dilapidated garage that was located on the property. The seller tried unsuccessfully to have the permit cleared prior to closing. The buyer and seller then disagreed on whether this was a valid requisition; this in turn gave rise to a legal dispute before the court.

Specifically, the buyer claimed that the open building permit was a cloud on title amounting to a valid objection on title, which exposed him to a risk of litigation. The seller, on the other hand, claimed it made no difference, since no actual work was ever undertaken on the garage. He pointed out that the permit merely allowed a new owner to do work; it did not oblige him or her to. Furthermore, the buyer had been aware of the dilapidated state of the garage when he bought the property, so according to the seller, there had been “no surprise”.

The court agreed with the buyer. Even knowing as he had about the garage’s dilapidated state prior to signing, the buyer was put at risk by the open permit because it allowed the City to inspect the premises at any time and to issue a work order with which the buyer would be legally required to comply. This in turn gave rise to the risk of litigation. And while the Building Code Act did provide for a permit-closing procedure, it was not an automatic process, since the City retained some discretion. There was also no evidence provided to show the type of work that would satisfy the City, nor what the cost of that work might be.
In short, the existence of the open permit gave rise to risk, which in turn affected the buyer’s right to the use and enjoyment of the property. As such, the court found it formed a valid objection to title in this case. 1854822 Ontario Inc. v. Martins Estate, 2013 (ONSC).