Written By Simon Crawford and Giovanna Campagna
Ontario courts have long wrestled with whether requisitioning the closure of an open building permit is a valid buyer requisition when made pursuant to a standard Ontario Real Estate Association (OREA) real estate form purchase agreement.
Requisitions can be made pursuant to the terms of the real estate purchase agreement, pursuant to the provisions of the Vendors and Purchasers Act (Ontario) (V&P Act)1 or pursuant to common law.
In a standard OREA form of purchase agreement, provision is made for the buyer to make certain types of requisitions—valid requisitions that relate to title matters and valid requisitions in respect of specified work order/non-compliance matters. These contractual requisitions and those permitted by the V&P Act have to be made by the buyer by specific dates (which we commonly think of as a requisition date), failing which the buyer is deemed to have accepted the underlying deficiency. If such requisitions are made by the requisition date, then absent the buyer waiving them, the transaction can be terminated if the seller is unable or unwilling to satisfy them.
Building permits are permits granted by a governmental authority to do certain work on the property. Think of a building permit or a demolition permit, for example. These are governmental permissions—permissions or authority to do work. Their existence does not constitute evidence that any such work has begun or is ongoing. Their existence does not require that any work be done or commenced. Their existence does not constitute evidence that the property is in violation of law. Building permits are neither an encumbrance on title, nor do they constitute a matter of title. In addition, they do not constitute work orders or evidence that there is any deficiency with the property.
As a starting point then, open building permits cannot be requisitioned by a buyer pursuant to the contractual terms of a standard OREA purchase agreement, or pursuant to the terms of the V&P Act, notwithstanding a number of cases that have suggested otherwise, all of which the author has previously asserted to be wrong at law. A more complete analysis on this position can be found in, Do Building Permits Affect Title To Real Estate? (A Consideration of MacDonald v. Chicago Title)2and "Please Satisfy Yourself" and Other Passive Aggressive Answers to Invalid Requisitions.3
What a building permit is evidence of, is that governmental permission was granted to do work at the property. It is a trigger, therefore, for the buyer to make enquiry as to whether such work was started and/or completed in accordance with applicable laws, and as to whether necessary inspections were done to have such permit closed. It is a signpost that the buyer has to do some due diligence to run down the reason why such building permit continues to be open. If it turns out that there is unfinished work at the property, or that additional governmental inspections are required, then the buyer must look to the terms of the purchase agreement to determine what was negotiated to deal with that incomplete work or inspection. Perhaps the purchase agreement contains a representation or warranty confirming that there is no incomplete work, or that the property is in compliance with law, or that there are no open building permits. But what is clear, is that the standard OREA requisition provision does not deal with it.
As noted earlier, there are three authorities for being able to make requisitions, the third (and remaining one), being the common law. The common law provides that certain requisitions may be made up until the closing of the transaction, if those requisitions (1) go to the root of title, (2) relate to matters that would otherwise be proper requisitions but were not discoverable by the requisition date, or (3) fit into a seldom used category commonly referred to as requisitions that are a matter of conveyance.
The author's prior writings have taken the position that open building permits cannot be validly requisitioned under these common law principles either. The Ontario Superior Court of Justice, and in particular Perell J., arguably one of the premiere authors on the law of requisitions, appears to disagree.
In the recent 2022 decision in Chan v. Mangal,4 Justice Perell found that a buyer may requisition the closure of an open building permit under the common law concept of requisitions that are a matter of conveyance.
Requisitions that are a matter of conveyance are extra-contractual (read—"not in the purchase agreement") requisitions that can be made as a matter of common law right. They are requisitions that do not arise from the requisition provisions of the contract, and are therefore not constrained by the periods set out therein. They can be made up to closing.
This is an important distinction. If the common law is to permit something to be requisitioned right up to the last minute—to the closing date—then one of three things, must be true: (1) it must be so important to title as to amount to a failure of consideration (a root of title matter); or (2) it must be based on a matter that could have been validly requisitioned by the requisition date but was not discoverable until after; or (3) is a "no brainer" as it were, for the seller to deal with by closing because it's in the seller's control to sort it out by closing (which is the author's understanding of a so-called "matter of conveyance").
In O'Neil v. Arnew, the court explained, "A matter of conveyance as opposed to one of title is an encumbrance which the vendor is able to pay off and discharge by virtue of his own interest in, or his own power over the property, or by the concurrence of a party which the vendor can compel."5 If the vendor is unable to obtain the relevant discharge as of right, the requisition must be an objection to title according to the principles espoused in Sidebotham v. Barrington, "Where an interest is vested in a party to secure a right, the satisfaction of which right entitles the party who has sold the estate to call for a conveyance, then the Court considers it a question of conveyance only."6
A matter of conveyance is also described as a requisition "which the vendor alone or with other persons whose concurrence he can require is in a position to convey the title to the property. They assume that the vendor has a right to make title or to cause it to be made and are concerned with the satisfaction of the right."7
All of this sounds as clear as mud, no doubt. However, the underlying theme of a matter of conveyance is that it is a matter, which must be entirely in the control of the seller to address, relating to the valid conveyance of the property.
For example, if there is a financial lien against the property that is within the unilateral authority of the seller to delete from the title, the matter need not be raised by the requisition date. The idea, arguably, is that such matters can be addressed on closing as a matter of right by the seller alone, often by the redirection of closing proceeds.
Historically, cases have confirmed that this category of common law requisition included such things as:
- obtaining the discharge of an open mortgage;8
- lifting a writ of execution against the seller;9
- obtaining an estate tax release, or an estate or succession duty release;10 and
- obtaining a discharge of a construction lien.11
A building permit has nothing to do with the conveyancing of the property and does not constitute an "encumbrance" on title. It has nothing to do with the legal interest being sold. It has nothing to do with the property's compliance with law. Moreover, it is not within the unilateral power of the seller to close on closing. An open building permit may relate to work that requires all manner of third party work, cooperation, approval, reporting and inspection before it can be closed.
One might say, the court's ruling in Chan v. Mangal, has now elevated the importance of open building permits, to the same level as matters that go to the root of title. Open building permits are not even in the OREA form's list of things that can be requisitioned alongside work orders. They don’t, in the common sense nature of real estate practice, have the same importance as an outstanding work order. And yet, they have now been elevated to the category of requisitions that can be raised until the closing date.
Matters of conveyance are supposed to be conveyancing deficiencies that the seller can resolve alone. They are not supposed to be matters that the buyer can requisition late in the day to predatorily surprise the seller and tank the transaction. In fact, one might go so far as to argue that matters of conveyance must be matters that the seller can solve alone on closing, without an extension of closing.
Other than to say the court's characterization of open building permits may be problematic, all that can be offered is the same fix that has been offered in the author's earlier writings on this topic. Add "open building permits" to the list of matters that are contractually restricted by the requisition period set out in the OREA form for work orders. Arguably, this may contractually remove them from their newly elevated status as matters that can be requisitioned as a matter of conveyance, and return them to their rightful place.
Please contact the Bennett Jones Commercial Real Estate group or any of the authors for more information about any of the cases or issues discussed in this blog.
1 R.S.O. 1990, c V.2
2 Simon Crawford (Toronto: Ontario Real Estate Law Developments Newsletter (No.485), 2016), LexisNexis.
3 Simon Crawford & Carolin Jumaa (Toronto: 14th Annual Real Estate Law Summit, 2017), Law Society of Upper Canada.
4 2022 ONSC 2068
5 Practical Property: Requisitions - Objections to Title (1982), Lawyers' Insurance Association of Nova Scotia at 2-3.
6 Sidebotham v. Barrington (1841), 3 Beav. 524 at p. 528).
7 Law Society's Special Lectures by William Howland as quoted in Majak Properties Ltd. v. Bloomburg, (1976) 13 O.R. (2d) 447 (Majak). In Majak, the court looked at three main requisitions (1) a right of way over the property; (2) a consent of all mortgagees to registration of a plan of subdivision; and (3) a bar of dower of the wives. The court held that contractual limitation of time for delivery of objections to title do not apply to matters of conveyance nor to objections going to the root of title but that those three main requisitions did not fall into either category.
8 (1998), 26 R.R.R. (3d) 76 (Ont. Gen. Div) at 7. In this case, the agreement of purchase and sale had an annulment clause for cases where the seller could not make title as well as a separate schedule providing that the sellers would discharge all mortgages on title. There was a closed mortgage on title; the question was whether the sellers could therefore invoke their annulment clause - i.e. whether the existence of a closed mortgage constituted a requisition on title or a requisition on conveyance.
9 Zender v Ball, (1975) 5O.R. (2d) 747 at 17 [Zender].
10 Farantos Development Ltd. v. Canadian Permanent Trust CO. (1975L 7 O.R. (2d) 721 (ant. H.C.) at 60. Here, the court stated that "[i]n my view the obtaining of succession duty and estate tax releases or consents and the discharging or lifting of the two executions are matters of conveyance only and are not matters of title. They relate to encumbrances which the estate had the right to payoff and discharge before the closing date."
11 Grant v. Tiercel Digital Ltd. (1993L 32 R.P.R. (2d) 51 (ant. Gen. Div) aff'd 1994 CarswellOnt 4539 (ant. C.A.). There were several construction liens registered against the property the buyer was aware of them and the closing was postponed several times as the seller attempted to settle the liens. The seller eventually cancelled the agreement on the basis that the liens had not been settled on time and the court held that construction liens were a matter of conveyance and not a matter of title.