Vendors should be forewarned. EPRF Holdings Limited v. Fergus Bloor Inc. (2024 ONCA 707), a recent decision from the Court of Appeal for Ontario, emphasizes the importance of vendors removing any open building permits from a real property prior to sale. While this concept is not novel, its significance cannot be overlooked. Failure to remove an open building permit can potentially result in serious consequences such as termination of the agreement of purchase and sale and the deposit being returned. The basic tenet of all real estate transactions is that property is sold with "a good and marketable title [that] is 'free from litigation, palpable defects and grave doubts and couples a certainty of peaceful possession with a certainty that no flaw will appear to disturb its market value.'"1 An open building permit undermines this tenet by directly affecting root of title, and therefore a real estate transaction can be cut short.
In this case, the respondent Fergus Bloor Inc. (the "Purchaser") had discovered two open building permits (the "Open Permits") on the two-story commercial building they had agreed to purchase from the appellant EPRF Holdings Limited (the "Vendor"). The Purchaser argued that the Open Permits interfered with the Purchaser's right to good title. The Purchaser had properly requisitioned the Open Permits to the attention of the Vendor, permitting the Vendor two routes to pursue: either have the Open Permits removed, or arrange for a title insurance policy that would extend coverage to the Open Permits. Prior to closing, the Vendor made representations that both Open Permits had been removed from title. However, one of the Open Permits had not in fact been deleted, thus interfering with the Vendor's ability to convey good and marketable title to the Purchaser, free from encumbrances.
Although the Vendor offered an undertaking and indemnity containing the Vendor's covenant and agreement to save the Purchaser harmless of and from any claim, loss or damages arising from their failure to fulfil the undertaking to remove the Open Permits, the Purchaser argued that it was not obligated to accept this as an alternative. The Vendor argued that this case is distinguishable because the remedial work had been completed on the property and accordingly the outstanding Open Permits did not amount to a deficiency.
Despite the Vendor's contention that the Open Permits related to work that had already been completed, the motion judge concluded that "the outstanding work permit still exposed the respondents to risk, given the inability of [the Vendor] to obtain its deletion by the city immediately on request."2 As previously held by the Court of Appeal for Ontario, "a purchaser cannot be 'compelled to take a title which would expose him [or them] to litigation or hazard.'"3 Therefore, the Court of Appeal for Ontario upheld the motion judge's finding that an Open Permit goes to the root of title and therefore, the Purchaser, absent title insurance extending coverage to the Open Permits, was entitled to terminate the agreement of purchase and sale and recover its deposit.
EPRF Holdings Limited v. Fergus Bloor Inc. re-emphasizes the dangers of an open building permit and the importance of clear title when selling real property. Many levels of court have emphasized that an open building permit can give rise to legitimate objections exposing property owners to work orders, expensive remedial work and potential litigation.4 Additionally, an open building permit eliminates the ability to obtain title insurance, resell or lease real property and may require a court application to remove the open building permit if the municipality fails to delete it upon request. Objectively speaking, an open building permit impedes the peaceful enjoyment of the property and is ultimately not a minor deficiency.
The key takeaway for vendors of real property is to remove any open building permits that may be pending prior to closing or amend the agreement of purchase and sale to account for any outstanding open building permits. At Wildeboer Dellelce LLP, when representing the vendor or purchaser in a real estate transaction, we are sensitive to whether such deficiencies exist. Our goal is to ensure that our client acquires or sells good and marketable title, free from any deficiencies.
Footnotes
1. EPRF Holdings Limited v. Fergus Bloor Inc., 2024 ONCA 707 at para 27 (citing Holmes v. Graham, 1978 ONCA 1438 at p. 292).
2. EPRF Holdings Limited v. Fergus Bloor Inc., 2024 ONCA 707 at para 27.
3. EPRF Holdings Limited v. Fergus Bloor Inc., 2024 ONCA 707 at para 27 (citing Holmes v. Graham, 1978 ONCA 1438 at p. 292).
4. Thomas v. Carreno, 2013 ONSC 1495 and 1854822 Ontario Ltd. v. Estate of Manual Martins, 2013 ONSC 4310.
The authors gratefully acknowledge the assistance of Lawyer in Training Mila Simic in the preparation of this update.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
