Selling a building that doesn’t comply with municipal bylaws: What liability does the seller have and what recourse does the buyer have?
When buying a property, unpleasant surprises can happen. In some cases, the property purchased may not comply with municipal by-laws. Specifically, one or more dwellings in the building may fall under a by-law prohibiting their development, which may result in a loss of rental income, as well as additional – and often substantial – expenditure to bring the dwelling up to standard.
Who is liable in such a situation? The seller? Does the buyer have any recourse for damages?
Definition of building non-compliance with municipal by-laws.
First, we need to define the legal definition of a building’s non-compliance with municipal by-laws.
It is well established in jurisprudence that “a problem with zoning, particularly with regard to the number of conforming dwellings, is a clear example of what constitutes this notion of public law limitations.” (Perron v. 3005551 Canada Inc, 2019 QCCQ 946 a, a, [100]). The notion of public law limitation is found in article 1725 of the C.C.Q., which states that “The seller of an immovable is liable to the buyer for any violation of the public law limitations which encumber the property and which are not governed by the ordinary law of ownership.
The seller is not bound by this warranty when he has disclosed these limitations to the buyer at the time of the sale, when a prudent and diligent buyer could have discovered them by the nature, location and use of the premises, or when they have been registered at the Land Registry Office. “.
The conditions of application of the seller’s warranty are precise:
1. The seller must not have denounced the violation at the time of sale.
2. The public law limitation must not have been registered at the registry office.
3. The violation must not be apparent.
4. The buyer must not have been aware of this at the time of sale.
5. Notice must be given to the seller within a reasonable time of knowledge of the breach.
What is the seller’s liability?
Secondly, what is the Seller’s responsibility? The guarantee of ownership rests with the seller. Jurisprudence states that “this warranty includes an accessory obligation to provide information to enable the buyer to form a reasonable idea of the property’s conformity”, and adds that “the seller is presumed to be aware of the charges and limitations affecting the property he is selling”. (Nadeau v. Lefebvre, 2020 QCCQ 4908, [32].
In other words, the seller guarantees that there are no public law limitations attached to the property, and is presumed to be aware of the charges and limitations attached to the property he is selling.
Even in cases where the seller is unaware of the non-conformity, due to tolerance on the part of the municipality for example, this does not constitute a means of exonerating the seller from civil liability (Perron v. 3005551 Canada Inc., 2019 QCCQ 946 [104], [106]).
Liability may be incurred even when acting in good faith.
Similarly, a seller bound by a warranty against infringement of a public law limitation may be liable to pay damages and thus incur civil liability, even if he is acting in good faith (Julien c. Silva, 2019 QCCQ 1944, [59]).
Still on the subject of the seller’s civil liability, case law has repeatedly ruled that the presence of a contractual clause requiring the buyer to take the property in its current condition and to verify for himself whether the intended use of the property complies with current laws and regulations does not exonerate the seller from liability.
Such a clause therefore does not mitigate the seller’s liability, and cannot be invoked against the right of ownership guarantee (Gravino c. Garone, 2019 QCCS 111, [81]).
It’s hard for a seller to avoid civil liability
What emerges from the case law, on the whole, is that it is difficult for a seller to escape civil liability, and that contractual clauses cannot be formulated with regard to the warranty of ownership.
So, before selling, the seller must be extra vigilant to ensure that the building complies with current laws and regulations. Conversely, a buyer who discovers that the building does not comply with a municipal by-law will be able to seek damages.
On numerous occasions, jurisprudence has upheld claims for loss of rental income by purchasers of buildings that do not comply with municipal by-laws. In one case, for example, it was held that it was appropriate to grant rental income to the new owner, covering the period during which work was carried out to bring the building up to standard (Pleasance v. Beaulieu, 2002 CanLII 41750 (QCCQ) [59]).
In some cases, judges opt for compensation in the form of a reduction in the sale price, which varies according to the circumstances of the case.
To do this, the judge will calculate the difference between the sale price paid and the fair market value, with one or two units less because they do not conform (Leblanc c. Morin, 2012 QCCS 3771 [119]).
Examples of other damages that may also be awarded
Other damages may also be awarded, for example when the buyer seeks reimbursement of architect’s fees incurred to comply with the municipality’s notice of non-conformity, attorney’s fees, or damages for disturbances, annoyances and inconveniences.
Ultimately, the seller incurs civil liability when the building sold does not comply with municipal bylaws and standards.
Indeed, it is well established in case law that municipal by-laws constitute a limitation of public law, and therefore fall outside the scope of common property law.
According to jurisprudence, municipal by-laws that apply to buildings constitute a legal servitude that is not apparent, and as such, the seller is obliged to disclose it to the buyer.
Whether you’re a buyer or a seller, our lawyers specializing in real estate and civil law are here to help you.
REMARQUE : Cet article ne constitue pas un conseil juridique ou un avis juridique. It is intended solely to inform readers of certain aspects of the laws surrounding civil liability in the province of Quebec and in Canada.
