May 17, 2021
Note: The Ontario Court of Appeal has since ruled on the case discussed in this article. Please see “Building Permit Liability Update” for an updated discussion.
Municipalities may have hidden liability risks lurking in old building permit files.
A Superior Court judge, in Breen v. Lake of Bays (Township), provides a handy review of some of the principles that apply.
In that case, the township was sued by owners of a custom cottage built in 1988 that they purchased in 1999, who did not discover the Building Code violations until they went to renovate in 2012.
Looking at those dates illustrates the first risk – does the municipality have good record keeping and institutional memory (which means, can it find the employees who were involved in 1988)?
In the Breen case, the records seem to have been available. That is a good start, though in the end the records favoured the owners, not the township.
The second thing to note is the role and importance of professional experts. As often happens, the case became a ‘battle of experts’ who took the same facts and reached very different conclusions on some points. However, on other points, the township’s expert agreed with the homeowners experts. You might ask why the township or its lawyers did not just shop around for an expert who just supported its position. The answer lies in the responsibility of an expert. Their duty is owed to the court, not to the side that hires them. An expert who simply advocates the position of whoever pays them has no credibility and will not help your case.
Third, there was no dispute over the fact that the township owed a duty to the owners to not be negligent in the inspection, even though the owners were not involved in the original construction. Any rate payer is in close enough proximity to the Township to be owed a duty, and in the cases of building inspections, it is well settled that the Building Code is there to protect owners. If a municipality is negligent in its inspections, it is responsible for the losses.
Fourth, in order to determine if the municipality is negligent, the court examines the standard of care. A municipality, or its inspector, is not an insurer – it does not have to achieve a standard of perfection. They simply need to do what an ordinary prudent inspector would do in the circumstances. This is where the experts come in. About thirty years after the construction, working largely from records and inspections of the property, they provide the evidence which is the focus of most of the judge’s decision.
The judge goes through a very detailed review of that evidence, and the relevant code provisions, and finds negligence.
Leaving aside specific details of the faulty construction, the inspector did not discover structural defects in the construction and did not issue a stop work order. The most telling error in the judge’s opinion arose from the fact that the Township issued the permit for this architecturally designed unique custom build in less than a day, based on an application that did not include detailed plans or specifications.
We would hope that in the 21st century, building officials are more diligent than that, which is why the focus of this article is on warning municipalities about hidden exposures. However, we also know that some townships still have building officials who may not be fully trained professionals, and who may work part time, or have other duties. Although in theory they rely upon qualified experts as needed, one question every small municipality needs to examine is whether their process is better than that which existed in Township of Lake of Bays in 1988.
The lack of plans and specifications was also a key factor in the judge finding that the three inspections that took place during construction were inadequate. The judge accepted the expert evidence that a proper inspection should have uncovered the defects, leading to a stop work order until they were fixed. If that happened, the owners would not have bought the defective cottage.
The Township was ordered to pay the cost of repair, plus an additional $15,000.00 to the homeowners to compensate for their emotional and mental distress.
Homeowners who find that they have bought a defective home may take some comfort from this decision that a remedy might be available. However, each case will turn on its own facts, and an investment in expert evidence will be required before you even know if there might be a claim.
The lessons for municipalities are broader:
- First and foremost, make sure that your municipal liability insurance covers historical building inspection errors discovered currently.
- Second, make sure records are maintained, not just for current or recent projects, but historically.
- Third, though it is hard to do much about historical claims, review policies and procedures to avoid or limit current or future claims.
- Fourth, for smaller municipalities in particular, consider the qualifications of the staff involved in the building permit and inspection process. Consider whether some functions might be better done by contracting out, or by sharing services of better trained staff between several municipalities. “Dog catcher in the morning, building inspector in the afternoon” is seldom a great idea.
- Fifth, train plans examiners to take time in reviewing applications.
- Sixth, require adequate plans and specifications.
- Seventh, do not allow construction to proceed without compliance with plans and specifications.
Taxpayer’s homes are often their largest investments. Courts will typically be sympathetic with losses suffered due to defects. Municipalities are attractive “deep pockets” exposed to law suits by homeowners seeking a remedy.