August 6, 2021
A real estate developer cannot sue a municipality for its increased costs if the information supplied by the municipality about an easement abutting the property is incorrect.
This is the result of the decision of the Ontario Court of Appeal in Charlesfort Developments Limited v. Ottawa (City) .
The developer intended to build a high rise condominium. Its rezoning application indicated an intent to build underground parking right to the northern lot line. The City planner handling the application mistakenly indicated that the easement on the property to the due north contained a trunk sewer. It actually contained a water main, not a sewer. The rezoning was approved with no setback. The developer waived its conditions on the purchase of the property.
When the developer proceeded to site plan approval, the error was discovered. Because of the age and condition of the watermain, the City required a setback, to reduce the risk of excavation damaging the water line. This caused delay in the project, as well as allegedly increased cost and reduced revenue.
The developer sued.
Negligent misrepresentations that cause only economic loss, not any physical damage, do not necessarily create liability. There are limits on when people, particularly government actors, are responsible for what they say. They are, however, responsible for losses that are “reasonably foreseeable” as a consequence of the negligent misrepresentation, if the defendant undertakes to provide a service that invites reasonable reliance by the plaintiff.
What is surprising about the Charlesfort decision is that the court determined that the City did not give that undertaking. It ruled that an undertaking only exists if the statement is intended to induce reliance. The court finds that the city’s statement did not meet that requirement. The City’s undertaking was limited to processing the application and acting in the public interest.
They emphasize that the City’s role in zoning is primarily about protecting the public interest. Hard to argue with that.
I have some trouble with this finding. After all, what other source of information about the infrastructure under the easement was available to the developer? The City owned the infrastructure. It was the City’s concerns about its condition that created the problem. If, in fact, the developer has no choice but to rely on the City, how can this not create an undertaking?
Perhaps the developer will convince the Supreme Court to consider this case, but the Supreme Court accepts very few private law cases each year.
Unless the Supreme Court overturns this decision, the reasoning of this case should create comfort for municipalities.
It however places developers in a very difficult position – if they cannot rely upon the accuracy of information from the City, how will they protect themselves? This may put a chill on enthusiasm for development. Such a chill is not in the public interest.