Historical Negligence Related to the Building Code May Result in Significant Damage Awards

The Superior Court of Justice awarded over $350,000 in damages as a result of negligent permitting and negligent inspection of a cottage built ~30 years ago.

The decision of the Superior Court in Breen v The Corporation of the Township of Lake of Bays is a reminder that municipalities may have substantial unknown liabilities as a result of historic negligence in enforcing the Building Code.

Breen concerned a claim against the Township of Lake of Bays by the owners of a thirty-year-old cottage. They had purchased the three-story, five-bedroom cottage in 1999 knowing the cottage never received a final inspection. The cottage did have a building permit, however, and a private inspection conducted before purchase uncovered no serious issues.

During renovations after the purchase, the owners discovered major structural issues and water damage. Engineers determined these issues were caused by flaws in the cottage’s design. The owners were denied title insurance coverage because they had bought knowing the cottage had not been finally inspected.

The owners sued the Township for negligence in enforcing the Building Code. During the litigation, three key facts emerged about the cottage’s history: The Township’s Building Department apparently issued the building permit without seeing any plans or specifications, the Township’s inspector did not inspect the cottage framing despite requests from the original owners; and when the original owners failed to arrange a final inspection, the Township simply deemed the construction complete and charged a final inspection fee.

The Court found the Township was negligent based on those facts. It had owed a duty to subsequent owners to enforce the Building Code. This duty required the Township to collect enough information about the cottage to determine if it complied with the Code before issuing a permit. It also required the Township exercise prudence during inspections. The Township breached this duty by failing to review any plans whatsoever before issuing the permit, and by not inspecting the framing during construction.

The Court found that most of the structural issues and damages were caused by the cottage’s poor design and construction. As a result, it found the Township responsible for $346,875.33 for the estimated repair costs plus $15,000.00 for emotional and mental distress.

Municipalities Have Broad Discretion to Withhold Public Grants

The Superior Court of Justice upholds decision of Toronto City Council to refuse a $364 million grant to an eligible developer.

The City of Toronto encourages downtown development through a community improvement plan by-law that permits grants to commercial developments. Grant eligibility is determined by criteria in the by-law. Community improvement by-laws are permitted by section 28 of the Planning Act.

For the first time in the history of the by-law, Toronto City Council voted in 2018 to refuse a $364 million grant to an eligible developer. The developer applied to the Superior Court to overturn this vote, arguing that City Council’s refusal was arbitrary, unfair and inconsistent with the purpose of community improvement by-laws and anti-bonusing laws.

The Superior Court upheld City Council’s decision. In its reasons in 30 Bay Orc Holdings Inc. et al v. City of Toronto, the Court acknowledged that the developer met the eligibility criteria provided in the by-law, but not the approval criteria that City Council decided to apply in its deliberations. As a democratic body, City Council was entitled to apply its own approval criteria and it was not beholden to its track record of approving eligible grants. Municipal councils enjoy more deference in how they grant public funds than in other exercises of power like business licensing or development approval. This is because grants are gratuitous gifts of taxpayer funds to which no single person has any entitlement, while business licenses and land use regulations restrain private persons from doing what they would otherwise be free to do. 

The court gave an important caution: Despite this broad discretion, municipal councils are still bound by their own laws, thus City Council could not approve grants to developers who did not meet the by-law’s eligibility criteria.

It is also important to note that this decision does not override the rule that council must always govern in good faith. In this case the Court perceived that City Council’s refusal was motivated by financial concerns. The Court may have shown less deference had Council refused the application for arbitrary, capricious or discriminatory reasons.

Administrative Monetary Penalties – An Innovative Solution for Deterring Non-Compliance with Municipal By-laws

Administrative monetary penalties are an increasingly popular enforcement mechanism, as they are administered by municipal staff and independent hearing officers, resulting in a more efficient process than traditional prosecutions.

Administrative monetary penalties are becoming increasingly popular with municipalities as courts continue to face challenges in light of the pandemic. These financial penalties may be imposed on persons who fail to comply with municipal by-laws. They are administered by municipal staff and independent hearings officers rather than court system. The efficiency of this process has led many municipalities to rely on administrative penalties rather than traditional prosecutions to enforce parking and other by-law infractions.

But the ability of administrative penalties to enforce the Building Code seems to have gone unnoticed. This ability was added in a round-about-way to Ontario’s Building Code Act in 2017 through section 15.4.1, which permits administrative penalties for breaches of property standards by-laws.[1] 

Though property standards by-laws are often associated with yard and building aesthetics, there is broad jurisdiction to set any standards for the “maintenance and occupancy” of buildings. For example, these by-laws can require that buildings conform to certain Building Code standards and prohibit occupancy of buildings that do not conform to the by-law. Though section 15.4.1 has not yet been considered by the courts, in our view, it could be used to impose administrative penalties for breach of these standards, deterring unsafe construction or occupancy in a timely manner. The months-long suspensions of provincial prosecutions during the provincial state of emergency underscores the value of this out-of-court remedy.

While administrative penalties are strictly financial and cannot compel a person to demolish or stop occupying a house, repeated penalties, chargeable against a property’s tax roll, should achieve compliance in most cases. At the very least, the penalties may cover some of the costs of a subsequent injunction or prosecution.

Administrative penalties are not automatically available. A municipality must amend its by-laws to impose administrative penalties for contraventions. A municipality should also pass an administrative penalties by-law that provides for a fair review process with measures to promote procedural fairness, such as appeals to independent officers.

If you have any questions about administrative monetary penalties, our team would be pleased to assist you.

[1] An administrative penalty cannot be imposed for contraventions of the Building Code Act itself – not yet. The provision that would make this possible has been waiting to come into force for several years. It is presently unknown if or when it will come into force.