Welcome to this month’s Dear Urbaneer, where clients get to dip into the Urbaneer knowledge bank for answers to their real estate questions. This month, I offer my guidance to clients who are concerned about past renovations, prior to their purchase, which may have required a building permit.
Is it safe to assume that, when a house is purchased from a previous owner, appropriate building permits would have been issued for any changes to our house by the previous owner(s)? Our lawyer did not raise any flags prior to us taking possession.
Here's why I ask: some people we know had the sale of their house held up because of a lack of proper permit documentation. They had done some renovations to their home in the past (that would have required a building permit), but failed to acquire one at the time.
I want to ensure that this won't happen to us. I've looked into when a building permit is and isn't needed, and I'm concerned about what renovations the previous owners of our home might've completed under the radar. Could there be something lurking in our property's past that could potentially impact us if we want to sell, rebuild, or add an extension one day?
Am I overthinking or even worrying over nothing?
Premature Permit Panic
Here's my reply:
Dear Permit Panic:
Yours is a great question!
You're correct: when you were closing on your purchase, if there were any outstanding active Building Permits they would have shown up during the Title Search, which would have been completed as part of your lawyer's due diligence. Given there were none, then it means any past permits issued to the Seller of your dwelling were signed off as complete.
However, it is possible that changes and/or additions made to the property prior to your ownership that would have required a Building Permit may not have been completed with one. These would mostly have to do with structural changes, required electrical/plumbing changes, an addition/extension, or building/modifying a garage. For your property, this might pertain to your enclosed front porch, the enclosed rear porch / kitchen extension, and the garage being converted into a 'studio'.
First, you might make a written request from the City of Toronto Archives to pull all the past history on the house, including past issued permits. You could then see if permits were issued for your enclosed front porch, kitchen extension/reno, and converting the garage into a studio. Here's the link to the City Of Toronto Archives Site.
I also suggest you review the City's rules for when a Building Permit is required, so you can assess what may have been done to your property which may have required a permit. Here's the City of Toronto's summary of common projects that require a Building Permit.
It would also be prudent to reach out to the lawyer who closed your purchase to confirm they secured Title Insurance and, if yes, the extent of the coverage. This would be the best means to ensure you're protected from a past modification to your property without proper permitting.
To clarify, Title Insurance covers you for a range of potential losses for risks like encroachment issues, survey errors, existing undisclosed liens, in addition to other issues which prevent having clear ownership of your property. Also, if someone were to challenge your property title, or if you have to defend it, say when a neighbour’s addition or structure (like a shed) encroaches on your property, your title insurer will cover the costs of defense (up to the policy’s stated maximum amount). Plus there's an additional benefit with the correct coverage. Many title insurers offer a policy rider for 'building compliance', which means if you purchase a dwelling that was renovated without proper permits, or if the changes don't comply with existing building code regulations, the title insurer will compensate the cost to remedy the deficiencies. Many people aren’t informed on the existence of this clause, which is currently under review by several insurers because about half of the claims made under this portion of the coverage are for significant amounts. In fact, some title insurers are already limiting coverage.
It's also possible you might arrange to purchase Title Insurance now, as an existing owner, though the rules will be different because any pre-existing conditions cannot be determined as easily, but your lawyer can spell that out for you in detail. One reason existing homeowners purchase Title Insurance is to secure coverage against the risk of mortgage fraud, where crooks steal personal information and forge documents to transfer ownership of title, and then take out a mortgage on the property and disappear with the funds.
Here's a comprehensive digital pamphlet called 'Understanding Title Insurance' issued by the Financial Services Commission Of Ontario which is very helpful.
We reached out to Lawyer James Laks for his guidance who, in turn liased with Stewart Title to offer us their comment. Here's their insights which will give you an idea of the complexity of any Title Insurance coverage:
The following policies are offered in Ontario: Residential Owner and Lender Policies, Commercial Owner and Lender Policies, and Existing Residential Owner Policies. Looking specifically at Residential Policies, premiums are based on the amount being insured (generally the purchase price or the mortgage amount). Where you are purchasing both owner and lender policies for the same transaction, the premium will be calculated based on the policy with the largest insurance amount, with a reduced “additional” premium applied to each additional policy.
Residential owner policies have as their policy amount the purchase price of the property. Such policies generally contain inflation coverage such that as the value of the property increases, the policy amount increases up to a maximum of 200% of the original policy amount. The policy amount decreases, as per the conditions of the policy, by the amount paid under a claim.
Title insurance is not a home warranty. It does not cover physical/structural conditions and physical/structural defects including, but not limited to, those affecting the improvement(s) located on the Land and those that impact value or marketability. Accordingly, a title insurer will not fix defects in the construction of the house or repair a leaky roof simply because they need fixing. The policy does not guarantee that a property is built to the building code.
There are certain covered risks that result in the claim being resolved by repairing defects in a property. You will note covered risk 20(f) in our sample residential owner policy which provides coverage for loss or damage as a result of :
20. You are forced by a Governmental Authority to remove or remedy your existing structure(s), or any portion thereof, other than a boundary wall or fence, because:
(f) any portion of it was built without obtaining a building permit from the proper Governmental Authority, provided a building permit would have been required by such Governmental Authority at the time of construction of the structure or relevant portion thereof.
Claims under covered risk 20(f) are subject to the provisions of 4(i) of the Conditions.
There is also coverage for existing work orders in 'covered risk 22'.
Policies are subject to exclusions and exceptions. Exclusions are contained in the policy jacket and include, for example: Risks: - that are created, allowed, or agreed to by you; - that are actually known to you, but not to us, on the Policy Date, such as any matters disclosed in a building inspection report or home inspection report obtained by the Insured prior to the Policy Date.
The failure of all or part of the improvement(s) located on the Land to have been constructed in accordance with applicable building codes and/or to comply with current building codes. This exclusion does not apply to violations of building codes if notice(s) of violation appear(s) in the Public Records at the Policy Date or if the existence of the violation would have been disclosed by a Local Authority Search of your Land at the Policy Date.
Each claim is reviewed on its own facts based on the terms of the policy. Thus, if a purchaser knew that there were substantial defects with a house and chooses to purchase it anyway, this may be considered an “agreed to risk."
That being said, we pay millions each year in claims resulting from work done without required permits as per the provision of covered risk 20(f). An example of such a claim is:
Our insured purchased a house and then subsequently received notice of an order from the municipality to remove three large additions that had been added to the home by the prior owner without the required permits. The order required that our insured either remove the additions or obtain permits for the construction. Unfortunately, to comply with the order, two of the additions required major structural work and the third addition was in violation of a local zoning by-law and would require a minor variance from the by-law to remain in its current location.
Resolution: Stewart Title paid approximately $110,000 to have the permits obtained and approved. We also obtained a minor variance to the zoning by-laws, allowing the third addition to remain in place.
As you can see, there's a lot of specifics and nuances which may limit your coverage. However, obtaining Title Insurance is the best course of action to protect yourself from potential issues in existence at the time of purchase.
You may also want to take a look at these informative Toronto Star articles by lawyer Bob Aaron called Title Insurance Really Isn’t Optional and Renovations May Hide Problems From Home Buyers. The gist of it? Choose your Title Insurer carefully and secure the maximum coverage to protect yourself!
This is a good time to inquire whether you invited your existing Building and Contents Insurer into your dwelling to inspect the property. It's something you should do - in addition to having Title Insurance - as it limits the ability to have an insurance claim denied. I address this in my blog entitled, 'The Importance of Accurate Homeowner Insurance'.
A big thanks to our colleague, solicitor James Laks, who lent his expertise for this blog!
For the Urbaneer Team, understanding the complexity of the Toronto real estate market helps us serves you. In a market oscillating with a multitude of variables, it's critical to carefully craft a strategy tailored to your specific needs and objectives when buying and selling real estate in Toronto. Don't you agree?
If you, or someone you love, needs guidance - without pressure or hassle - please know we're here to help!
Did you enjoy this piece? You may find these posts on renovating or expanding a property in the City of Toronto of merit too:
~ Steven and the Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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