When considering subdivision control and section 50 of the Planning Act, Ontario real estate lawyers have been known to refer to minefields, traps and “Planning Act problems”. At its basic level, section 50 prohibits the unauthorized “severance” of lands1 and the potential problems (and minefields and traps) are serious because of the consequences of non‐compliance as set out in subsection 50(21) of the Act: the transaction may be found to have not created or conveyed any interest in land.
You may be able to solve the problem by applying for and obtaining consent from the local committee of adjustment or land division committee, but it will be important to consider who will be responsible for obtaining the consent and the extent of that party’s obligation. There is always the possibility that the application for consent will be unsuccessful, or there may be significant delays and/or unforeseen requirements resulting from conditions imposed by the committee of adjustment. Consequently, while consents may solve Planning Act problems, disputes over the scope of the parties’ obligations in relation to the application process can create a whole new set of problems.
The Planning Act clause in the standard form Ontario Real Estate Association (OREA) and Toronto Real Estate Board (TREB) agreements of purchase and sale requires the vendor to “proceed diligently at its own expense to obtain any necessary consent”. Even in the absence of a requirement that the vendor “proceed diligently”, courts have been prepared to impose an obligation to proceed in good faith, such that a party seeking to obtain consent could not simply stop the process and then seek to terminate its contract.2
The scope of the obligation to obtain consent was recently considered in Southcott Estates Inc. v. Toronto Catholic District School Board3. In this case, the vendor had the contractual obligation to use best efforts acting in good faith to obtain consent of the Toronto Committee of Adjustment to the severance of the subject lands by the closing date. The consent was not obtained and the vendor took the position that the agreement of purchase and sale was terminated. The vendor was found to have breached its obligation,4 and several reasons were cited, including the vendor’s failure to contact the planning department and the local City councillor at early stages, the vendor’s delay in processing the application, its failure to provide a development plan for the property that had been requested by City staff, the vendor’s “strategic decision” to proceed with the committee of adjustment hearing despite indications from City staff that the application would likely be deferred (since no development plan had been provided) and the vendor’s failure to keep the purchaser informed during the process.
There may be differing views as to what it means to process a consent application with best efforts and in good faith, but an agreement which expressly requires the vendor to proceed diligently, as in the OREA and TREB agreements, calls for something else. The meaning of this type of provision was considered in John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd.5, where a vendor had contracted to “proceed diligently at its expense to obtain any necessary consent” and the provisional consent was granted, subject to a condition requiring the dedication of lands for a road extension at no cost and construction of the road extension (originally estimated as a $350,000 cost). The vendor terminated the agreement of purchase and sale and the purchaser initiated an action for specific performance. The purchaser was successful at trial and at the Court of Appeal.
The evidence disclosed that when the agreement was signed the vendor had intended to build the road extension. The trial judge therefore found that there was nothing commercially absurd about requiring the vendor to assume the entire obligation. The Court of Appeal also disagreed with the vendor’s claim that it had fulfilled its contractual obligation, and cited a dictionary definition of “diligence” as “constant and earnest effort to accomplish what is undertaken.” It was noted that the only way for the vendor to obtain any necessary consent was to undertake to bear the cost of building and dedicating the extension of the road, if required, or to appeal the imposition of the conditions if it wished to have the conditions removed.
As these cases illustrate, it is appropriate to consider more detailed terms in your contract so that all parties understand their obligations. Some consent applications are straightforward but the fact remains that the approvals are issued (or not issued) pursuant to a public process under the Planning Act, so there are many potential hurdles along the way. At the very least, there may be delays (as in Southcott Estates), there may be expensive conditions (as in John E. Dodge Holdings), and there is the possibility that the decision of the committee will be appealed to the Ontario Municipal Board (OMB), resulting in additional delays and costs.
With all this in mind, the following are matters to be reviewed once you know that consent may be required.
Does the vendor or the purchaser (with the vendor’s authorization6) file and handle the processing of the application? Under most agreements, the vendor has the responsibility for obtaining consent. If an agreement is silent as to who is responsible for obtaining the consent, the courts have held that this obligation will be the vendor’s.7
In some cases, a vendor controls the application process but is also able to have the purchaser pay all or some of the costs. The costs of any required reference plan or consultant reports required by the municipality should also be considered, as well as the cost of satisfying the conditions.
Does the other party assist?
To what extent is the non‐responsible party required to cooperate with the preparation and processing of the application? For example, background documentation in the vendor’s possession may be helpful (or even necessary) to a purchaser making or presenting an application. Also, a purchaser’s proposed plans for the property may be relevant (or required, as in the Southcott Estates case) when the vendor proceeds with the application. It may also be appropriate to consider a requirement the non‐responsible party cooperate, upon request, by attending and making submissions at any Committee of Adjustment meeting or OMB appeal hearing.
How far is far enough?
Will the responsible party be required to “proceed diligently” or something less (or even something more)? A party may consider using a “reasonable efforts” concept or something more specific to limit the extent of its obligations. For example, a party may wish to have its obligation limited such that it may terminate the agreement if preliminary discussions with municipal staff indicate that the application would not be successful, or that costly conditions are likely to be imposed. Further along in the process, the responsible party may want the right to terminate if the application is refused or conditions are imposed which the party is not prepared to satisfy. If a party is bound to “proceed diligently” to obtain consent, a court could find that the obligation includes appealing any such decision to the OMB. It would therefore be prudent to consider this possibility in advance and seek to negotiate the ability to stop the process. Similarly, since a third party may file an appeal of a favourable decision by the committee, the requirement to defend such an appeal at the OMB should also be reviewed. Whenever Planning Act consent is required, it is important to remember that the process can be unpredictable. Even if a “simple” application is approved by the local committee, it may take longer and be more expensive than anybody expected. Accordingly, the parties will benefit from anticipating issues at an early stage so they may allocate risks and responsibilities as part of the transaction and avoid future disputes.