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Municipality Does Not Bear Responsibility for Misrepresentations During Rezoning

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This column was originally published on the Real Estate News Exchange (renx.ca).

If municipalities give developers false information during a rezoning process and damages result, the blame doesn’t necessarily fall on them. This was recently confirmed by Ontario’s highest court in a decision which stated a municipality was not necessarily responsible for providing a developer with inaccurate information regarding an easement over the course of the rezoning process.

In Charlesfort Developments Limited v. Ottawa (City), a condominium developer ran into a number of setbacks, construction delays and lost large profits after the City of Ottawa provided inaccurate information about the presence of a watermain on a municipal easement. Although the developer was successful in being awarded its resulting damages, the Ontario Court of Appeal overturned the decision and held that the city was under no duty to protect the developer from potential damages stemming from its inaccurate information.

Charlesfort Developments Limited (“Charlesfort”) is a property development company based in Ottawa, Ontario. In 2004, it bought a property with the intention of redeveloping it into a high-rise condominium building with an underground parking garage. When Charlesfort bought the property, it was zoned as a general commercial designation and the purchase was conditional on a rezoning application for residential use, which was filed by a different developer the previous year.

Over the course of the rezoning application, the city noted the presence of a municipal easement which ran along the northern edge of the project site’s lot line but was located on an adjacent property. The city planner who was assigned to the application erroneously informed Charlesfort’s planner that the easement contained a “trunk sewer”, which received wastewater from nearby sewer lines.

A few years later, during the site plan approval process, it was discovered that the easement actually contained a watermain, which sat within a few feet of the northern lot line. The watermain was old and in unknown condition and millions of gallons of water flowed through it every hour.

The presence of the watermain meant that Charlesfort was not able to build its underground parking garage right up to the northern lot line as planned. This resulted in Charlesfort being forced to redesign the parking garage and reduce the number of parking spaces available for purchasers of the condominium units. It also caused the project to undergo significant construction delays and Charlesfort incurred increased unexpected costs as a result.

Charlesfort sued the city on the basis that it negligently misrepresented the nature of the easement during the rezoning process. About $6 million in damages was sought for a number of reasons, including increased construction costs, decreased project revenue, and damages associated with the delay. At trial, Charlesfort was awarded about $4.5 million in damages.

The trial judge ruled that the city owed Charlesfort a duty of care because the two parties had a direct relationship over the course of the rezoning application. As such, it was held that when it received the rezoning application and fee, the city undertook the responsibility to provide Charlesfort with accurate information about “the existence, location, and size of municipal structure such as the water main and to advise whether it played a critical role in the municipal water supply and whether the city had any knowledge of its condition,” as this information was directly relevant to Charlesfort’s redevelopment work. Charlesfort was also deemed to have relied on the information to its detriment and it therefore suffered damages as a result.

The Court of Appeal, however, saw things differently and overturned the trial judge’s ruling. Specifically, the Court of Appeal held that the city was responsible for approving the redevelopment application as part of its municipal mandate and it was acting solely in the public interest. Therefore, the court reasoned that the city had no duty to protect Charlesfort from any loss it may have suffered from inaccurate information.

In other words, the court ruled the city was just fulfilling its mandate to approve the redevelopment application, which was only one stage of the development process. As such, it had no responsibility in guaranteeing that Charlesfort’s project would be built or turn a profit. The court stated that, if the city was deemed to be responsible for protecting Charlesfort’s economic interests this would, “in effect, render municipalities insurers of developers’ profits. It would, in other words, create a potentially limitless liability”.

This is a concerning result, given that it essentially means that, in fulfilling a public interest mandate, municipalities cannot be taken to task for providing information that is incomplete or completely inaccurate in a development application. This holds true even if a developer suffers quantifiable damages as a result.

This decision shows that developers should always take the extra step to verify information from given by municipalities instead of taking it at face value. Although this may make the whole development process longer and more difficult, skipping this step could result in increased time and expense with no compensation.

Pallett Valo LLP has earned my trust and loyalty based on their extensive legal knowledge and expertise, further enhanced by their prompt service and attention to detail.
Mark Hallink