The Mortgage Instructions Toolkit provides practical guidance for lawyers responding to lender requests in residential real estate transactions. This page addresses building compliance issues.

The situation

Building compliance issues involve municipal records, and include:

• Outstanding work orders for non-compliance with municipal requirements. This could range from unkempt lawns to health and safety issues for building occupants.
• Lack of a necessary building permit, non-compliance with the permit, or non-completion of the building permit process. All required inspections must be done to the satisfaction of the inspector for a municipality to sign off on a building permit.
• Non-conformity with zoning requirements with respect to the use of the property or changes to it since it was built. Examples include: the change of use of a single family dwelling to a multi-unit building, an added extension that doesn’t conform to zoning requirements, or parking on a part of the property where it is not permitted.

Title insurers often do not require a review of off-title issues, and usually do not provide complete coverage for them.

Practice Guidance

• Speak to your borrower client about the limits to coverage for building compliance issues in the title insurance policy.
• Ask your borrower client about any concerns they are aware of with respect to the property.
• Discuss the risks of not asking for municipal records regarding building compliance issues.
• Clarify the possible loss of coverage under a title insurance policy if a building compliance issue is found and cannot be remedied before closing. Disclosure of the issue to both the lender and borrower client is usually required.
• Where your client directs you to do a building compliance review, provide the municipality’s responses without interpreting them, unless you have expertise in the relevant matter. A compliance review might include, for example: work orders, building permits, building and zoning codes or bylaws.
• Notify the title insurer of any building compliance issues that have been identified. This could result in a limitation of coverage with respect to the matter.
• If your borrower client decides that a building compliance review is not necessary, get a written confirmation signed by the client to that effect. The confirmation should acknowledge the potential risks of moving ahead without the compliance review.
• Where your borrower client has directed you not to conduct a building compliance search, the only statement you should make to the borrower and lender with respect to building compliance issues is that title insurance is being put in place.

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