Caveat emptor: The Romans had it right

AACI | Vice President, The Regional Group of Companies Inc.
  • May. 2, 2013

john clark“By the imposition, removal or alteration of land use controls a public authority may dramatically increase, or decrease, the value of land by changing the permitted uses which may be made of it. In such a case, in the absence of express statutory provision to the contrary an owner is not entitled to compensation or any other remedy.”

— The Law of Expropriation and Compensation in Canada, 2nd Ed., page 22

There was a time a century ago and more when a land owner was free to use, alter and develop their property as they saw fit, provided that, in doing so, they were not committing a criminal act.

In those days, the only likely restrictions were covenants imposed by a property developer or landlord to protect the character of a neighbourhood. An example would be a prohibition against starting up a business that would stink up the street or otherwise make it unfit for general habitation, such as a tannery or a “bone boiling establishment.”

But that began to change by the 1960s, when governments stepped in with land use policies that imposed restrictions on owners.

I am working on one file right now where the restrictions are so severe on a property that it has almost no utility. And when land cannot be used, it generally has no market value.

Any level of government can impose restrictions, with little or no compensation to the land owner. A farmer could have a creek running through his acreage that is under the authority of Fisheries and Oceans Canada because it is considered an important part of an ecosystem.

A wood lot could contain a rare species of tree such as butternut, meaning it cannot be cut. There is an old quarry site west of Ottawa in the midst of a residential development that has restricted use because it’s the habitat of a turtle species considered to be at risk.

Land use restrictions can of course arise for many reasons other than ecological.

For example, within urban Ottawa a couple bought through an estate sale a residential property in an established neighbourhood that appeared to be on a standard 50-foot lot. From the outside, the property looked no different than any other home on the street.

However, almost half of the property – including the back yard, a third of the frontage and even where the garage sat – was in fact owned by the City of Ottawa because a main sewer line ran beneath.

Because it was an estate sale, full and proper due diligence was not carried out by the buyers. The facts didn’t come out until after they had purchased. It was an unwelcome surprise, to say the least.

Of course, it isn’t just any level of government that can impose a land use restriction. Any environmental or conservation organization, through government policy, can impose restrictions. And then there are of course the many other unique circumstances that may arise, such as Aboriginal land claims.

So what is a property owner to do?

Land use restrictions change all the time. Because they are imposed as a policy, it is possible to lobby for that policy to be changed. But of course, this could entail significant time and legal costs, with no guarantee of success.

The best defence is a thorough process of due diligence at the time of purchase (though this is no defence against restrictions that could be imposed due to circumstances that arise at a later date).

Perhaps five per cent of properties or less are likely to have a circumstance that could, or has, resulted in a restriction that affects their use and value. Two ways to research a property are a title search and a formal survey.

An environmental assessment may also be warranted. These steps are not always necessary, but they provide peace of mind by confirming that the property is not, or is not likely, to be subject to some kind of usage restriction.

In those instances where a restriction or a risk of a restriction pops up, it may change the dynamics of a negotiation – that purchase price for five acres of land may now have to be reduced to reflect that only three acres are in fact usable.

Ultimately, it is the buyer who must beware. Romans must have known this as they came up with the term caveat emptor. Buy real estate – absolutely! Know what you’re buying – absolutely!

Much like I have written before on the related subjects of property assessment and taxation, the buyer/owner must ensure they are in possession of all the facts the need to know and that any facts provided to them by any other party – a seller, a municipality, an assessor’s office – are reasonable, correct and comprehensive.

Saying, “but I didn’t know!” won’t help you later if buyer’s remorse sets in.

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

About John Clark: With over 30 years of experience in the national real estate appraisal and valuation industry, John Clark (BA, AACI, P.App., FRICS, Chartered Valuation Surveyor) is a leading expert on real estate matters that impact the value of commercial, institutional, residential and other special use properties. He joined The Regional Group of Companies Inc. in 1988 and has served as Vice-President of Valuation and Consulting since 1990. He is a Fellow of the Appraisal Institute of Canada and served as its National President, 2001-2002.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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