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Municipality not responsible for misrepresentations during rezoning: Ont. court

If a municipality provides a developer with inaccurate information during a rezoning process, it...

If a municipality provides a developer with inaccurate information during a rezoning process, it cannot necessarily be held responsible for the resulting damages. This was confirmed in a recent decision from the Ontario Court of Appeal, which held that municipalities do not owe a duty of care to provide developers with accurate information over the contents of an easement during rezoning.

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 water main 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.

The basis for the claim

Charlesfort Developments Limited is a property development company based in Ottawa. 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 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 the easement actually contained a water main, 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 water main 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.

The trial court ruling

Charlesfort sued the city on the basis 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 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.

Court of Appeal overturns decision

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, 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 Charlesfort’s project would be built or turn a profit. 

The court stated 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 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.

Therefore, the moral of the story is that, in undertaking a development project, developers would be wise to verity information from municipalities themselves, rather than assuming it is accurate.

This will, of course, make the application and development process lengthier and more cumbersome. However, if developers end up skipping this step, it can result in increased costs, delays and loss of profits with no potential recourse.

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