Permits, Real Property Reports and Title Insurance

Permits

It is the seller’s responsibility to ensure permits are in place for all improvements and additions.  Maybe you bought your property a long time ago when the issue of permits was not strictly enforced or maybe you bought using title insurance and avoided the entire issue of permits. Now, the buyer is insisting that you obtain permits.

The most effective solution is to determine whether any permits are missing before you even list the property for sale.  For example, if you have a covered deck and no permits were obtained for the roof, it is often more cost effective to remove the cover than it is to apply for the permit only to find that a report from a professional engineer is required, attesting to the load-bearing capabilities of your covered deck before a permit will be issued.  Read the next section on “Changes to the Property – Modifications” to see what you can do to remove improvements after an REPC is signed (basically nothing).

Changes to the Property – Modifications

Make sure the property you are selling is in compliance with permits in place before listing for sale and certainly before signing an REPC.  The contract says you are selling the property “as is”.  This means you cannot make any changes to the property after the contract is signed without the permission and consent of the buyer.  For example, we had one seller who had a small decorative fence at the front of their property that encroached onto the city land.  The buyer refused permission to have this fence removed and it cost the seller several thousand dollars to obtain an Encroachment Agreement.  The seller could have removed the fence in less than an hour if it had been done before listing the property for sale or signing the contract.

Real Property Report (RPR)

A Real Property Report or RPR, as the name implies, is a complete report on the real estate or real property.  This report is prepared by an Alberta Land Surveyor.  It shows the dimensions and directions of all property boundaries, the location and description of all buildings on the property, the location of all boundary fences, and other items such as utility right-of-ways, and encroachments from neighboring properties.

Under the standard Alberta Residential Real Estate Purchase Contract, the seller is obligated to provide a current RPR complete with evidence of compliance at their expense on all property except condominiums that are not bare land condos. What is the definition of “current”.  The key factor is whether there have been any changes to the property.  The report can be as old as 1996 so long as there have been no changes to any of the buildings or other structures on the property.  If anything has been added or altered, a new RPR is likely required.  If something has been removed, most times an existing report can be utilized.

It is necessary to order a new report when any structures including boundary fences are not shown on the RPR.  It is possible to avoid ordering a new RPR when ground cover items only have been added as they do not require a building permit.  This includes concrete patios or decks that are less than 0.60 metres (24”) off the ground.

If there is any doubt as to whether a new RPR is required, please contact our office.

One of your obligations under the standard AREA Real Estate Purchase Contract is to provide the buyer with a Real Property Report (RPR) with evidence of municipal compliance.  There are two things you should consider before agreeing to provide an RPR to the buyer:

  • Have you built any structures or made any other improvements since purchasing the property?
  • Did you obtain development permits for these improvements?

You must obtain a development permit for any improvements. As noted above, ground level improvements do not require a development permit. A portable garden shed that has never been anchored to the ground does not require a development permit.  The municipality will not endorse your RPR with a compliance certificate if:

  • The zoning bylaw requires you to obtain a permit for an improvement and you have not applied for such permit; or,
  • The improvements were not constructed in accordance with your development permit application; or,
  • The structures on the site do not comply with the municipal zoning bylaw.

To avoid difficulties with municipal compliance, obtain any outstanding permits prior to listing the property for sale.  Alternatively, consider removing structures without permits that are movable or do not materially affect the value of the property before completing an RPR.  We have seen real estate deals complicated, delayed and significantly increase costs over minor items such as a lean-to against the side of a garage.  Remember that once a contract is signed, you cannot alter the property and you are now obligated to obtain permits for that valueless lean-to or other structure

Checking into the status of development permits on your property for sale will go a long way toward avoiding complications in the sale of your home and ensuring a smooth transaction.

The RPR must be accompanied by either a Compliance stamp from the local municipality or a covering letter from the municipality stating everything is acceptable.  This provides proof that development permits are in place for all structures on the property.  Many issues can arise where no development permit is in place.  For example, it may not be possible to obtain a development permit for certain structures.  Or, the seller can obtain a development permit and then turn it over to the buyer.  The seller has no obligation to obtain a building permit.  The buyer is then left with the burden of finalizing the building permit and curing any deficiencies with the building code. 

A development permit allows the structure based on zoning regulations.  A building permit allows the structure based on building code requirements.  For example, a covered patio may be allowed in your neighborhood and a development permit will be issued.  However, if that covered patio does not have sufficient roof beams and support pillars sunk in concrete below the frost level, it may have to be torn down.  One potential remedy for deficiencies in this area is the use of title insurance.  This can be used where no RPR is available or where certain deficiencies can be avoided through the use of title insurance.

Title Insurance

We highly recommend the use of title insurance in all real estate transactions.  For a one-time fee, it provides coverage for the entire length of your ownership of the property.  Policies can even be purchased by existing homeowners that provide coverage back to the time of purchase.

As the name implies, title insurance covers many of the risks associated with maintaining secure title to your property.  For a one-time fee, some of the insured risks on residential properties include:

  • Violations of municipal zoning bylaws
  • Encroachments onto an adjoining property (other than fences and boundary walls)
  • Setback violations
  • Unknown or undisclosed realty tax arrears
  • Existing work orders
  • Lack of legal access to the property
  • Someone else owns an interest in your title
  • Existing liens against the title
  • Condominium assessments that were unknown at the time of purchase
  • Hidden deficiencies such as underground storage tanks
  • Unregistered utility easements
  • Unmarketability of the property due to matters that would have been revealed by an up-to-date Real Property Report (RPR)
  • Fraud, forgery, and false impersonation to the extent they affect the validity of title

In our view, the fraud protection for the lifetime of your ownership justifies the premium you pay for the policy.  All the other coverage is an added bonus.

For more information on Title Insurance go to:

Stewart Title Insurance at www.stewart.ca
Chicago Title Insurance at www.ctic.ca

Real Property Report (RPR) vs. Title Insurance

So which is better, an RPR or Title Insurance?

Title Insurance allows a closing to take place in a timely fashion without investigating the status of  the property, the buildings and the permits.  It also permits closing without registration at Land Titles as any issues that arise during the registration process will be covered by the Title Insurance policy.  When there is a rush to get a deal closed, Title Insurance can provide an effective solution.

When time permits, which is typically the case, an RPR offers clarity over a certain defined list of issues.  For example, you will know whether your fence or garage eaves encroaches onto the neighboring property or one of their structures encroaches onto your property.  You will also know whether permits have been obtained for all exterior structures such as decks, carports, hot tubs, garages, and the house itself.

Where encroachments exist or permits have not been obtained, a purchaser can then make sure the seller looks after these issues as part of the closing process.

Title insurance insures against these same issues, however, it does not fix them.  If a purchaser discovers that there are no building permits for a structure long after closing, it may be difficult or impossible to pursue the seller to rectify this deficiency.  The purchaser will then be left with the burden of curing this deficiency at their expense before they sell the property.

Title insurance offers the ability to close on a real estate deal and satisfy all the requirements of the mortgage lender without the cost and potential time delays of obtaining an RPR.  If deficiencies are discovered after the closing date, the title insurance typically covers the cost of rectifying unknown deficiencies that are subsequently discovered.

Title insurance also allows closing where there are known deficiencies the parties simply wish to defer, rather than bring to the attention of the municipality.  For example, we recently dealt with a house where a small decorative fence encroached onto city property.  The cost of obtaining an Encroachment Agreement from the city exceeded $30,000.  Both parties agreed they would rather not pay the $30,000 fee.  Instead, they closed with title insurance even though the insurance excluded this known defect.  This still allowed the buyer enjoyment of the fence without payment of the $30,000 fee.  The buyer agreed to accept the risk that sometime in the future the city may require payment of the fee or removal of the fence.

Title insurance also covers many risks that are not touched by an RPR.  For example, existing work orders for interior renovations are covered by title insurance.  Interior renovations are not touched by RPRs. As another example, title insurance paid to move an underground septic tank when it was discovered it was partly under the neighbour’s land. This would never show up on an RPR. Obviously, fraud coverage for the lifetime of the ownership is not covered by an RPR either.