A decision of the Ontario Superior Court from January 2021 highlights the serious financial risk to municipalities that regulate building construction and provides an opportunity for re-visiting best practices for managing such risk.
In Breen v. The Corporation of the Township of Lake of Bays, 2021 ONSC 533 (“Breen”), a couple purchased a cottage in Lake of Bays, Ontario in 1999 for $710,000. During subsequent renovations to the cottage in 2011 they discovered several structural issues and Building Code violations in the original construction that rendered the cottage unsafe to inhabit. Construction of the cottage by the previous owner had begun in 1989 pursuant to a building permit and the Township had conducted building inspections in 1990 and 1991.
The couple brought a claim against the Township for negligent building inspections and a failure to enforce the Building Code. The Court agreed that the Township owed a duty of care, had breached that duty, and was liable for damages of over $350,000 for repair costs and emotional and mental distress.
The Court found that subsequent purchasers of buildings, such as the Breens, have no say in the actual construction of a building that proves defective, and so they are entitled to rely on the municipality to show reasonable care in inspecting the progress of the construction.
Of note, municipalities in Ontario are required to appoint inspectors who will inspect construction projects and enforce the provisions of the Building Code. By contrast, in B.C., local governments are empowered, but not required, to regulate building construction. In practice, most local governments do pass bylaws to regulate building construction, and once they do, the law of negligence dictates that, subject to certain defences, they will be held liable if they carry out their duties under the bylaw in an improper manner. This was made clear by the seminal case of Kamloops v. Nielsen,  2 S.C.R 2, where the Supreme Court of Canada held that once the municipality had made a policy decision to regulate building construction, the municipality owed a duty to enforce the bylaw provisions to prevent injury to persons such as the third-party purchasers.
In Breen, the Ontario Superior Court found that a municipality’s obligation to ensure that a building complied with the Building Code arose both at the building permit stage, and during subsequent inspections at various phases of construction.
The Township could not produce any evidence that a set of plans and specifications for the cottage were ever filed at the time of the permit application or at later inspections. Further, the Township never conducted an inspection of the structural framing of the cottage, and instead merely wrote to the permit holder that if they did not hear from him they would assume that the project was complete and that they would close their file.
It is beyond the scope of this brief article to discuss in detail all the potential defences available to local governments facing negligent building inspection claims, but the most frequently employed defences fall into the following categories:
- Policy decision immunity
If a municipality chooses for good faith policy reasons to limit the number of inspections it undertakes, it will not be liable for construction deficiencies outside the scope of its inspections. If, however, a particular inspector decides not to carry out one of the usual inspections in a particular case, that would likely be an operational decision giving rise to a duty of care.
Attempts to include disclaimers in permits or other approvals, or in the text of a building bylaw itself, have proven to be largely ineffective at disclaiming or transferring liability from local governments, as the courts have traditionally read any ambiguity in the language against local governments.
- Statutory protection to enforce bylaws, for building plan approval, and for individual public officers
While they cannot be discussed in detail here, local governments in B.C. should be aware of the protections offered by sections 738, 742, and 743 of the Local Government Act. The most important of these in this context is s. 743, which provides immunity to municipalities for liability arising out of issuance of a building permit where a professional engineer or architect has certified that the plans comply with the Building Code. This provision was successfully relied upon in the case of Parsons v. Finch before the B.C. Court of Appeal (2006 BCCA 513).
- Purchaser knowledge of defects
The case law indicates that where a purchaser is aware of a defect in a dwelling but proceeds to purchase it in any event, the purchaser cannot later claim against the municipality for having failed to detect the defect on inspection while construction was underway (see Day v. Regional District et al, 2000 BCSC 1134).
In Breen, this defence was not available, as the couple had hired a professional home inspector to conduct an inspection before their purchase of the cottage, but that inspection had not turned up the unseen structural issues which were only found during the time of the subsequent renovations. The Court agreed that any inspection at the time of the Breens’ purchase would only have revealed visibly apparent issues, and not the unseen structural issues.
- Limitation periods
The Limitation Act contains a 2-year time limit for bringing actions, but, as in the Breen case, this time limit only begins to countdown from the time at which a plaintiff has, or ought to have, reasonably discovered that a negligent building inspection has occurred. For the Breens, their home inspection at the time of purchase had not turned up the problems and they were not aware of the original construction issues until they undertook renovations a decade after their purchase. Accordingly, they were not beyond the time limit.
There is, however, an “ultimate limitation period” in the B.C. Limitation Act that provides that for any claims arising out of construction occurring on or after June 1, 2013, the limitation period will expire 15 years later, regardless of when the damage took place or when it was discovered.
Best Practices for Managing Risk
First and foremost, local governments that decide to undertake building regulation need to ensure that building bylaws do not assign them responsibilities they are not capable of meeting and tasks they do not have the staff to perform.
Further, as the Breen case highlights, negligent building inspection cases can arise decades after the initial building inspections took place, and it is incumbent on the local government to produce evidence to properly defend itself. Accordingly, strict record-keeping and preservation is of the utmost importance. Standard documents and checklists and staff training can help ensure that claims can be readily responded to many years into the future.
It is also important for building inspectors faced with potentially defective projects to recognize that the ultimate stakeholder is the general public and not the permit holders and contractors on a particular project. Ensuring safety of the public is paramount to the expedient interests of the project owners.
Lastly, if at any time work is progressing in contravention of the building bylaw, the building inspection department should consider its options and choose a course of action. Reasons supporting the decision ought to be recorded. If the reasons include budgetary considerations, that should be noted, since the decision may be classified as a policy decision, potentially giving rise to a valid policy decision immunity defence. Failing to consider relevant options, on the other hand, is not a good faith policy decision.