Responding to Due Diligence Letters from a Purchaser’s Lawyer

In the Spring 2005 issue of this newsletter, we cautioned against providing “approval in principle” comfort letters to developers seeking to market early under the Real Estate Development and Marketing Act. In the same vein, but of more frequency and concern, are property information/zoning confirmation requests from the lawyers acting for purchasers of property. These ask for factual and legal opinions that far exceed the information a local government is obliged to provide under its governing legislation. If answered, the response can expose the local government to significant legal risk and potential liability.

Sample Request for a “Comfort” Letter

To appreciate the magnitude of such requests, here is an example of a letter recently received by a client:

Please provide us with information about the Property:

a) particulars of the existing zoning or development bylaws and uses permitted under the bylaws. Please provide us with a current copy of the relevant portion of the zoning or development bylaw and invoice us for the copying costs;

b) whether any amendments to the applicable bylaws and regulations of the municipality have been tabled or if any proposals for such amendments have come to your attention;

c) whether the current use and development of the Property as a gas station, including the construction and siting of all improvements on the Property, fully complies with the applicable zoning or development bylaws and regulation of the [local government] including the yard setback requirements;

d) whether any zoning or development bylaws or regulations would limit or restrict any present permitted uses or make them non-conforming;

e) whether a [local government] ‘official community plan’ includes the Property and, if so, whether the current use of the Property as a gas station confirms with the plan;

f) whether there are any outstanding land use contracts, development agreements, phased development agreements, development permits, or building permits and, if so, whether the Property is in compliance with them;

g) whether all necessary permits and licences for the current use and development of the Property have been obtained and are in good standing;

h) whether all necessary occupancy certificates have been issued;

i) whether any notices have been sent to the owner of the Property about:

(i) defects in the construction or operation of the buildings or any part of the buildings;

(ii) any outstanding work orders, or notices of violations or deficiencies on file with your department affecting the Property;

(iii) non-compliance with any development permit, building permit, zoning, building or land use bylaw,

and, if so, whether any such notice remains outstanding;

j) if any infractions or non-compliances are on record to the Property, please advise us as to whether the [local government] intends to take any action against those infractions or non-compliances;

k) whether the Property has been designated as a protected heritage site under the Heritage Conservation Act or has been designated as an agricultural land reserve under provincial legislation;

l) whether you have any record of contamination in or on the Property or any record of non-compliance with the provincial Environmental Management Act or applicable bylaws and regulations of the [local government];

m) whether a demolition order has been issued;

n) whether any Board of Variance orders have been issued; and

o) the dates of the last fire warden’s electrical safety inspection and health department’s inspection of the Property, and whether the buildings and other improvements on the Property comply with all of the requirements of the fire department’s electrical safety department and the health department.”

It is not just the opinions requested that are troublesome, but that (a) the requestor is someone who is still essentially a “stranger” to the property and therefore local governments must be careful not to reveal personal information and (b) the requests are often accompanied by ridiculously short deadlines (this example being less than a week) and rarely accompanied by any fees.

Local government’s liability

BC Courts have repeatedly found local governments liable for the misstatements of their officials concerning zoning, building and other regulations which private individuals relied upon to either purchase properties and/or set up businesses (e.g. Windsor Motors Ltd. v. Powell River (District) (1969) 4 D.L.R. (3d) 155 (B.C.C.A.); Jung v. Burnaby (District) (1978) D.L.R. (3d) 592 (B.C.S.C.); Littler v. Mission (District) (1992) 6 M.P.L.R. (2d) 164 (B.C.S.C.); Kranz v. Nelson (City) (1994) 24 M.P.L.R. (2d) 245 (B.C.S.C.).

Local government’s statutory obligations

Local governments do have certain obligations regarding disclosure of public records, including:

• Records that must be available for public inspection under Community Charter s.97 and Local Government Act s.794 (met if record is available within 7 days after it has been requested), including:

o all bylaws

o all proposed bylaws that have been given first reading

o minutes of open meetings

and other documents not usually relevant to such requests

• List of records that must be available for public inspection under Local Government Act s.896 (met if list is available for public inspection during their regular business hours), including:

o every LGA Part 26 and Part 27 bylaw in effect and a general description of the purpose of the bylaw

o every LGA Part 26 and Part 27 bylaw that has been given first reading and a general description of the purpose of the bylaw and its status

o every LGA Part 26 and Part 27 permit that has been issued

• Record of Board of Variance decisions, per LGA s.900(4)

• Phased Development Agreements and related documents per LGA s.905.5

• Documents relevant to Public Hearings in accordance with the duty of procedural fairness (though this is not usually relevant as the requests come at the time of property transfer not during the public hearing process)

• Written reports of the hearing per LGA s.890 (again not usually relevant)

• Access to records in accordance with the Freedom of Information and Protection of Privacy Act

• Bylaws under Community Charter s.95 providing for public access to records in addition to Freedom of Information and Protection of Privacy Act (met by having the “record available for public inspection at the municipal hall during regular office hours”; may be copied on payment of applicable fee)

A local government’s statutory legal obligations are far less than providing the answers to the questions and every one of the documents requested in the letter. Many of these requests are essentially for legal opinions, which the lawyer requesting them should determine from an examination of the public documents.

We strongly recommend that you seek legal advice before responding to such a letter. In any case, do not provide answers to the questions regarding the effect of the bylaws on the specific property. Stick to performing the obligations and providing the information set out in the statutory provisions noted above.

As the letter appears to follow a standard format and may become increasingly frequent, it may be advisable for you and your legal advisor to prepare a standard response to subsequent requests.