An Embarassing Example Of Municipal Red Tape & Inefficiency!

Stories!

9 minute read

August 16, 2023

Are you familiar with Murphy’s Law?

I had to look this up, but there actually is a Murphy, just as I’m sure that “Pavlov” had a dog…

Aerospace engineer, Edward Murphy, apparently coined the phrase, “Anything that can go wrong, will go wrong, and at the worst possible time,” although the actual origins of the phrase are unclear and debated.

The regular readers of TRB know that I love to use analogies in my writing.  I love metaphors, similies, often outlandish tangents, and to pull in real-life examples where possible.

I enjoy sayings, anecdotes, proverbs, adages, and any catch-phrase or turn-of-phrase that I can get my hands on!

I can’t possibly think of a better saying to describe the following story than Murphy’s Law.

Really, and truly, this blog story is an example of:

Anything that can go wrong, will go wrong, and at the worst possible time…

Mickey and Mallory are clients of mine that underscore the true meaning of the phrase “clients for life.”

Famous last words?  Yeah, that would be ironic.

While I have clients that surely date back further than 2013 when we started working together, our relationship over the last decade underscores how important my clients are to me, and how happy and proud I am when I get work on clients’ behalf, again and again.

Mickey and Mallory came to me in 2013 and said that they wanted to buy a house.

They had a budget of around $750,000, which even back then, provided limited options.

We eventually found a house that was listed for $699,900, but alas, there was the dreaded offer night!  I explained to Mickey and Mallory that the eventual sale price was going to be a lot higher, and likely sail over $800,000, but there was good news, after all.

You see, the property had a self-contained basement suite that I would hardly define as a “basement apartment,” since this home was purpose-built with a 3-storey owner’s suite and a lower-level rental suite.

The property was part of a row of eight similar properties, all built in 2002.

It was perfect!

The basement suite would rent for $1,100 per month and that would cover upwards of $200,000 worth of mortgage, back in 2013.

Not only could Mickey and Mallory afford to spend the $850,000 that this property would cost, despite having a budget of $750,000, they could do so comfortably.

There were eleven offers on the scheduled “offer night” and ultimately, our bid of $850,000, based on a $699,900 list price, prevailed.

We leased the unit out for $1,100 and that tenant stayed for some time.

A few years later, we leased the unit out for $1,300, and that tenant stayed for some time as well.

The lower-level unit eventually hit a high of $1,550, sometime around 2019, I believe, which honestly feels like a steal considering it has 8-foot ceilings and is only partially below-grade.

Along came the pandemic, and that changed a lot of things for a lot of people.

Mickey and Mallory were among those that decided they needed more space, and eventually, a move to a much larger home in Oakville (where their business was located), made all the sense in the world.

They purchased a home that year and we set out to lease their 3-bed, 3-bath “owner’s suite” as well as the lower-level apartment for which the current tenant gave notice.

We had no problem leasing the main unit and we obtained $3,850/month in multiple offers, having listed at $3,500.

But the lower-level unit proved tough.  We were listed at $1,500 and eventually settled for $1,300.

That’s what the pandemic did for rents.  Or as today’s renters refer to that time, “The good old days!”

When Mickey and Mallory bought their new home in 2020, we discussed the prospects of selling their existing home versus keeping it for another 2-3 years.

I told them, point-blank, “I have no doubt in my mind that this property will be worth more in two years, let alone three years.  There’s upside here from an appreciation standpoint.  The downside is the opportunity cost of the capital you have tied up in the house, plus the fact that you have to be a landlord for two units instead of just one.”

They made a well-thought-out decision and kept the property as an investment, knowing that they would have to pay taxes on any future appreciation as well.

Two years flew right by, and as we approached two-and-a-half years, Mickey called me and said, “The tenants in the main unit gave notice to vacate; I think now is the time to sell.”

He was right about that.  I’ve always been of the mindset that you sell a property vacant, not tenanted, and that there’s a 10% difference in potential sale price if you do so.  When your tenant gives notice, that is when you sit down and ask yourself, “Should we sell now?”

Mickey and Mallory decided it was the right time, that they didn’t want to own two rental units in another city, and that they wanted to deploy their capital in a new business.

With the main unit vacant, we were able to repair, paint, clean, and stage the property, as well as have unfettered access.

We made a deal with the tenant in the lower-level and she vacated for a week so that we could show the property, which was a huge help at a reasonable cost.

We sold the property.

And while this is often the most important part of a blog story, it’s the most innocuous part of today’s tale.

The issues with the sale came after the final signatures were on the Agreement of Purchase & Sale, and as we approached what was a very lengthy 120-day closing.

It all started one day when I was CC’d on an email from Mickey and in the first sentence, I saw the words “open permits.”

That made zero sense to me since there were no open permits.  I had checked when we listed the property.

But as I scrolled down, I saw an email from the buyer’s lawyer to the seller’s lawyer, which showed the following:

 

“I note that there are 3 active permits as well as an active order of violation. Please forward to your client so that they can promptly have the permits closed and order of violation removed.

Thank you in advance…”

 

What the?

It couldn’t be right.

I went to the City of Toronto website and checked again, but nothing showed up.

Was this a mistake?

We were only three weeks away from closing!

More information was eventually provided by the buyer’s lawyer, who, amazingly, had access to files that we did not.

Now here’s the rub:

The three open permits and “order to comply” were issued in 2001.

Why is that the rub?

Mickey and Mallory purchased the house in 2013.

This made absolutely zero sense, and we began to investigate further.

The three permits, believe it or not, stemmed from before the house was even finished!

These permits were issued to the builder of the eight houses and the order to comply was issued during the inspection of the property in 2002.

Here’s the next rub:

The house sold in 2002.

The house sold in 2008.

The house sold in 2013, to Mickey and Mallory.

And at no point in the process did anybody notice the open permits or order to comply.

I was absolutely livid.

What’s more, is that the buyer’s lawyer explained that there are multiple websites in which you can search title to a property, search for open permits, or search for liens and encumbrances.

Apparently, there’s a free version and a paid version.

Guess which one is more accurate?

As a real estate agent, when clients of mine are interested in making an offer on a property, I always search the City of Toronto site for open permits, variances, zoning reviews, issued orders, et al.

I would have done this back in 2013 when Mickey and Mallory purchased the house, but Mickey and Mallory’s lawyer would have done so too, as well as the seller’s lawyer at that time.

I can only assume that when the property was sold in 2008 and 2002, the agents and lawyers involved would have done so as well.

So how in the world could these open permits and the order to comply survive this long?

I was later told that the City of Toronto website won’t show stale-dated permits and orders, so a search in 2013 would not have shown the 2001 permit and order to comply.

Good to know.

Write that down and send it to me ten years ago…

But what in the world were Mickey and Mallory supposed to do now?

The first route was going through title insurance, which Mickey and Mallory obtained in 2013.

However, and this was really unfortunate, the lawyer that Mickey and Mallory used in 2013 didn’t buy them the correct title insurance.  He bought them a policy for a single-family dwelling and not a single family-dwelling with a self-contained secondary unit, and thus the title insurance company refused their claim.

Crap.

Now what?

While we were waiting to hear from the title insurance company, which took ten days, we were working the City of Toronto angle.

Not only that, we started discussions with the buyers’ lawyer to see what, if anything, they wanted to do.

Now, as a self-described critic of government in fall forms, can you imagine what I was doing at this point?

twenty-two year-old building permit was going to hold up a sale?

You have to be kidding!

I spent so much time arguing about the inefficiency of government, the embarrassment that this had become, and how there ought to be a “magic wand” at City Hall that could fix this, but that’s just not how things work.

No.  In order to get this to the finish line, we were going to have to through “the motions,” as they’re called.  We would have to go through the process that the city would have incorporated back in 2001, even though it was 2023.

Great.

So we started.  We spent time satisfying the three building permits, which we were able to close only days before the scheduled closing date of the sale.

But that “order to comply” was an issue.

Mickey, in his infinite wisdom, asked the city inspector to meet him at the property, just to put a face to a name, as they had been talking on the phone up to this point.

Here’s where I get very frustrated with the so-called “red tape.”

The inspector said that he could remove the order to comply but only if, “magically,” there was no basement apartment.

What?

That made no sense.

There was a basement apartment!

Somebody was living in it!

In fact, somebody had lived in this basement apartment for twenty-two years without issue.

Not only that, there are seven identical properties in this block, all with basement apartments!  Did those units have “orders to comply” as well?  Are those owners sitting on twenty-two-year-old permits?

Mickey didn’t quite understand what the inspector was saying.

“What do you mean if there was ‘magically’ no apartment here?” he asked the inspector.

The inspector said, “I mean that if I come back here on Monday and this is just an empty basement with no kitchen sink, then I can remove the order to comply.”

I’m not sure if he added a wink, but Mickey understood.

Here we are, in the middle of a housing crisis, and the red-tape and inefficiency from the City of Toronto caused us to do the following…

Mickey put the tenant up in a hotel for four days and he packed up all her furniture and put it in a van.

He then hired two guys to carry the refrigerator and stove up the stairs and he put them in the neighbour’s backyard under a tarp.

Then, he had a plumber come into the unit and remove the plumbing under the kitchen sink.

On Monday, the inspector came back to the unit and completed his final inspection.

If all went well, he would remove the “order to comply,” and Mickey and Mallory’s sale would close.

But guess what?

The plumber didn’t cap the pipe!

The inspector told Mickey, “That pipe needs to be capped in order for me to say that there’s no basement kitchen down here.”

Do you see how stupid this is?

There is a basement kitchen down there!  And the inspector knew that because he was there the previous Friday telling Mickey to remove it!

This was infuriating.  It’s red-tape at its finest moment.

But the best or worst part, depending on how you want to look at it, is that the inspector told Mickey, “I have five other inspections today and I don’t have time to come back.  Have your plumber cap the pipe, then take a photo and text it to me.  Then, I’ll remove the order to comply.”

So that’s what Mickey did!

He had his plumber come back, cap the pipe, and then Mickey sent a photo directly to the city inspector’s phone – the number of which he gave to Mickey.

Kudos to the city inspector here.  He did nothing wrong.  He was doing his job and following the ridiculous protocols put in place.

The next morning, the “order to comply” was lifted, and the house was now free and clear.

That afternoon, Mickey had the plumber come back to the house to re-install the plumbing, then he had his movers bring back the refrigerator and stove, then he moved the tenant’s furniture and possessions back into the house.

Then he had a nap.

For two days.

For real…

Mickey was a natural-born killer.  You wouldn’t know it from looking at him, but damn, did he get shit done here.

One of the most capable guys I have met in, I don’t know how long.  The bullshit he had to deal with from the city was enough to crush the soul of any man or woman, and he simply analyzed, compartmentalized, strategized, and acted.

And all the while, I can’t help but think of how ridiculous and unnecessary all of this was.

In just how many ways was this wrong?

First, you have three twenty-two-year-old building permits and an order to comply that, all of a sudden, needed to be enforced.

Then, you have to consider how many people missed this over the course of twenty-two years, including during three subsequent sales of the property.

Next, we learn that the City of Toronto’s website fails to track permits that are older than a certain number of years; the length of which we don’t know.

Almost as infuriating, in the middle of a housing crisis, we’re talking about potentially displacing a sitting tenant, and pitting the City of Toronto’s building codes up against the Province of Ontario’s Landlord & Tenant Act, creating a grey area that a dozen lawyers would never figure out.

Last, but not least, we have the city inspector who actually told a home-owner to remove a basement apartment and then put it back later, completely undermining the Ontario Building Code, the city’s Building Code Act, and the entire process of inspections, permitting, and the office of Toronto Building.

What a joke.

But the buyers are happy.

The sellers are happy.

The tenant is happy.

The lawyers are happy.

So once again, I’m the only one who’s upset! 🙂

But I used smiley-face, so it’s okay.  And it makes for a great (awful?) blog story, so that’s good too.

You might ask, “David, what did you expect to happen?  Did you want a direct line to the Mayor’s office so you could have them right this wrong?”

I don’t profess to have the solution here, but as we know, I’m very skilled in pointing out a problem.

I’m also good at using the following phrase:

There’s a first time for everything.

When you use that in real estate, it’s either really, really good, or really, really bad.

This was an experience that I couldn’t possibly think or even dream up.

Final thought: “red tape” is an idiom.

Idiom.  Hmm.  That wasn’t on my list above…

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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9 Comments

  1. Frances

    at 8:45 am

    But didn’t the buyers of Mickey and Mallory’s place pay what they did partially due to the house having a legal basement apartment? I wouldn’t be happy if I was the buyer.

    1. RPG

      at 10:35 am

      99.99% of basement apartments in the GTA are illegal and the city turns a blind eye to it because we are in a housing crisis.

    2. Sirgruper

      at 5:38 pm

      Totally agree. Now they are not in compliance and will have to comply with 2023 rules not 2002. The Buyer is amazing but honestly, I would have told the lawyer that he better straighten this out with the title insurer as either the title insurer should pay for the damages from an open permit or the lawyer should pay as he or she ordered the wrong policy.

      1. Katie

        at 10:18 pm

        Where did the blog say this apartment is a legal basement apartment? Don’t buyers know they’re buying an illegal non confirming unit? @David?

  2. Jimbo

    at 6:48 am

    Two questions.

    The first is how much is the subscription for this new permit site?

    The second, would they only pay capital gains on the value based on an appraisal from 2020? So, lets say they bought it for $850k and it appraised at $2.2m. Then they sell it in 2020 for $2.4m or $2.0m. At this point they have a capital gain or loss of +/-$200k rather than a gain of $1.5/1.3m?

  3. TOPlanner

    at 9:51 am

    Isn’t the source of this problem the seller in 2002, who sold the property with open permits and an order to comply? The City doesn’t have the resources to keep track of real estate transactions. Sounds like the most recent buyer’s lawyer was the only one who did thorough research.

    For reference, the City has multiple building permit datasets available on their Open Data portal, including a database of active permits that goes back to 1999 and is updated daily: https://open.toronto.ca/dataset/building-permits-active-permits/

    Wonder if the 2022 permits for this property are on there…

    1. TOPlanner

      at 10:08 am

      *2002 permits, not 2022

    2. Jennifer

      at 1:07 pm

      or the buyer’s lawyer back then was aware and the buyer paid a lower purchase price and let it be. find it hard to believe this was the same issue on 8 houses and no one figured it out.

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