When selling a building, certain elements may be essential considerations for a buyer, whether it’s the conversion of part of a building into a rental unit, or the use of a residential building for commercial purposes.
However, municipalities have the power to limit some of these uses through their zoning and building regulations, which constitute public law limitations.
Article 1725 of the Civil Code of Quebec stipulates that the seller of an immovable is liable to the purchaser for any violation of the public law limitations that encumber the property and are not governed by the common law of ownership.
In order to exclude liability under this provision, building sellers often include a clause in the deed of sale to the effect that purchasers declare that they have checked with the appropriate authorities that the intended use of the building complies with current laws and regulations.
The courts have frequently ruled on the application of this type of clause in warranty actions brought by purchasers against their sellers, particularly since the parties can add to the obligations of the legal warranty in their contracts, reduce its effects, or exclude it entirely.
In this context, the courts have ruled that liability waiver clauses relating to violations of public law limitations are valid, but only insofar as the seller had acted in good faith and was unaware of the violation of the public law limitation. In connection with the application of this type of clause, the courts have also developed and applied a presumption whereby the purchaser is entitled to assume that the building, as constructed and occupied at the time of purchase, complies with all applicable regulations.
However, in Vézina v. Lamoureux in 2014 [1] the Court of Appeal decided to set aside the liability waiver clause without necessarily making any distinction as to the seller’s good or bad faith, preferring to apply the presumption previously mentioned.
While some judgments have followed the analytical framework established by the Court of Appeal in 2014, which disregarded the notion of the seller’s good or bad faith, others have preferred to depart from it by continuing to analyze the seller’s behavior, i.e. whether he had demonstrated fraudulent maneuvers, reticence or even whether he had lied. According to the latter line of jurisprudence [2], when a purchaser undertakes to verify with the competent authorities that the intended use of the property complies with current laws and regulations, he thereby waives his right to invoke the warranty relating to public law limitations against his seller, regardless of the latter’s good or bad faith.
There seems to be some controversy in the case law as to the application of the notion of bad faith in the courts’ analysis of liability waiver clauses in the context of a breach of a public law limitation. That said, such clauses must be carefully analyzed in light of their wording and the circumstances of each case. The parties involved in a real estate transaction should therefore pay particular attention to ensure that their interests are sufficiently protected and that the clause reflects their true intention.
By Mathieu Tremblay
[1] Vézina v. Lamoureux, 2014 QCCA 1462.
[2] Tougas v. Malo, 2018 QCCS 4952; Bélanger v. Girard, 2017 QCCQ 8762; Roy v. Belzile, 2008 QCCS 80.
