Canadian Lawyer InHouse

RIDING THE ZONING COASTER ROLLERBy Charlotte Santry G rand plans to relocate or expand a business in Canada can grind to a halt if real estate transactions hit unexpected zoning obstacles. In a case that could reach the Supreme Court of Canada, a company spent $14.7 million on land to build a big box department store and residential properties, but was thwarted by planning rules. The vendor in 0759594 B.C. Ltd. V. 568295 B.C. Ltd. had reduced the sale price by $2 million as it wanted to buy back part of the land after two years. Under the deal, the buy-back would go ahead only if the City of Salmon Arm, B.C., agreed to rezone the land for commercial and residential use. The purchase and sale of the 60-acre land closed on Oct. 15, 2007. Some of the land was within a flood plain and was crossed by the Salmon River. The authorities ruled a third of the land could not be developed, due to restrictions under the Riparian Areas Regulation. There was also strong local opposition to the development of a large department store in the area, and the Salmon Arm planning department said rezoning would be deferred, pending the development of other areas in the municipality. When the property was not rezoned within two years, the vendor demanded repayment of the outstanding $2 million and, on April 14, 2010, sued the buyer. The vendor launched a counterclaim for $3.3 million, arguing the vendor had over28 • Across Canada, sometimes an apparently peripheral concern such as parking can become a zoning stumbling block. stated the possibility of gaining approval for the rezoning. It highlighted an e-mail sent from the vendor stating: ". . . In preliminary meetings with the Salmon Arm Planning Department, [the vendor] has received full support and approval in principle with having the lands rezoned for commercial/ residential use." The agreement between the parties had contained a warranty that the vendor had disclosed "all material facts" to the buyer. However, the trial judge held that the vendor had not been aware of the limitations on development of the property, or the strong local opposition to the development of a big box store. The statement of approval in principle was not material, he ruled. The court also held it would be "extraordinary" for a party to warrant that it had disclosed all material facts — even those outside its knowledge — and concluded the warranty provision was "ambiguous." Judgment was awarded to the vendor, and the buyer's counterclaim was dismissed. This was not the end of the story, as the buyer then successfully appealed the decision. In a British Columbia Court of Appeal d ec em b er 2013/january2014 INHOUSE decision on Aug. 28, 2013, Justice Edward Chiasson concluded: "The warranty provision was not ambiguous." The vendor's claim that the planning department had given "full support" to the rezoning was not correct, he stated. Chiasson added: "I do not suggest dishonesty on the part of the vendor. "In my view, the vendor must have misinterpreted the position of the planning department." The case demonstrates the roller-coaster momentum that zoning issues can lend to real estate transactions. George Cadman, a litigator specializing in corporate/commercial, securities, and

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