Multi-res development: The right legal advice keeps your vision from becoming a nightmare

The persistent strength of Ottawa’s housing market and demand for rental stock has many people considering investment in new multi-residential properties. Thanks to low interest rates and city policies that favour infill projects, it appears to be a can’t-lose proposition, even for those investors with little or no prior experience as a multi-residential developer.

But the devil is always in the details. Rezoning hiccups, delays in securing a site plan agreement and conflicts with sub-contractors can lead to delays and cost overruns that destroy the financial viability of a project.

The real estate and development experts at Ottawa’s Nelligan Law have seen it all. Their advice for avoiding cost overruns, project delays and other setbacks? Do your homework with the right team of advisors at your side, starting, of course, with the right legal advice.

Associates Jake Ruddy and Bryan Thaw are part of Nelligan Law’s Real Estate and Development team, which has extensive experience working on small and large-scale real estate developments throughout Ottawa and Ontario.

They have seen first-hand what kind of legal issues can arise without proper planning – no matter the scale of your project:

• Miscalculation of setbacks and surveying for a planning application
• Due diligence gaps related to zoning, title search and financing  
• The wrong contract for the job – different projects require different types of contracts

Let’s tackle each of these scenarios.

Miscalculation of setbacks and surveying

Let’s say you are looking to build two side-by-side triplexes (as permitted under by-laws with no amendments required). Always bear in mind that, in most circumstances, you can’t build completely to the edge of property limits, as per the city’s zoning by-laws, without a minor variance(s) approved by the city’s committee of adjustment.

The next matter to address is title clarity. A full review of easements and rights of way is critical. One example would be a piece of land used as a shared driveway behind development land – this affects your setbacks, building density capacity, and enforces rights and obligations against both the dominant tenement (the land accruing the benefit of the easement or right of way) and the servient tenement (the land over which the beneficiary land has rights).

Next, building these two side-by-side triplexes will require a severance application, also known as a consent application, to split the lands in two. This will create two separate titles, one for each building, with the party line serving as the severance line. A minor zoning variance may also be required with regard to side yard setbacks from adjacent properties and rear yard setback from the rear shared driveway lands. 

It is not uncommon for consent application approval to be conditional on a number of ancillary issues or documents to ensure the proper planning and operation of the two properties, such as:

• A party-wall agreement
• Separate utilities serving each property
• Evidence that a party wall meets fire code standards
• An encroachment agreement with the adjoining land owner

Even experienced developers can find it challenging to address all of these requirements without something slipping through the cracks. An experienced real estate lawyer can help you avoid planning application issues and arrive at a consent application that meets all conditions required by the city’s Committee of Adjustment. 

Due diligence gaps related to zoning, title search and financing  

Zoning

Perhaps instead of triplexes, your intent is to build a six or eight-unit apartment complex in a residential neighbourhood.

Developers often assume there will be no zoning issues with a property purchased for multi-res development in a residential neighbourhood because it’s a residential project in a residential neighbourhood. 

Don’t assume this is a given. There is more to zoning than simply reviewing the online tools available on the city’s website. Zoning can be impacted by the fabric of the neighbourhood, transit lines, environmental safety assessments, and even by what was built on the property previously. It’s the developer’s responsibility to ensure proper zoning is in place for their project.

Conducting the right due diligence with a lawyer, for example, may determine that your original eight-unit, eight-floor complex is not permitted, requiring too large of a variance from setback requirements/height requirements to be feasible. It will save you much grief later to alter the project to better suit the land at this stage and go forward with the purchase on this basis.

Title search

Another aspect is undertaking a title search, which will identify any specific title issues (this goes to more than just zoning). There may be airport zoning restrictions, easements/shared property agreements, restrictive covenants from a previous builder related to a previous site plan agreement, etc.

As part of your due diligence, not only do you need to confirm the proper zoning and what limitations that zoning places on your project (you can also always apply for a zoning amendment), but a search of title will permit you to identify all issues/covenants/easements/title defects that are associated with your land and, if you’re smart enough, all issues that relate to abutting and neighbouring lands that could also affect your property.

Buyer requires financing to purchase property

There are various types of financing, either for acquisition of land (basic mortgage) or construction financing, which permits the builder to draw down to pay for work completed with contractors at specific intervals of the project (i.e. 15, 45, 75, or 100 per cent completion).

It is important to have a project budget, complete with contingency fees and cost overrun allocations, so that you can ensure you obtain the proper financing at the best rates that you believe are suitable for the development. You of course want to be able to pay this off with terms that allow you to be profitable in the end.

As part of financing conditions, the lender will require a title search showing clean and marketable title, proper zoning for the project so the lender knows the project will proceed and they will be paid out, and title insurance to secure their interest in the land.

The wrong contract for the job

Whether you’re leading construction yourself, partnering with a developer or a combination of the two, there are varying types of construction contracts that may be suitable for your development. Early in the planning and approvals process, it’s important to consider what form the contract will take and select the contract that best suits your needs and circumstances.

Construction projects in the Province of Ontario are generally governed by one of many CCDC (Canadian Construction Documents Committee) contracts, such as a stipulated price contract, cost plus contract, design-build stipulated price contract, construction management for services contract, or construction management at risk contract, to name a few.

The type of contract chosen to govern the construction project, and the obligations between you, as owner, your general contractor and/or consultants (i.e. architects, engineers, planners, surveyors and potentially subcontractors) is determined by understanding your own construction experience, your budget, the construction timeline, and the risk exposure with which you are comfortable.

All of these realities intersect throughout the project, from pre-construction through to total completion. Rarely does a construction project run to completion without a hiccup or two. It is important that your construction contract deals with these issues and many others from the outset. A thorough and comprehensive contract has the potential to avoid costly litigation down the road should a dispute arise between you and the contracted party.

An experienced lawyer will guide you through which contracts are required, and their contents to ensure they are appropriate for your project.

Learn more about Nelligan Law and the options you have to maximize your real estate investment and minimize risk.