Municipal Encroachment Agreements ~ What to Look For!
Reviewing Municipal Encroachment Agreements
If you are buying or selling a property, you may have to deal with a municipal encroachment agreement.
Let’s assume that the front window is a “bay window”. It protrudes perhaps 18 inches over the municipal property line.
When the building was being constructed 50 or 60 years ago, the builder had a survey completed just after he put in the foundation. Everything looked good, the basement was just inside the property line and complied with the municipal setback requirements at that time.
However, 6 months into construction, the purchaser wanted a bay window for the living room, not an ordinary one. So, the survey looks fine, but in reality, there is an 18 inch encroachment. This would be picked up and shown upon any subsequent survey.
So, now that we have the problem identified, what type of encroachment agreement would we need from the municipality?
This agreement will likely cover the following items:
- The encroachment is the “18 inch overhang” of the bay window
- That encroachment can stay in place as long as the municipality agrees
- The agreement will provide a “licence” to the homeowner (Licensee)
- The “licence” is personal, it does not run with the land
- The encroachment cannot be increased in size
- It must be maintained and kept in good repair (difficult for an overhang, but the bay window itself can’t be in disrepair and protrude even further)
- The homeowner will permit the municipality to attend and inspect
- The homeowner will allow the municipality to construct whatever it needs on its own property, ie. pipes, conduits, cables, sewers ete.
- The term of the agreement will be limited (ie. 10 years)
- The term may be extended by amendment
- The agreement may be registered on title
- The homeowner will pay all expenses
- The Licensee will agree to indemnify and save harmless the municipality and any of its agents (this includes utilities)
- The Licensee will obtain liability insurance (usually $2 million)
- The Licensee will pay annual license fees
- The municipality may give relatively short notice of termination if it requires the removal of the encroachment
- The Licensee will be subject to a lien for the costs of removal, which may be enforced in the same manner as taxes
- The Licensee will advise of a change in ownership
- The agreement may (or may not be assumable)
- A new agreement may be required for any subsequent owner
- The Licensee is released only upon execution of a new agreement with some other party, presumably the new owner.
You will see that this needs to be disclosed by the seller if he wishes to sell his property. In order to become released from the provisions of the old agreement, he needs the buyer to “sign onto” the liability.
Municipalities will all have their own procedures, but essentially, this will be either an assumption agreement of the original encroachment agreement, or the execution of a new agreement entirely.
Otherwise, the seller may be stuck paying for insurance on a house that he doesn’t own anymore.
The buyer likes the bay window. It adds character and he wants it to remain in place. So, he needs to notify the municipality that he is about to purchase the property:
- sign an application,
- sign the new agreement (or assumption),
- pay the fees (related to the agreement),
- pay the annual licence fee, and
- provide evidence of insurance.
It is important to ensure that there is “no lapse” in time. The seller’s agreement should continue until closing and the buyer’s agreement should come into force thereafter. This way, the encroachment may remain in place.
The buyer will also want to ensure that the homeowner pays his share of the annual fees, which may be apportioned between the parties.
Handling the Listing
The real estate agent who lists the property (the listing agent) should document the encroachment agreement.
The correct procedure would be:
- attach the encroachment agreement to the listing,
- include an appropriate clause for the benefit of the Seller, in Schedule B,
- ensure that the matter is dealt with appropriately in the Agreement of Purchase and Sale.
The real estate agent acting for the buyer (the buyer’s agent) should double check the Listing, download a copy of the Encroachment Agreement together with Schedule B, and pass the documents along to the buyer for review. It would be wise to recommend that the buyer seek legal advice.
If the suggested wording in Schedule B requires amendment, then amend that document before the submission of an Offer.
No one likes surprises!
Brian Madigan LL.B., Broker is a Manager at RE/MAX West Realty Inc., Brokerage 416-745-2300.