July, 2010

If you are a property owner, manager, or mortgagee of, or, a neighbour of an abandoned and/or run-down building (residential or non-residential), the property's existence in its woeful state can cause problems for you as well as for those at The City of Winnipeg charged with the responsibility of minimizing or eliminating such problems. 

The City's legal answer for dealing with this matter was its 2004 enactment of the "Vacant and Derelict Buildings By-law No. 35/2004, (hereinafter "the By-law"). 

Broadly speaking, the By-law deals with two categories of "problem" properties:

1. structures which are not being used or occupied (i.e., what would be typically thought of as "abandoned" or "vacant"); and
2. structures which have not been maintained and have become so run-down that they pose a health, safety, environmental, etc. hazard (ie, what would be typically thought of as "derelict"). 

Regarding vacant structures:

(a)          the By-law distinguishes between residential structures designed or used for occupancies by one or two families and residential structures which are designed or used for occupancies by more than two families.  It also distinguishes between residentially occupyable structures of all types on the one hand, and structures which are used or designed for occupancies other than residential purposes;

(b)          responsibility for alleviating problems arising with respect to vacant buildings are imposed on the "owner" of a property.  The definition of "owner" goes beyond normal fee simple indefinite ownership, and also includes a person who manages the property (either for his or her own account or as agent on behalf of someone else), persons who would receive the rent (or rents) derived from the property if the property was rented, and, persons who have sold the property and who continue to receive instalments of the purchase and sale price and/or who have paid (or continue to pay) the property taxes on the property.  A mortgagee of a vacant property which takes over management of the property or receives the rents (or who would be entitled to receive the rents if the property was rented) may well be caught up in the definition of "owner" and thus saddled with the obligations which are imposed on an "owner". 

(c)          a property is considered to be "vacant" notwithstanding the presence in the structure of one or more trespassers. 

(d)          a number of obligations are imposed on the "owner" of a vacant property, in particular:

(i)            the obligation to maintain the property in accordance with specified standards;

(ii)           the obligation to file a "fire safety plan" with the City Fire Prevention Branch of the City's Fire Paramedic Service;

(iii)          the obligation to secure the property in accordance with specified requirements; and

(iv)         the obligation to obtain a "boarded building permit" for the property while it continues to be vacant (and to pay fees to obtain and maintain such permit).

(e)          failure to properly secure a vacant property can result in the City remedying the non-compliance, with the cost of doing so being added to the property tax bill.  Mortgagees should always be leery of potential situations where the property taxes for a property may be increased by the City by reason of the owner failing to take certain actions, as property taxes always rank in priority to real property mortgages as charges against realty. 

Regarding derelict buildings:

(a)          a "derelict property" is defined to mean a property, the registered (freehold) owner of which has been found guilty of the offence of contravening the By-law.  Essentially, that means an owner who has been convicted of non-compliance with the above-described rules pertaining to vacant properties.

(b)          where a property has become a "derelict property", then, subject to the owner having certain rights to an opportunity to remedy the property's deficiencies and/or challenge the City's position that the property has not been, or as the case may be, has not been properly, brought into good order, the City may apply to obtain title to the property, thus extinguishing the previous owner's rights and interests therein.

(c)          the City is supposed to ensure that before it applies to obtain title to a derelict property, "there is a satisfactory plan for redeveloping the property".

Recently, the Manitoba Legislature amended the City's Charter dealing with derelict properties.  Of particular interest to mortgagees, is the fact that the City has the right, when taking title to a derelict building property (and this is essentially unchanged in the legislation, and if anything, made more explicit in the aforementioned amendments), to take title free and clear of all existing registered (and for that matter, fully advanced) mortgages.  This means that a creditor who is unfortunate enough to hold a mortgage on a derelict property will see its security completely extinguished when the City acquires ownership.  Thus such a mortgagee will not even have the benefit of a charge on the underlying land.  This seems grossly unfair to such a mortgagee where the value of the underlying land is something more than minimal, which may well be the case where there is a redevelopment plan for refurbishment, rebuilding or other enhancement of the property and/or the neighbourhood.