Banking on Bad Developments
‘Twas the week before Christmas and all through the town, some people were cheering when judgment came down. In this article, we look at the landmark Supreme Court decision in Michael Young et al v Kingston and St Andrew Municipal Corporation, National Environment and Planning Agency, Natural Resources Conservation Authority, and WAMH Development Limited, and how it affects developers, purchasers, and financiers of these new apartment buildings.
It took the Kingston and St Andrew Municipal Corporation (KSAMC) 3 weeks to approve and issue the building permit to WAMH Development Limited to construct 12 one-bedroom apartments in a three-storey building at Birdsucker Drive, in Kingston 8. Almost 3 years after the developer broke ground, and the apartments were substantially completed, the Judicial Review Court delivered a groundbreaking decision that has the potential to change the construction industry for good and for the better.
This developer advertised 2-bedroom units for sale when their permit specified 1-bedroom units. They built 14 apartments instead of 12 and 4 storeys rather than 3. The building was closer to the neighbouring single-family homes it overshadowed than regulations allowed. Despite all this, the KSAMC gave evidence in court that it was not aware of any actual or potential breaches. KSAMC argued that, in any event, it had the discretion to relax the regulations without reference to the residents who (they said) had no legal standing to challenge the approvals in court.
Prior to this judgment, it was felt that the only basis for neighbours to object to a development was if there was a breach of a restrictive covenant. However, the Court observed that when development orders are promulgated, the Town and Country Planning Act allows for objections from “interested persons” which is defined as anyone who lives in the geographic area covered by the development order. The Court also found that the making of material changes at the premises in question would invariably affect the neighbouring properties, thus giving the Claimants, who were represented by this firm, sufficient standing under the Rules of Court.
The Court also agreed with the Claimants that because the development did not conform to either the confirmed or provisional development order for Kingston and St Andrew, the KSAMC lacked the jurisdiction to issue the permits without first referring the application to the Town and Country Planning Authority (TCPA), which would then need to show compelling reasons why the development should be allowed. The Court also found that there were numerous breaches of the specific conditions of the permit, rendering it null and void. That means that each of the apartments in the building is now in a vulnerable legal position.
Any bank or building society that financed the purchase of such an apartment would understandably feel insecure. They would have properly relied on the presumed validity of the permit as a pre-condition to lending. Without a permit, the KSAMC, the Government Town Planner or the TCPA may, within 12 years of the development being carried out, serve an enforcement order which could result in substantial alterations to the building or possibly its demolition. And even if the high-rise is not laid low, the market value of the apartments securing the loan may be adversely affected. That also raises concerns about insurance and the replacement value of a property that cannot lawfully be replaced.
So, what are some warning signs of a bad development? First, be very wary of apartment buildings on plots of land smaller than 0.5 acres. Under the 2017 Provisional Development Order for Kingston, Saint Andrew and the Pedro Cays, multi-family developments, such as apartments and townhouses, are only permitted if the land exceeds 0.5 acres (unless compelling reasons are shown).
Second, and as stated in that Provisional Development Order, “There is a tendency in high density residential development such as apartments to overbuild by creating large rooms which can later be converted into smaller ones. The result of this is an increase in density which is calculated on a per habitable room basis creating a strain on the facilities and amenities which have been provided for the development or area as more people are allowed to occupy it than was intended.” It is therefore important to confirm whether, at the time of financing, the developer or the vendor has converted the unit to something that was not approved by the planning authorities.
Thirdly, the vendor might be required to give warranties that they are not aware of any pending litigation concerning the development or the sale to the purchaser. The TCPA should also be able to provide information on suits to which they are a party or of which they are aware. It would be useful if the Real Estate Board could also get involved in the dissemination of information on pending lawsuits for the benefit of the public.
While certain residents of Birdsucker may rest more comfortably in their beds, visions of defaults could be dancing in some bankers’ heads.
Gavin Goffe is a partner at Myers, Fletcher and Gordon, and is a member of the firm's Litigation Department. He may be contacted at firstname.lastname@example.org or through the firm's website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.