Navigating the Shifting Landscape of Ontario Real Estate Law: Key Developments for 2025

Introduction

The landscape of Canadian real estate law continues to evolve at a rapid pace, driven by shifting market conditions, new regulatory frameworks, and an increasingly complex web of municipal, provincial, and federal legislation. For property owners, developers, and investors, understanding these changes is not merely academic — it has direct and significant implications for the structuring of transactions, the management of risk, and the resolution of disputes.

This article examines several key developments from the past year that practitioners and stakeholders should be aware of, with particular attention to their practical impact on commercial and residential real estate transactions in Ontario.

The Evolving Standard of Care in Property Transactions

One of the most significant trends in recent jurisprudence has been the courts’ increasingly rigorous approach to the standard of care expected of parties in real estate transactions. This is particularly evident in cases involving vendor disclosure obligations and the scope of buyer due diligence.

In a series of decisions released over the past eighteen months, Ontario courts have expanded the circumstances in which vendors may be held liable for material non-disclosure, even in the context of “as-is” sale agreements. The traditional principle of caveat emptor — long considered a cornerstone of real estate law — is being gradually circumscribed by a more nuanced framework that takes into account the relative sophistication of the parties, the nature of the defect or condition at issue, and the reasonable expectations arising from the transaction as a whole.

“The principle of caveat emptor does not operate in a vacuum. It must be understood in light of the broader duty of honest performance that permeates all contractual relationships, as articulated by the Supreme Court of Canada in Bhasin v. Hrynew.” — Justice Feldman, Ontario Court of Appeal

This evolution has significant implications for how practitioners draft purchase agreements, structure disclosure schedules, and advise clients on pre-closing investigation requirements.

Practical Recommendations for Vendors

In light of these developments, vendors should consider the following best practices:

• Conduct a thorough internal review of the property’s condition, history, and any known defects before listing
• Prepare comprehensive disclosure statements that address not only physical defects but also environmental conditions, zoning compliance issues, and any pending or threatened litigation
• Retain qualified professionals to prepare condition assessments where the property has a complex operational history
• Ensure that all representations and warranties in the purchase agreement accurately reflect the vendor’s actual knowledge
• Document all disclosure efforts contemporaneously, as this record may prove critical in any subsequent litigation

Practical Recommendations for Purchasers

Purchasers, for their part, should be aware that the expanding scope of vendor liability does not eliminate the need for rigorous due diligence. Courts have consistently held that sophisticated purchasers who fail to conduct reasonable investigations may be estopped from claiming reliance on the vendor’s representations. Key steps include:

1. Engaging qualified inspectors, engineers, and environmental consultants at the earliest practicable stage
2. Reviewing all available municipal records, including building permits, zoning certificates, and compliance orders
3. Obtaining and reviewing title insurance commitments well in advance of closing
4. Conducting thorough searches of litigation databases and regulatory enforcement records
5. Negotiating robust representation and warranty provisions with appropriate survival periods and indemnification mechanisms

Municipal Land Use Planning: Recent Regulatory Changes

The provincial government’s ongoing efforts to address housing supply constraints have resulted in several significant amendments to the Planning Act and related legislation. These changes have direct implications for developers, landowners, and municipalities across Ontario.

Perhaps the most consequential development has been the expansion of “as-of-right” zoning permissions in certain residential areas, which effectively limits the ability of municipalities to restrict gentle density increases. Under the amended framework, properties in areas designated for residential use may, in many cases, accommodate up to four units without the need for a rezoning application or minor variance.

This represents a fundamental shift in the balance of power between municipal planning authorities and property owners, and its full implications will likely take several years to become apparent. Early indications suggest that the changes are having a measurable impact on development activity in suburban and semi-urban areas, though challenges remain with respect to servicing capacity and infrastructure planning.

Impact on Development Approvals

The streamlined approvals process introduced by recent amendments has had several notable effects:

• Reduced timelines: Applications that previously required 12-18 months of municipal review can now be processed in a fraction of that time under the new framework
• Cost savings: Developers are reporting significant reductions in soft costs associated with planning applications, including professional fees, application fees, and carrying costs
• Increased certainty: The shift toward as-of-right permissions provides greater predictability for project planning and financing
• New challenges: The reduced municipal oversight has raised concerns among some stakeholders about the adequacy of infrastructure planning and the potential for neighbourhood-level impacts

Construction Liens and the Modernized Framework

The Construction Act (formerly the Construction Lien Act) continues to generate significant litigation, particularly as the industry adapts to the prompt payment and adjudication provisions that came into force in recent years. Several notable decisions have clarified the scope and application of these provisions, providing much-needed guidance for contractors, subcontractors, and property owners.

One area of particular interest has been the interaction between the statutory adjudication process and the traditional court-based lien enforcement mechanism. Courts have generally taken a deferential approach to adjudicators’ decisions, upholding them except in cases of clear jurisdictional error or a denial of natural justice. This has reinforced the legislature’s intent to create an efficient, binding dispute resolution mechanism for payment disputes in the construction context.

“The adjudication process established under Part II.1 of the Construction Act is designed to provide rapid, interim resolution of payment disputes. It is not the role of the court to conduct a de novo review of the adjudicator’s findings of fact or law.” — Master McAfee, Ontario Superior Court

Key Timelines Under the Construction Act

Practitioners and industry participants must be scrupulously attentive to the statutory timelines under the Act. Critical deadlines include:

1. Preservation of lien: 60 days from the date of last supply of services or materials, or from the date of publication of the certificate of substantial performance, whichever is later
2. Perfection of lien: 90 days from the date the lien was preserved (i.e., the date the claim for lien was registered on title)
3. Proper invoice requirements: Invoices must contain prescribed information to trigger the 28-day payment timeline under the prompt payment provisions
4. Notice of adjudication: Must be given within prescribed timelines, with the adjudication to be completed within 46 days of the notice (or longer in complex cases)
5. Holdback release: The statutory holdback of 10% must be retained for 60 days following publication of the certificate of substantial performance

Environmental Liability and Real Property

Environmental liability remains one of the most significant risk factors in real estate transactions, particularly in the context of commercial and industrial properties. Recent enforcement activity by the Ministry of the Environment, Conservation and Parks has underscored the importance of thorough environmental due diligence and the potential consequences of non-compliance with provincial environmental standards.

The Environmental Protection Act and the Ontario Water Resources Act impose strict liability on property owners for contamination, regardless of when the contamination occurred. This means that a purchaser who acquires a contaminated property may become liable for remediation costs even if the contamination predates their ownership. The costs of remediation can be substantial — in some cases exceeding the value of the property itself.

For this reason, environmental site assessments (ESAs) have become a standard component of due diligence in virtually all commercial real estate transactions. A Phase I ESA involves a review of historical records, regulatory databases, and site conditions to identify potential areas of environmental concern. Where the Phase I assessment reveals potential contamination, a Phase II ESA involving subsurface investigation and sampling is typically recommended.

Record of Site Condition Requirements

Under Ontario Regulation 153/04, a Record of Site Condition (RSC) must be filed with the Environmental Site Registry when a property undergoes a change of use from industrial or commercial to a more sensitive use (such as residential or institutional). The RSC process requires:

• Completion of Phase I and Phase II ESAs by a qualified person (QP)
• Demonstration that the property meets applicable site condition standards, either through testing or through the implementation of a risk assessment
• Filing of the RSC with the Ministry, which is then subject to a review and audit process
• Ongoing monitoring and maintenance obligations where a risk assessment has been relied upon

Failure to comply with RSC requirements can result in significant penalties and may expose parties to civil liability in the event of subsequent environmental harm.

Title Insurance: Developments and Considerations

Title insurance has become ubiquitous in Ontario real estate transactions, with the vast majority of residential transactions and an increasing proportion of commercial transactions now closing with title insurance coverage. However, practitioners should be aware of several recent developments that may affect the scope and availability of coverage.

First, title insurers have become more selective in their underwriting practices, particularly with respect to properties in areas affected by flooding, erosion, or other natural hazards. This is a direct response to the increasing frequency and severity of climate-related events, which have resulted in significant claims activity for insurers.

Second, the scope of coverage available under standard title insurance policies has been the subject of several recent court decisions. While title insurance is generally understood to cover defects in title, liens, and encumbrances, the precise boundaries of coverage can be the subject of dispute, particularly in cases involving:

• Zoning and building code violations that affect the use or value of the property
• Survey-related issues, including encroachments and boundary disputes
• Environmental contamination that was not disclosed or discovered prior to closing
• Fraud and forgery, including increasingly sophisticated identity fraud schemes

Conclusion and Looking Ahead

The developments outlined in this article represent only a subset of the changes affecting real estate law and practice in Ontario. As the regulatory landscape continues to evolve, practitioners must remain vigilant in monitoring legislative amendments, judicial decisions, and regulatory guidance that may affect their clients’ interests.

Looking ahead, several areas warrant particular attention. The ongoing implementation of housing supply initiatives at both the provincial and municipal levels will continue to reshape the planning and development landscape. The increasing importance of climate risk and environmental sustainability in property transactions is likely to drive further regulatory change. And the continued evolution of construction law, particularly in the areas of prompt payment and adjudication, will require practitioners to adapt their dispute resolution strategies accordingly.

At Dyer Brown LLP, our real estate and commercial litigation teams work closely together to provide integrated advice on the full spectrum of property-related legal issues. Whether you are navigating a complex transaction, managing a development project, or addressing a dispute, we are here to help.

For more information or to discuss how these developments may affect your situation, please contact our office.