Case Commentary – Contractor Pays the Price for Building an Illegal Basement Suite

A decision where the British Columbia Supreme Court refused to award damages to a general contractor that was complicit in plans to build an illegal basement suite serves as a reminder to contractors that they should always ensure that they carry their work out in accordance with all applicable laws.

Shafazand v Whitestone Management Ltd. 

In this case, the defendant had hired the plaintiff as the general contractor to construct a home in the City of Vancouver. The plaintiff alleged that it was owed extras due to changes made by the defendant during construction. The defendant denied the claim, arguing that the construction contract was for a fixed price, and counterclaimed, alleging that the plaintiff had left the home unfinished.

Both parties had agreed to conceal the home’s illegal basement suite from the municipality; the permit application submitted by the defendant had been deliberately altered. Regardless of the merits of the claims between the parties, the court here considered whether their illegal actions in concealing the basement suite precluded either party from recovering damages on policy grounds.

After analyzing the various claims advanced in the litigation, the court determined that ultimately the defendant would be entitled to damages of $42,468.86. However, there was the matter of the building permit. The court also found that the defendant had knowingly submitted false plans to the City, because it knew the City would not approve construction of the basement suite.

The consequences of agreeing to illegal terms in a contract

In considering whether the plaintiff should be ordered to pay damages to the defendant, the court asked if the defendant should be able to recover monies through the courts when it deliberately set out to deceive municipal authorities. The construction contract between the plaintiff and the defendant, which included construction of the basement suite, was illegal. Local laws prohibited the suite, and the construction permits were obtained under false pretences.

Ultimately, the defendant was not allowed to recover any damages. This decision was made on the basis of public policy and the “illegality” doctrine: where a contract is illegal by operation of statute, the court has discretion to refuse relief to a party advancing a claim for breach of contract. The court’s decision will be guided by:

  • the position and actions of the parties
  • the purpose of the statute, and whether the statute contains suggested consequences for the illegality; and
  • whether the result of denying relief would be disproportionate to the breach of contract alleged.

In this case, the defendant had already been paid in full for the home, including the illegal basement suite. The court determined that it even though it was owed money by the plaintiff under the contract, the defendant should not be rewarded for its illegal conduct. Accordingly, neither party was entitled to recover damages.

Kitchener Waterloo construction lawyers offering comprehensive services

Construction projects of all sizes must be approached with care, and all parties should endeavor to avoid any implication of illegality in their contracts and subcontracts. At Duncan, Linton LLP, we offer comprehensive services to parties at all levels of the construction pyramid. Our experienced construction lawyers can help protect your interests at every stage of a project.

If you have questions about any legal issues arising in a construction project, contact us online, or call 519-886-3340 to make an appointment.