Executive Summary: Key Legal and Evidentiary Issues

• Scope and effect of a conditional building permit that limited work to below-grade construction absent a filed Record of Site Condition (RSC).
• Significance of the developer’s admitted decision to proceed with above-grade construction without a full building permit and in breach of stop work and compliance orders under the Building Code Act.
• Weight to be given to evidence about environmental remediation versus a risk assessment pathway for obtaining an RSC, and whether this affected the legality of the construction.
• Alleged factual and interpretive errors by the application judge, including supposed misapprehension of remediation evidence and comments about the feasibility of inspecting below-grade work.
• Proper exercise of judicial discretion under s. 38 of the Building Code Act—whether a demolition order is a compliance measure or an impermissible punishment.
• Application of deferential appellate standards (palpable and overriding error, and review of discretionary decisions) in upholding or disturbing an order to demolish a partially built structure.

Background and development of the property
The case concerns a contaminated property at 599 Kingston Road West in Ajax, Ontario, formerly used as an automotive repair facility. 1940475 Ontario Inc., together with related appellants Pina Morelli, First Avenue Properties and Morex Construction (collectively “First Avenue”), acquired the site in 2015 intending to redevelop it into a four-storey mixed-use building with 60 residential units and eight commercial units at grade. The change in land use from a heavy commercial activity to a mixed residential and commercial use triggered more stringent environmental and building regulatory controls. In June 2016, First Avenue submitted site plan applications to the Town of Ajax, which ultimately led to the parties entering into a Site Plan Agreement (SPA) on July 26, 2021. The SPA contained a series of preconditions that had to be satisfied before full development could proceed on the property, reflecting both planning and environmental compliance obligations.

Environmental obligations and the Record of Site Condition requirement
A central term of the SPA was First Avenue’s obligation to obtain and file a Record of Site Condition (RSC) with the Ministry of the Environment, Conservation and Parks (MECP) for the property. An RSC is an environmental instrument that summarizes the condition of a property and confirms that it meets applicable standards for its intended, often more sensitive, use. Because the proposed use shifted from a heavy commercial operation to predominantly residential occupation, an RSC became an essential legal prerequisite under the Building Code regime before the municipality could authorize above-ground construction. The RSC could, in principle, be obtained in two ways: through full remediation, in which contamination is removed to meet applicable standards, or through a risk assessment (RA) approach, which allows contaminants to remain in place but manages them through engineered and administrative controls. First Avenue maintained that either path—full remediation or an RA-based RSC—would satisfy the same statutory requirement that an RSC be filed before any above-grade building permit could properly issue.

Issuance of the conditional building permit and limits on construction
In September 2021, Ajax issued a conditional building permit (CBP) for the property. The CBP strictly limited First Avenue to certain below-ground work, including footings, foundations and site services. It expressly conditioned any further above-grade construction on First Avenue first filing an RSC with the MECP, which would then allow the Town to issue a full building permit authorizing above-ground work. The CBP thus functioned as a controlled, incremental approval, allowing substructure work to proceed while environmental approvals were still being pursued. It was common ground that, at the time the CBP was issued and the below-grade works were built, no RSC had been obtained or filed.

Unauthorized above-grade construction and enforcement steps
Despite the clear limits of the CBP, First Avenue advanced the project by constructing above-grade works without a full building permit and before securing an RSC. During October and November 2021, First Avenue continued with above-ground construction even after Ajax requested that work be stopped and then issued both an Order to Comply and a Stop Work Order under the Building Code Act. First Avenue admitted in the proceedings that the above-grade works were constructed in violation of the Act and outside the scope of the CBP. In response, Ajax commenced an application in November 2021 under s. 38 of the Building Code Act seeking an order for demolition of the unlawfully constructed above-grade portions of the building. At the first return of the application, the parties consented to a mandatory injunction prohibiting further work, and the application itself was adjourned sine die.

Attempts to obtain an RSC and the shift to a risk assessment strategy
Between late 2021 and September 2024, First Avenue pursued various avenues to obtain an RSC but remained unsuccessful. MECP rejected two separate RSC submissions, and in July 2022 Ministry staff inspected the property. Their subsequent Record of Site Condition Inspection Report, issued on September 28, 2022, identified significant problems with both the site conditions and First Avenue’s RSC filings. In this period, First Avenue shifted away from a pure remediation model and began promoting a “dual track” strategy: one RSC for the building envelope itself, and a separate RSC for the balance of the property grounded in a risk assessment approach. First Avenue’s position was that this arrangement would permit above-grade construction of the building to proceed while an RA-based RSC for the rest of the site was developed and approved. MECP rejected this RA proposal in December 2022, and Ajax later advised First Avenue in September 2023 that the dual-track approach was unacceptable. The Town informed First Avenue it would have until September 2024 to obtain and deliver an RSC, a deadline that passed without compliance. As of the date of the appeal hearing on January 21, 2026, no RSC had been filed, and compliance with this central precondition remained outstanding.

Inspection of below-grade work and evidentiary disputes
A further evidentiary issue concerned whether Ajax could properly assess the compliance of the below-grade work given the subsequent unauthorized construction above it. First Avenue tendered evidence from a structural engineer who conducted site visits in 2021 and 2025, concluding that the below-grade works had been completed in general conformity with structural drawings and in compliance with the Building Code. First Avenue contended that such engineering evidence is routinely accepted by municipal chief building officials and undermined any suggestion that the structure was unsafe or uninspectable. Ajax responded that the application judge, Justice Casullo, recognized that the physical realities of the encasing above-grade structure impeded direct municipal inspection of the substructure. The Divisional Court accepted that the application judge’s comments on the difficulty of inspection were largely descriptive, forming part of the narrative of events rather than the legal foundation of the court’s exercise of discretion. Ultimately, the appellate court held that the Building Code assigns to the Chief Building Official, not the property owner, the authority to assess inspections and enforce compliance, and that no palpable and overriding factual error was made about inspection feasibility.

The application judge’s reasons and the demolition order
On May 22, 2025, Justice A.A. Casullo heard Ajax’s application for a demolition order and, on September 18, 2025, granted the Town’s request, directing the demolition of the unauthorized above-grade construction. In her reasons, she emphasized that First Avenue was an experienced, sophisticated developer and not an impulsive novice. She observed that First Avenue had made a calculated choice to build beyond the scope of the conditional building permit and to proceed without having first secured an RSC, despite its obligations under the SPA and the Building Code framework. While significant funds had been spent on environmental work and consultant engagement, Justice Casullo held that these were efforts that should have been completed before substantial above-grade construction began. She concluded that allowing a building to remain when it had been constructed without the benefit of a proper building permit would encourage disobedience of and disrespect for the law, particularly in a regulatory context aimed at protecting public health and safety. On that basis, she determined that an order for demolition was the only just and appropriate remedy to vindicate the objectives of the Building Code Act and to deter similar conduct.

Grounds of appeal to the Divisional Court
First Avenue appealed Justice Casullo’s decision to the Ontario Divisional Court under s. 38(3) of the Building Code Act, which permits an appeal as of right from an order made under s. 38(1). The appellants advanced three principal grounds framed as palpable and overriding error or erroneous application of legal principles: first, that the application judge misapprehended key evidence, particularly by implying that First Avenue had agreed to fully remediate the site before any above-grade construction and by overlooking evidence supporting a risk assessment-based RSC; second, that an internal inconsistency in the reasons—especially a statement that there had been no material change in circumstances since a 2021 consent order—undermined the demolition order; and third, that the judge misapplied the objectives of the Building Code Act by imposing a demolition order that, in First Avenue’s view, could only be characterized as punitive rather than as a tool to secure compliance.

Standard of review on fact and discretion
The Divisional Court, comprised of Fitzpatrick, O’Brien and Tranquilli JJ., approached the appeal using well-established appellate standards. Questions of fact and mixed fact and law were reviewable only for palpable (obvious and clear) and overriding (going to the root of the outcome) error, as articulated in Housen v. Nikolaisen. Discretionary decisions of a lower court—such as whether to order demolition under s. 38 of the Building Code Act—would only be disturbed if the lower court misdirected itself, gave no or insufficient weight to relevant considerations, or arrived at a decision that was so clearly wrong as to amount to an injustice, following Penner v. Niagara (Regional Police Services Board). This framework required deference to the application judge’s weighing of evidence and policy objectives unless a significant error affecting the result was demonstrated.

Analysis of alleged misapprehension of evidence
On the first ground, the Divisional Court acknowledged First Avenue’s argument that there had been no binding agreement to “fully remediate” the property and that the RSC requirement could be met through either full remediation or a risk assessment. The court accepted, in principle, that both routes ultimately aimed at the same legal endpoint: obtaining an RSC as a condition precedent to above-grade construction. However, it stressed that the dispositive fact remained that no RSC had been obtained in November 2021 when First Avenue built above grade, nor had one been filed more than four years after the SPA was executed. The court concluded that Justice Casullo’s reasoning was not actually premised on whether First Avenue had committed to a particular form of remediation. Instead, her principled basis for ordering demolition was that First Avenue had advanced construction far beyond the clear limits of the conditional permit, ignoring the requirement for an RSC and thereby undermining the protective function of the Building Code framework. In that light, any references to remediation versus risk assessment, or to challenges in inspecting the below-grade works, were either part of the narrative or ancillary observations and did not constitute palpable and overriding factual errors that tainted the exercise of discretion.

Consideration of the “no material change in circumstances” statement
On the second ground, First Avenue argued that Justice Casullo’s statement that there had been no material change in circumstances since a 2021 consent order that made demolition necessary or equitable stood in tension with her ultimate order mandating demolition. The Divisional Court rejected this contention, reading the reasons contextually. It noted that the contested sentence appeared in a section of the application judge’s reasons describing the “Current Status of the Development” and amounted to an observation that nothing further had happened on the site after the commencement of the application that would, on its own, justify demolition. Properly understood, this did not negate the earlier unlawful construction, nor did it contradict the conclusion that the demolition order was justified by First Avenue’s decision to proceed beyond the permit’s scope before the consent order. The appellate court characterized this as obiter narrative rather than a determinative finding, and held that it did not reveal a misunderstanding of the record or undermine the internal coherence of the judgment.

Objectives of the Building Code Act and the nature of the remedy
The third ground concerned the character of the demolition order under s. 38 of the Building Code Act. Both parties agreed that the purpose of s. 38 is to secure compliance with the Act, not to punish wrongdoers. First Avenue argued that, given the significant investment and partial completion of the building, demolition could only be seen as punitive. The Divisional Court, adopting Justice Casullo’s reasoning, emphatically disagreed. The court stressed that First Avenue had placed itself in its predicament by choosing to proceed with above-grade construction without securing an RSC and in knowing breach of the conditional permit and statutory orders. In a regulatory regime grounded in public health and safety, the court held that it would be improper to create incentives for developers to gamble by building first and seeking permission later, especially on large, sensitive projects on contaminated land. While recognizing that demolition is a drastic measure, the Divisional Court concluded that the application judge had carefully balanced the harm to First Avenue against the municipality’s duty to enforce the Building Code and found no error in her determination that demolition was the only just and appropriate remedy. It underscored that the Act does not empower a Chief Building Official to order demolition solely for lack of a permit, but does give the Superior Court such discretion, which had been properly exercised here.

Outcome of the appeal and monetary consequences
Having rejected each ground of appeal, the Divisional Court found no palpable and overriding error and no misapplication of the objectives of the Building Code Act that would justify interference. It held that Justice Casullo’s path of reasoning was intelligible, grounded in the evidentiary record and consistent with the statutory purpose of ensuring construction proceeds only in compliance with applicable law. The court therefore dismissed the appeal and confirmed the demolition order. As for monetary consequences, the parties had agreed on costs of the appeal, and the court ordered that the appellants—1940475 Ontario Inc., Pina Morelli, First Avenue Properties and Morex Construction—pay the respondent Corporation of the Town of Ajax costs fixed at $30,000, inclusive of disbursements plus HST, payable forthwith. In practical terms, this means that the Town of Ajax emerged as the successful party, securing both confirmation of the demolition order and a total costs award of $30,000 (plus HST) in its favour.