Bylaw Coverage Pitfalls

Bylaw Coverage Pitfalls


A homeowner who recently purchased the property thought that they were doing all the right things. It was on a large lot with a spacious 2,200 square foot home that was constructed about 47 years ago and was in good shape. Although some of the finishes and features were original, it was well maintained over the years which would place its updated age at 30 years. The cost to rebuild the home would be $208,857 which a recent Reproduction Building Appraisal indicated. Using this appraisal this would place the Actual Cash Value (ACV) at $133,668.

A fire occurred which resulted in approximately $50,000 worth of damage according to the restoration contractor who was repairing the home. All was going well until the homeowner received a notice in the mail from the municipality requiring certain procedures be taken. These were standard procedures and requirements that any municipality would require, or so the owner thought. The condition that was the kicker was condition number 4 which read “Submit sealed Fire Sprinkler drawing and Hydraulic calculations. Alternations to a Single Family dwelling which has a construction value of more than 75% of the greater of the assessed value or appraised value of the building prior to the alternation, fire sprinkler shall be installed. Refer to Building and Plumbing Bylaw No. 3425 Section 22”. The municipality is now claiming the whole house has to be upgraded because the damage is over 75 %.

Where are they getting this figure from? Very simple, they pull a current Assessment Role Report which states the value of the improvements to the property is $41,400 and the $50,000 repair bill is much over the 75 % of the $41,400 value.

INTEGRAL obtained a copy of this report and found that the improvement value in previous year was $72,200 and in the year prior to that it was $66,300. This totalled an increase of roughly 9 % per year so in the current year it should have been in the neighbourhood of $78,700. This still would put the $50,000 repair bill over the 75 % mark. But the question to ask was “What does the Assessment Value have to do with a construction value?” The assessment value is to determine a mill rate for taxes – it has nothing to do with construction or reconstruction costs.

INTEGRAL  got a copy of the Building and Plumbing Bylaw No. 3425 Section 22 and reviewed this section which reads “Section 22 Fire Limit Areas and Sprinkler Regulations Sub Section 22.4 Subsection 22.2 does not apply to: 22.4.1 additions or alterations to one and two family dwellings which have a construction value of less than 75% of the greater of the assessed value or appraised value of the building prior to the addition or alteration:”

This is the by-law that the plan checker who sent the notification letter was referencing. In his letter he referred to “alteration” which means fluctuation; vacillation; swinging; undulation; or wavering, whereas the act states “alteration” means change; modification; adjustment; shift; variation; amendment; revision; or adaptation. Was the plan checker getting picky?

What the plan checker did not refer to was the definition of “Appraised Value” which states under Section 2 Definitions “Appraised Value means the value of a building determined by a person designated Accredited Appraiser Canadian Institute (AACI) by the Appraisal Institute of Canada” and “Assessed Value means the most recent assessed value of a building as determined by the Assessment Authority of British Columbia”.

In reviewing the Assessed Value of $41,400 the question to ask is why it decreased instead of increasing. The neighbourhood it is in is increasing in value. Without any further investigation, it could be assumed that the previous owner had appealed the assessment notice for some reason. An appeal usually takes a few years to be processed.

The assessed value does not help in determining the rebuild cost. An appraisal is necessary. The plan checker provided the information and an appraisal was completed. The appraisal resulted in the reproduction cost as mentioned above. No requirement was given by the municipality as to the credentials of the appraisal firm, other than only an accredited appraiser could provide the appraisal. This was done. The municipality then came back requiring an appraiser with their AACI and also being a member of the Appraisal Institute of Canada. Why this revised requirement?

Who is the Appraisal Institute of Canada? In the Institute’s own words it states “The Appraisal Institute of Canada, founded in 1938, is the premier real estate appraisal association in Canada”. “The Appraisal Institute of Canada grants professional designations in real estate appraisal. The Appraisal Institute of Canada is a self-regulating body and, maintains the highest standards, practices and professional conduct in real estate appraisal to protect the public interest.” The issue in this situation was not the buying a house. The act refers to construction or reconstruction. A real estate or market value appraisal is not adequate. A reproduction appraisal for construction costs is the appropriate appraisal.

The institute goes on to say that there are approximately 1,000 members in the BC chapter, and have two designates CRA (Canadian Residential Appraiser) and AACI, (Accredited Appraiser Canadian Institute). According to the act, the property owner could only use one of these designates. In order to find an appraiser meeting the municipality’s requirement, it was critical to determine the split in membership between the two designations. INTEGRAL could not find a split nor access a membership list. However the executives in each of the 9 chapters could be accessed. Coincidently, out of the 38 executives that have their AACI, half of them are with the BC Assessment Authority or another government body. Is there a pattern here?

The recent appraisal showed that Bylaws Coverage should be $40,442. Although the homeowner had bylaws coverage, it was limited to $10,000 and has been used up through normal code upgrade.

In summary, the act along with the enforcers of this act were not swayed by what is right or wrong but merely continued to march to the beat of their own drum. Any accredited appraisal should be recognized. The saving grace of this fiasco was that not all municipalities in the Lower Mainland conduct their business this way. Most try to accommodate their populace by helping eliminate the unnecessary red tape when hardship falls upon an individual resident.

Adjusters, Brokers, Underwriters, and Building Owners, beware of these pitfalls and review the bylaws coverage carefully. Restoration Contractors  need to be aware that is not always the insurance company denying coverage. The municipality can force the insurer to deny the coverage by their (municipality) enforcement of bylaw requirements which do not adequately address insurance coverages.

In this particular case, after it was halted by the municipality, the restoration work started back up 12 months later once the insurer and municipality had battled it out. The homeowner had additional living expense to fall back on. But limits did run out before the work recommenced. Fortunately  the insurer waived the condition and continued paying the homeowner for his ALE. The insurer wanted to set precedence with this claim that the 75% municipality rule was inaccurate. They did.