I have a small wooden garden shed along the property line with my neighbour. It is about 6 inches from the fence, so painting is a little tricky. The house has been sold at least twice with the shed and it has never been a problem.
I vaguely remember being told, maybe from the home inspector, that because it has a wood base rather than a concrete slab, it is a movable (temporary?) structure so it is ok. Maybe the bylaws have changed since 2004, but take that for what it is worth.
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