Pay Attention to Open Permits Prior to Closing
It is not uncommon to discover the existence of open building permits in residential closings. The closing attorney or title agent will find open building permits when doing routine due diligence prior to closing. An open permit, alone, will not adversely affect title, so sometimes, a less than careful closer will overlook or ignore, or not even search for open permits. However, an open permit can cost a buyer time and money in the future.
Open permits are usually cause by one or more of the following 3 situations:
- The permitted work was not completed and the general contractor never closed the permit. It could have been that the city never approved the work, the owner changed his/her mind or a payment dispute occurred or some other factor.
- The work was completed, but the general contractor did not take all of the steps required to close the permit. This might include failing to schedule the final inspection, failing to process the final paperwork for the city or failing to pay the close out fee.
- The work was completed, final inspection occurred, paperwork processed and the city didn’t put it into the system.
Any of these situations can be remedied. Who is responsible? The purchase agreement should offer guidance. Florida residential transactions using standard FAR/BAR contracts have clear answers. Paragraph 12(d)(ii) requires the seller to do all the work necessary to close open permits at seller’s cost up to the “Permit Limit” set forth in Paragraph 9(a)(ii). In an “AS IS” form contract, the buyer assumes responsibility for open permits. But seller is required to cooperate and provide documents and information in seller’s possession to assist buyer.
What if buyer does nothing and ignores open permits or doesn’t search for open permits? Buyer will be unable to pull a permits for work on the property in the future until the prior permit is closed. This could come at significant cost and delay to buyer. There would not be a seller to recover costs from any more. And, if the new work is urgent in nature, the time necessary to close the old permit could be problematic, from both a cost and convenience standpoint.
Open permit searches can be handled at the same point as normal lien searches at nominal incremental cost. There is no reason not to obtain open permit searches for every closing, including improved commercial property. Permit searches should be a standard part of real estate due diligence.
cody shawJune 5, 2017 9:54 am
Is this still relevant or has there been updates to rules surrounding open permits and the closing process?
David K. BlattnerJune 5, 2017 10:22 am
Yes. This is still very relevant. The process has changed a little and the FAR/BAR form AS IS contract has changed a little, but buyer’s still need to beware and do their homework. The contract now requires sellers to “cooperate” and “assist” buyers in closing open permits, but sellers are not obligated to spend any money to do so. And, if these permits are discovered after closing, buyers are totally out of luck. The seller will not even have to cooperate or provide documentation to assist buyers in closing open permits. So, make sure to check for open permits prior to closing.
Christina V. CampbellDecember 5, 2017 6:02 pm
I have open permits PRIOR to my purchase. Now I’m trying to sell and it’s causing problems. Do I have any course of action?
David K. BlattnerDecember 9, 2017 2:59 pm
The fastest way to resolve open permits is to hire a permit expediter. An expediter can generally resolve the issue for you by determining whether additional work needs to be completed or if a close-out fee can be paid to the city. The fee paid to the expediter is money well spent when you are in a hurry and are trying to close quickly.
Tammy TaglieriMay 21, 2018 4:20 pm
Is the contractor allowed to purposely not close out a permit because he is not being paid the balance due until the closing date? Doesn’t this negatively impact closing if he chooses this route? He has already been told that his company will be listed as a payee on the closing HUD statement for the balance due. Also note that this contractor, who was hired to do a full home rehab, completely neglected to include the septic system in the initial repair assessment, an item that came back at a cost of $15K to repair. That is where the funds need to go, and this contractor takes zero responsibility for missing this huge part of the project.
David K. BlattnerMay 26, 2018 11:27 am
This isn’t something I could answer without being involved in at the table. Seems like there is a lot going on. The first part of your question is can the contractor hold off closing the permit until paid? Yes. But, most will cooperate knowing that an attorney or title company is involved and a closing is imminent, if the contractor filed a notice of commencement. They know that the funds will be disbursed to them because the notice of commencement can’t be released without the contractor’s final contractor’s affidavit. The second part of your question is more complicated because it sounds like there is a breach of contract issue and there will be a dispute over what is owed. I am not certain how the contactor will agree to close the permit and provide the contractor’s affidavit if there is a dispute over the final payment.
Robyn BushmanJuly 31, 2018 10:10 pm
My husband and I are in the process of selling our home. We have a closing date set for 8/17 and we just found out that there is an open Roofing Permit on our property. We had our roof replaced in March of 2017 & assumed that our roofing contractor took care of all of that.
We have been trying to get ahold if the contractor, but haven’t been able to reach him. The roofer did a great job, but have been very difficult to get ahold of. What if they do not call us back?
Any advice you can give us would be very much appreciated!
David K. BlattnerAugust 3, 2018 2:37 pm
If you are in Florida, your contractor would have had to obtain a certificate of occupancy or certificate of completion. That should have closed out the permit. Check to see if there is one on the record. If not, then your roof is not in compliance and still needs a final inspection. If there is, and you can’t reach the contractor, you should be able to contact the city and close out the permit yourself. If you still have difficulty, contact a permit expediter for assistance.