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Your South Florida, Boca Raton, and Miami Real Estate & Business Law Firm

Open Permit – were you stuck carrying the bag?

The parties to a Florida real estate sale learn there is an open permit issue  when (1) the buyer’s inspector checks the permit history on the property or (2)  the title and closing agent for the sale obtains a tax and lien search which contains a permit search from the municipality. A title search will not disclose permits – they are disclosed only by a specific permit search. I estimate that I have run into an open, expired or inactive permit issue in 1 out of 5 real estate deals that I am involved in.

A permit is opened when a contractor applies for a building permit from the municipality to perform work on the property. The permit remains open – meaning it is not shown as final and closed in the municipality’s records if (1) the contractor never completed the work or the work failed inspection and was not corrected, (2) the work was completed but the contractor never took the steps to have the final inspection and close out the permit, or (3) rare, but possible – the municipality never processed the final approval in their records.

Ignoring an open, expired or inactive permit is never a good idea. If left unresolved, the municipality may refuse to issue any new permits to the new owner of the property.  The standard FAR/BAR contracts – unless modified by specific, new language in Paragraph 20 or in an Addendum – provide that the buyer assumes responsibility for the open permits. The seller is required to cooperate and provide documents and information to assist the buyer in closing out the permit- but has no obligation to close them out or to spend any money to do any work required to close them out.

I recommend adding language to Paragraph 20 or an Addendum providing that the seller will close out all open, expired or inactive permits, at the seller’s expense, prior to closing. This makes it absolutely clear that the seller must close out the permits – even if this means hiring a new contractor to reopen the permit and potentially perform additional work to make sure that the inspector approves the improvements that were done. Although it is the responsibility of that original contractor to complete the job and process the permit close out – my experience has been that if the work was done several years ago – the contractor is likely no longer in business or if still active – not always willing to cooperate. Once a permit has been inactive and/or not closed out for a certain period of time – a new permit fee will have to be paid in order to process closing out the permit – even if all that is needed is a final inspection without additional work.

I handled a recent sale where the contract had been signed before I became involved – so that the language I typically recommend was not included and the standard provisions discussed in the previous paragraph controlled. Nevertheless, the buyer’s lender refused to close the mortgage loan unless the open permit was closed out. This had the potential to blow up the deal. Fortunately, the seller took responsibility for closing out the permit – although it cost the seller almost $10,000 for repairs to get a clean final approval from the inspector.

I have been involved with condo sales where the title and closing agent has advised me that they don’t order permit searches. In my view – this is a formula for disaster. I recommend a permit search (generally is part of the tax and lien search) – to be ordered for every sale of real estate. The cost of the search depends on what the municipality charges – ranges from $125-$400. It is a small price to pay to make sure that you don’t get stuck carrying the bag- by taking title subject to one or more open permits which the seller should have closed out.

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