Pay Attention to Open Permits Prior to Closing

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, but 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 caused 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 of 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 the buyer does nothing and ignores open permits or doesn’t search for open permits? The buyer will then be unable to pull permits for work on the property in the future until the prior permit is closed. This could come at significant cost and delay to the buyer and there would not be a seller to recover costs from anymore. 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.