With the popularity of home improvement shows on HGTV, homeowners are remodeling their kitchens, bathrooms, and pools. Often, this work will require that the homeowner obtain a building permit to construct the project. However, these permits are often not adequately addressed until an issue arises during the closing process. This blog focuses on navigating the close-out of permits under the FR/BAR Contracts.
A building permit is written authorization issued by a city or county to construct a project. A permit is issued to ensure that the work is done in compliance with building codes and ordinances. In addition, Section 12 of the FR/BAR Contract allows a buyer to perform an inspection of the property during their inspection period, which includes an examination of records and documents to determine if there are any existing open and/or expired permits. The seller’s responsibility to close out any open or expired permits, however, differs substantially depending on whether you use the FR/BAR Standard Contract (the “Standard Contract”) or the FR/BAR As-Is Contract (the “As-Is Contract”).
Close-Out Requirements under the Standard Contract
Under the Standard Contract, a buyer may require that the seller obtain or close out any open building permits with the applicable governmental entity. Section 12(d) of the Standard Contract sets forth the seller’s responsibility in closing out such permits. Suppose open or expired permits are found during the inspection period. In that case, the buyer must notify the seller prior to the expiration of the inspection period, and the seller must promptly deliver any plans and written documentation in the seller’s possession or control that pertain to the permits or unpermitted improvements. The seller then has ten days to obtain estimates of costs to remedy the permit issues. Finally, at least five days prior to the closing date, the seller must have open or expired permits closed by the applicable government entity up to the agreed-upon repair limit set forth in Section 9(a) of the contract.
Close-Out Requirements under the As-Is Contract
Unlike the Standard Contract, the As-Is Contract does not require a seller to undertake the close-out of open or expired permits prior to closing. Section 12(c) of the As-Is Contract still requires a seller to promptly deliver all plans and written documentation in their possession or control. However, the seller’s only obligation is to assist and cooperate in the process. This provision does not require a seller to spend any money on resolving permit issues.
Do you know which contract form to advise your clients to use when you suspect permits might be an issue? If not, please do not hesitate to reach out to your trusted local real estate attorney.