Resolving Permit Issues: Residential Contract vs. AS-IS Contract

One difference between the FAR/BAR Residential Contract for Sale and Purchase and the AS-IS Residential Contract for Sale and Purchase is the treatment of permits which have not been properly closed out and improvements which are not permitted.

Common to both contracts, the Seller has the obligation to:

Disclose any improvements made to the Property without required permits or made pursuant to permits which have not been properly closed.

Promptly deliver to Buyer all plans, written documentation or other information in Seller’s possession, knowledge or control relating to improvements to the Property which are the subject of such open permits or unpermitted improvements.

Specific to the Residential Contract, the Seller has the additional obligation to:

Close out open or expired building permits and obtain required building permits for any existing improvement for which a permit was not obtained. The cost of which is limited to the “Permit Limit” agreed to by the parties in Paragraph 9(a)(iii) of the Residential Contract.

If the AS-IS Contract is used, it is important to note that the Seller does not have an obligation to close out or obtain any permits. In the event that the Seller has disclosed open or expired permits or unpermitted work (aside from the obligations common to both contracts above), the Seller only has an obligation to “promptly cooperate in good faith with Buyer’s efforts to obtain estimates of repairs or other work necessary to resolve such permit issues.” Aside from this, the Seller does not have an obligation to spend additional effort or to expend any money to assist in resolving permit issues. In the event that the Seller does not disclose permit issues, but the Buyer’s inspection uncovers permit issues, Seller has the same limited responsibility with the onus on the Buyer to resolve any issues or cancel the AS-IS Contract within the Right to Inspect; Right to Cancel period.

If you have a Buyer who is using the AS-IS Contract, and permits are a concern, one recommendation would be to add additional language to the AS-IS Contract requiring the Seller to resolve any permit issues so that the Buyer is not left with the obligation to do so. It is also important to calendar the Buyer’s Right to Inspect; Right to Cancel period, as this time period will not automatically extend if the resolution of permit issues stretches past the deadline.

As always, should you have any questions, please Contact your local real estate attorney.

Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Jessica Featherstone jfeatherstone@berlinpatten.com

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

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