An inquiry into open permits can prevent the delay or derailment of a commercial transaction
By David Brenner
Just last month, I finally closed on the sale of a commercial building that was delayed due to findings that were discovered during the due diligence period. In real estate a delay is not unusual, but the reason for this particular delay was something that we first encountered this year: open permits. The small building had six open permits, including some dating back more than 10 years! Since this occurrence, we have encountered other cases of open permits or permit violations. Permits convey with a property, and a new owner is responsible for them. While conducting a title search is routine during a sale, many fail to look for permit issues.
Here's a few recommendations for agents who are representing a buyer:
Conduct a search (or have a search done) for outstanding permits on the property. It can be as simple as an online search that most title companies can perform, or you can even do it yourself. In my case, the property owner was unaware there were outstanding permits until days before the closing. A couple of the issues were quickly cleared up with the county, but in one case, the owner had to hire a contractor to finish/correct work that should have been completed years ago.
Depending on the type of work required, it could take weeks or months to clear a permit. There are cases where the original work was not inspected at the time (maybe years ago) and current codes are different now. The municipality may require the work to be completely redone to meet the current codes.
Try to determine if there have been obvious changes to the building that would have required a permit. Then conduct a permit search to see if there was a permit for the work. If someone did the work without a permit, the municipality could have a permit violation attached to the property.
Encourage your clients who lease to tenants to consider language in the lease stating that tenant improvements must be done in accordance with local rules, and that only the owner can apply for a permit. Be sure to recommend that your clients consult an attorney for the specific language. While applying for a permit is supposed to be limited to a property owner or licensed contractor, in my recent sale a couple of the outstanding permits were applied for by long-gone tenants and were submitted without the knowledge of the owner.
Officials in the permit office are often understanding of the situation and try their best to work to clear up the issue. However, there is no standard process statewide on how to close an outstanding permit. The best course of action is for you and your client to know what the issues are, make a reasonable attempt to address or correct the problems, and consult with your contractor and local authorities.
Most of all, do not wait until the last moment to find out if there are outstanding permits.
David Brenner, C Brenner Inc, is a member of the Orlando Regional Commercial Council. He can be reached at firstname.lastname@example.org.
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