Asking permission is rarely the preferred posture of any red-blooded human being. However, we spend much time in our lives doing exactly that. The permitting process at any municipality is precisely that, asking permission from the government to build, renovate or use something in a specific way, and as verification of that permission being granted a permit is given after bylaws, safety and building codes, or regulations are consulted. Let’s look at some sticky issues surrounding permits that can affect real estate.
Get PermitsIt may seem obvious, but the easiest way to resolve a lack of permits issue with a seller is for the seller to seek the permits after the fact. Full disclosure, not all municipalities will allow retroactive permit applications for all permit types, but it is worth a try. For example, if the seller built a deck at the back of the house with the help of a bunch of buddies incentivized by a 6-pack and pizza, they likely never applied for a permit from the city first. When they go to sell the home, the standard purchase contract has the seller making a warranty that they don’t know of a lack of permits for development on the property, plus when an RPR is sent for compliance at the city, they will flag it as non-compliant for lack of a permit. Depending on the permit, the municipality may allow the property owner to apply for a retroactive permit. However, there is always an additional cost to doing things in the wrong order, so the process is normally more expensive in this direction. Getting this done pre-listing will show diligence on the seller’s part and provide the buyer peace of mind.
DiscloseTiming may be an issue with getting the permits, or perhaps the municipality does not offer retroactive permits, but the property still needs to be sold. The only option is to disclose. One of the REALTORS® responsibilities is to help the client to comply with their warranties. As mentioned, the seller will be making warranties by default that there is no lack of permits for development on the property, so the seller and the REALTOR® have a problem if the lack of permits goes unmentioned. Where the seller cannot or will not get permits for development already completed on the property, that statement should be made in additional terms in both the listing agreement as well as any resulting purchase contracts, superseding the seller’s warranties in this regard and allowing both the seller’s brokerage to be prepared for questions, and the potential buyer to conduct their due diligence concerning the development that is missing the permits.
Title InsuranceOne of the insurance products available to purchasers in the real estate market is title insurance. Although title insurance is traditionally used to cover defects on the title unknown to the purchaser at the time of purchasing the policy, a typical homeowner’s policy also may cover title fraud, registration forgery, encroachments, and for our purposes here, lack of permits for development where the municipality ultimately requires removal of remediation. The title insurance option is good for the buyer to discuss with their lawyer and review the policy. Still, it does not relieve the seller of their responsibility to disclose. Now someone will email me and say that title insurance only covers unknown issues to the buyer and won’t work. However, that is not the whole story. Most title insurance policies will cover known and unknown common defects like those actively disclosed in a purchase contract on a case-by-case basis, so it should be considered.
The unspoken best practice here would be for the property owner to get proper permits before the work starts. Even though the permitting process can be demanding, it still beats the extra costs associated with retroactive permitting, title insurance, or even reduced sale prices when the owner decides to sell. At least for this issue, it is always best to ask permission than to beg forgiveness.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: email@example.comPhone: 403-209-3619