Permit or not to Permit?
That is the question Shakespeare may be asking today if he was a licensed Realtor! I’ve often been asked by sellers AND buyers whether or not a home that is sold/purchased has to have all required permits in place. And the answer is actually very simple…it depends.
First of all there are several reasons why properties may not have all required permits in place. One is that the person doing the alteration or construction simply does not know a permit is required. Secondly is cost. A lot of projects are done sans permit to save money from permit application fees, even if the actual work is done properly, with quality and by capable people. Additionally there may be a perceived property tax advantage as the assessed value of a home is potentially lower, and therefore less tax $ amount payable, if the municipality is not aware of any construction improvements. Another reason is because of changing municipal requirements and building codes. An item may not require a permit at the time of completion, but immediately thereafter policy can change and a permit may actually be required for the same item. It should be noted, though, that there really is no obligation for existing items to keep up with changing codes once the item is completed. Finally, some people simply ignore any permit requirement and just do it regardless. This last reason is usually the most problematic and is the main purpose for contract terms regarding permits.
So let’s look at it from a contractual perspective. The standard AREA (Alberta Real Estate Association) residential purchase contract speaks to the matter of permits, explicitly, in only 1 section. Specifically it says that “…lack of permits for any development on the Property, known to the seller have been disclosed in writing in this contract.” Note that it does not say that the seller warrants to the buyer that all required permits are in place, but only that any KNOWN lack of REQUIRED permits has been disclosed in writing to the buyer. But then it depends what the seller “knows” or not.
There are other areas in the purchase contract that indirectly speak to the permit issue as well. Part of the seller’s obligation under the AREA purchase contract is to warrant to the buyer that “…the current use of the land and buildings complies with the existing municipal land use bylaw…”. The way that the seller proves this is to supply an RPR (Real Property Report) showing the location of all structures on the land, along with evidence (letter from the city or municipality) confirming that everything shown on that RPR is where it should be and complies to all bylaws. So in the event, for example, that a garage was built without a permit, even though it may be exactly where it should be the municipality would more than likely flag it when they go to review the letter of compliance and NOT grant approval until there was a proper permit issued. As a result in THIS situation the seller is probably going to be responsible for getting the permit.
Another statement the offer contract makes is that “the seller will disclose known Material Latent Defects. Material Latent Defect means a defect in the Property that is not discoverable through a reasonable inspection and that will affect the use or value of the Property.” So let’s look at that garage example, and again we see that it depends. Would a buyer reasonably discover that a garage that the seller had built actually has no permit in place? And does the lack of required permit affect the use or value of the property?
Finally, and this one really hammers home the “depends” flavour of this BLOG, the offer states that “the seller and buyer are each responsible for completing their own due diligence and will assume all risks if they do not.” Furthermore, “the seller will ensure the seller’s representations and warranties are true by…doing other needed research.” And finally “the buyer may get independent inspections or advice on items…important to the buyer.” So it appears that other than a blatant ignoring of known permit requirements on substantial items, and municipal compliance issues; it does really depend of the situation in terms of whether or not permits are required for properties sold/purchased in our market. Clear as mud?
From THIS agent’s viewpoint the goal of a successful real estate deal is to have a satisfied seller and a satisfied buyer, with neither being surprised throughout the process. And on that point it would be suggested that we ask our sellers questions about the property upon listing it, and ask our buyers what items may be of particular importance to them when offering on it…if I may be “permitted” to provide my opinion that is!
Keith Pushor has been a licensed Realtor since 1994 servicing the Lethbridge and area market. He publishes a semi-regular BLOG about adventures in his real estate, cycling, and outdoor life in general. The information presented in this BLOG, while being reliable, is ultimately only the perspectives and opinions of Keith Pushor and does not necessarily reflect those of Royal LePage South Country.