SS77: Closing Out Open Building Permits

Open permits are the last thing that a buyer or seller thinks about during a sale process, however; open permits can prove to be a stumbling block if they are not closed out. In this episode, Charles discusses how he recently had to close several open permits on a property portfolio his company was selling. Even though he managed to close them all out, one in particular was a challenge.

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Talking Points:

Recently, another partner and I were selling several small multifamily properties and during the inspection period, it was realized that there were several open permits from the city.
When you are selling properties or buying properties, open permits are really the last thing on your mind; but when it came to light; we worked over a 2-week period to get them all closed out; easier said than done.
Typically, you need to close out all open permits prior to selling a property; usually, because the buyer and the buyer’s attorney will require it; but in most cases, the municipality will also require it. Open permits, however; will not typically be revealed with a traditional title search or building inspection. It normally requires a municipal search to reveal whether there are open permits.
When the municipality search was performed by the buyer’s attorney; they found 5 open permits over the different properties. 3 permits were from contractors that had opened the permits, and done the work, but never closed them. 1 was from a tenant that was trying to make tenant improvements and then never did the work and moved out. 1 was from a contractor that opened the permit in the event they needed to perform work on the property but never closed them.
This municipality automatically closes permits after 9 years; but of course, I could not wait this long.
Luckily, all of the contractors were still in business. The 2 permits for work that was never performed were easily closed out.
2 of the remaining 3 were from a contractor that was able to close out the permits with just a couple of phone calls since they had a good relationship with the inspectors and that was done within a week.
1 however, a roofing permit, that was pulled 4 years prior, proved to be a problem. The building inspector would not close it out since he had not inspected the work and was not helpful in the process. After several calls and a dozen emails from myself and the contractor; he made an appointment to come out and inspect. He never showed up for the appointment and then he just requested some pictures of the work; which my roofer sent. He closed the permit a couple of hours later.
When you are dealing with city officials; you need to be very respectful and willing to work around their schedule. I have found out over the years, that some of the rudest people work in these departments and there is nothing you can do about it. If you make someone mad downtown; you might never get that permit closed and they might send an inspector out to your property; most certainly they will find other items that they consider issues that need to be rectified.
I remember I was releasing a $200 lien on a property many years back for some trash that was left by a tenant on the curb that our manager never picked up and during the process of sending them money and paying their fees; I got some of the rudest replies to my emails; when I was just verifying where to send the check or who to make it out to or what to include with payment. It is crazy that our property taxes pay their salaries but you cannot think that way when you are dealing with city/government employees.
Going forward; most municipalities have an online search function where you can search addresses to see if there are any open permits. I would do this when you put an offer in on a property and when you are planning to sell a property. Sooner than later. However; I would check to make sure that every permit that is opened at your property is actually closed; even if you have a property manager. This is part of asset management, but it was missed by our team.

Don’t release the final payment to contractors until they have closed out the permits. In my case, some permits were opened without my knowledge; I would set a reminder to run a quick municipal search every few months to make sure that there are no open permits that will become a problem in the future.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing, closing out open permits on your properties. Recently, myself and another partner were selling several small multi-family properties. And during the inspection period, it was realized that there were several open permits from the city. And when you’re selling properties or buying properties, open permits are really the last thing on your mind. But when it came to light, we worked over a two week period to get them all closed down, easier said than done. Typically you need to close out all open permits prior to selling a property, usually because the buyer and the buyer’s attorney will require it. But in most cases, the municipality will also require it open permits. However will not typically be revealed with a traditional title search or building inspection. It requires a municipality search to review whether there are any open permits.

Charles:
When the municipality search was performed by the buyer’s attorney, they found five open P permits over the different properties. Three permits were from contractors that had opened the permits, done the work, but never closed them. One was from a tenant that was trying to make tenant improvements and they never did the work and moved out. And one was from a contractor that opened the permit in the event, they needed to perform the work on the property, but never closed it. The municipality automatically in this case closes, permits after nine years. But of course I could wait this long. Luckily, all the contractors were still in business. The two permits were worked that were never performed, were easily closed out after some calls and some emails to building inspectors. Two other remaining three were from a contractor that was able to close out the permits with just a couple phone calls.

Charles:
And since they had a good relationship with the inspectors that was done within a week one, however, a roofing permit that was pulled four years prior proved to be a problem. The building inspector would not close it out since he had not inspected the work and was not being very helpful in the process of us trying to close it out. After several calls and a dozen emails from myself and the roofing contractor, he made an appointment to come out and inspect. He never showed up for the appointment. And then he just requested some pictures of the work from the roofer, which my roofer sent. And he closed the permit a couple hours later when you’re dealing with city officials, you need to be very respectful and willing to work around their schedule. I have found out over the years that some of the rudest people work in these departments and there’s nothing you can do about it.

Charles:
If you make someone mad downtown, you might never get that permit closed and they might send an inspector out to your property. Most certainly they will find other items. They consider issues which need to be rectified, which will take cost you time and cost you money. I remember I was releasing a $200 lean on property, many years back for some trash that was left by a tenant on the curb that our manager never picked up. And during the process of sending them money and paying their fees, I got some of the rudest replies to my emails when I was just verifying where to send the check or who to make it out to or what to include with the payment. And it’s crazy that our property taxes pay their salaries, but you cannot think that way when you’re dealing with city, government employees going forward, most municipalities have an online search function where you can search addresses to see if there are any open permits.

Charles:
I would do this when you put an offer in, on a property. And when you’re planning to sell a property sooner than later, however, I would check to make sure that every permit that is opened at your property is actually closed. Even if you have a property manager like I did in this case, and this is part of the asset management process, but it was missed by our team. And next is don’t release final payment to contractors until they have closed out the permits. In my case, some permits were opened without my knowledge, I would set a reminder to run a quick municipal search every few months to make sure that there are no open permits that will become a problem in the future. So I hope you enjoyed, please remember to rate, review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

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