What is a permit? Why do we need permits and why are open permits a concern?
I had been heavily involved in closing off permits in the past. Part I will be my attempt to answer these questions as a future reference. I hope this post will be helpful if you are looking to be informed. If you are well versed in this topic, feel free to jump over to Part II (yet to be written – link will be updated once Part II is posted).
First of all, a building permit is a formal permission to begin construction related work on a property. Local municipalities (ex. City of Toronto) generally grants the permission. Building permits are required under the Building Code Act for the construction and/or demolition of a new building, an addition, or alteration of any building or structures. (Building permit application process is a standalone topic, reserved for another day.) Ideally as a project is near completion, contractors will call in for a final inspection. Once the building inspector deems the site to be complete and free of deficiencies, he/she will close off the permit.
There are many reasons why permits remain open after construction is long finished. Sometimes, an owner/contractor may obtain a permit but do not complete the full scope of work. Sometimes, the work might be complete but the owner/contractor never arranged for a final inspection. Sometimes, permits are left open due to unresolved deficiencies that the owner/contractor decide to neglect. Part I highlights the importance to close a permit.
The most significant reason is that open permits can cause owner problems when selling or financing their property down the road. Open permit becomes a lien on the building/property when a title is transferred during the purchase and sale of a property. These outstanding liens become a liability to the seller. It also does not help that open permits are often discovered much later in the real estate transaction process since permit related problems related can not be discovered from title searches. Open permits must be searched independently through the local municipality. Open permits can potentially delay closing or even cause a potential buyer to terminate the contract. Therefore it is best practice to keep on top of this potential landmine by ensuring that open permits are closed as soon as the construction is substantially complete (97% completion).
Nowadays, we frequently see owner withholding a certain percentage of hold-back (usually 10%) which will not be released back to the contractor until the building permit is closed (along with other close-out documents). Contractors are encouraged to close off their projects to get the deposit back.
The good news is that permits take less effort to close if it is tackled right away. Older construction projects are often not in compliance with current building codes as building code change over time. If we wait months or years, the owner maybe forced to redo the work to comply with the current building codes before the permit is closed. Furthermore, it becomes increasing difficult to track down important information about the project as files are often missing. This situation can be further complicated if the contractor who did the initial work is out of business. I had this occurred to me a few times in the past so let me assure you that it is no fun.