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Renovation, But No Permits!
I received this question from a listing Realtor.
I have some potential listing clients who want to put a rental on the market (SFH).
They did a bunch of renovations to add a basement suite about six years ago. They hired electricians, plumbers, moved a couple walls, etc. They made sure the work was done well, but they did not pull any permits.
What should they be concerned about? What are their options?
This is always a tough question. To start with, these sellers are faced with paragraph 6.1 (g) of the Representations and Warranties section of our 2023 AREA contract. That clause says “The seller represents and warrants to the buyer that… lack of permits for any development on the property known to the seller have been disclosed in writing in this contract.”
Unless the sellers can fix the problem, they have to disclose. Disclosing the lack of permits will make most nervous buyers and at least demand a substantial price reduction.
What's the Alternative?
A different approach would be to investigate getting 'as built’ permits legalizing the suite. The sellers could check the municipal website, maybe have an in-person consultation with a development officer. All they would have to say is something along the lines of "Hi, we're thinking of buying a home where the seller never got permits for his basement suite. What happens if we buy without permits? Can the seller fix this problem?"
The likely answer for this scale of renovation is that permits will have to be applied for. Once permits are issued, the municipality will almost certainly require an inspector to confirm all work meets municipal bylaws and Safety Codes. The difficulty usually comes when an inspector decides that, for instance, drywall has to be removed so he can see the plumbing and electrical.
How much will the seller have to tear apart his renovation? It’s impossible to know that until the inspector takes a look.
Overall, inspectors have a lot of latitude and, generally speaking, I have found them to be reasonable in their inspection requirements. For instance, they might require enough drywall removal to look at one portion of the electrical. If that passes inspection, they will assume that the journeyman electrician installed all other portions of the electrical properly and therefore not require a complete inspection.
Lessons Learned
If your clients ever mention renovating, be very firm that they should absolutely get permits and a final inspection.
If they renovated without permits, encourage them to investigate getting 'as built' permits from their municipality.
To help decide which route to take, make an estimate of the likely price reduction for a sale without permits vs applying for permits and the costs of dealing with municipal inspection requirements.
Protect yourself.
Cheers,
Barry
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