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New state law amends municipal code

By: Kim Shindle on in

Denying use and occupancy certificates due to point of sale inspection issues is prohibited in Act 133 of 2016, which takes effect Jan. 2, 2017. The act amends the Municipal Code and Ordinance Compliance Act, originally enacted as Act 99 of 2000, which will change how some municipalities issue use and occupancy certificates.

“Some municipalities were inappropriately withholding or impeding U&O certificates, leading to some real estate transactions being postponed or cancelled due to minor property maintenance violations,” said Hank Lerner, Esq., director of law and policy for PAR.

“Act 133 was a tremendous legislative victory for PAR,” said PAR President Todd Polinchock. “Our members sent more than 13,000 emails to state legislators, urging them to vote to amend the Municipal Code and Ordinance Compliance Act. It shows how much we accomplish working together!”

“One of the provisions of Act 133 states that a violation found through a point-of-sale inspection cannot be used to deny a permit or to require pre-settlement repairs,” Lerner explained. “But the act also gives municipalities a permit structure that should help ensure necessary repairs are made in a timely fashion after transfer. These new amendments clarify the rights and responsibilities of both municipalities and property owners so these concerns don’t occur in the future.”

Not all municipalities perform property inspections prior to a resale and the law doesn’t require them to do so. Rather, MCOCA is designed to establish some rules for the process where a municipality chooses to do those inspections as part of the property resale process.

The inspection process is up to the individual municipality, based on their local ordinances. “For example, some townships might require the inspection to be ordered by the seller and others by the buyer, or there may be differing timelines for ordering the inspections,” Lerner said. “PAR’s Agreement of Sale form contains a section relating to U&O inspections and permits. We urge members to fully familiarize themselves with the processes in their geographic areas of practice because each municipality is different. This way they’re able to properly advise their clients of how to proceed in the transaction.”

Municipalities cannot require repairs be made before the closing, according to Lerner. “The buyer and seller can certainly negotiate pre-settlement repairs if they choose, but it cannot be required. Regardless of the number or type of violations found in a municipal report, the municipality must issue a permit of some sort and can’t require repairs/renovations be completed as a condition of issuing the permit. However, while a permit can’t be withheld, the type of permit may depend on the type of violations that are found,” he said.

The municipality’s inspection can highlight either a “violation” or a “substantial violation,” or some combination thereof. A “violation” is defined as any basic violation of a local code or ordinance related to the property. A “substantial violation” is any violation that is so significant it makes the property “unfit for human habitation.” The types of violations will determine the type of permit to be issued.

Defining a property as “unfit for human habitation” would mean that the property has conditions that make it likely to be dangerous to the health and safety of occupants or neighbors, including things like fire risks, lack of sanitary facilities, vermin or overall disrepair that would cost half or more of the sales price of the property to fix. This will always be somewhat subjective, but is generally limited to the worst types of violations.

Based on the results of the inspection, a municipality can take the following actions:

  • No violations – The municipality must issue a full U&O permit for the new buyer.
  • If violations are found, the buyer would get one of two possible temporary permits:
    • If the report shows one or more basic violations (and no substantial violations), then the municipality must issue a “temporary use and occupancy permit.” This permit allows the buyer to fully use and live in the property during the time they are making any necessary repairs.
    • If the report shows one or more substantial violations, then the municipality must issue a “temporary access certificate” for the property. This allows the buyer to use the property for the purpose of making repairs, but not to live there.

“In this last instance, the temporary access certificate would allow a buyer to access the property to complete the repairs, store tools and materials on-site, and store personal belongings there in preparation of moving in. The buyer cannot sleep in the home or use it to store items for some other purpose,” Lerner said.

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Municipalities are forbidden from requiring escrowed funds, bonds or other sorts of financial arrangements as a condition of issuing occupancy permits. If repairs need to be made to the property, the property is still subject to all the rules in the regular codes and ordinances.

“If a building permit is required for the repairs, then whoever does repairs still has to obtain and pay for the permit,” Lerner clarified. “If there is some escrow requirement that applies to all building permits, then that condition would still apply to these repairs.”

The homeowner must complete all repairs within 12 months of the day of purchase. The municipality and owner can negotiate a longer time period if they desire, but the time frame cannot be shortened.

At the end of the 12-month period – or before if the owner requests – the municipality will re-inspect the property. If there were both violations and substantial violations, once the substantial violations have been corrected and verified through re-inspection, even if there are still basic violations the municipality should upgrade from a temporary access certificate to temporary use and occupancy permit. This would then allow the owner to move into the property and to continue the work. Once a re-inspection shows that all violations have been fixed, the temporary permit will be replaced with a permanent one.

If repairs have not been completed appropriately at the end of 12 months, the municipality can withdraw the temporary permit and the owner will not have a valid permit to use or occupy the property. The owner is subject to any of the municipality’s existing codes, ordinances, etc. that apply to someone who uses a property without proper permits.

“A municipality might issue an order to move out, and/or charge other various citations and fines,” Lerner said. “In addition, the municipality can require the property owner to pay the relevant maintenance and/or repair costs to fix the violations – or the costs to demolish the property. They can also charge the property owner a fine between $1,000 – $5,000.”

If you have issues with a municipality not following the amended code, please contact your local government affairs director or field staff representative. They will be monitoring these situations throughout the state and providing information to PAR.

For additional information, visit PARealtor.org.

RRT compatible with MCOCA

The Standard Forms Committee decided earlier this month to approve and publish a revised Repairs/Corrections Required by Third Parties Addendum to the Agreement of Sale (PAR Form RRT). The revisions make Form RRT more compatible with new point-of-sale procedures following the passage of amendments to the Municipal Code and Ordinance Compliance Act.

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Comments (7)

Comments

  • Aaron Gray   December 29, 2016 at 8:14 am

    This is truly a great victory for our industry and our principals in the sale of real estate.

    Reply to Aaron Gray
  • Melanie McLane   December 29, 2016 at 9:48 am

    Great victory for private property rights, sellers, buyers, and REALTORS(r)!

    Reply to Melanie McLane
  • Deb Fusco   December 29, 2016 at 10:50 am

    Very pleased that this is being used. It will make purchasing a home a bit easier for both buyers and sellers.

    Reply to Deb Fusco
  • Jeffrey Burnatowski   December 29, 2016 at 11:22 am

    I am very happy with this, a win for all. Thanks to all of my colleagues that signed the petition to get this on the books.

    Reply to Jeffrey Burnatowski
  • elnllc   December 30, 2016 at 11:20 am

    Devil’s advocate: How much more will this add to transaction expenses? Not taking anything away from its purpose.

    Reply to elnllc
    • Hank Lerner, Esq.   December 30, 2016 at 2:08 pm

      Good question. In theory, this shouldn’t add anything to the cost of the transaction, but it may alter which party to the transaction pays for repairs. Municipalities that have existing U&O inspection ordinances already have inspection/permit fees and already have a list of inspection items that may generate required repairs. Nothing in these amendments requires any changes to those items, so whatever costs exist should be the same.

      The potential change comes in the negotiation of repairs. If particular repairs absolutely have to be done before closing can happen, the parties will approach negotiation over those repairs with a certain mindset. If the repairs don’t need to be done for closing to occur, the parties may look at things a little differently. How that all plays out will likely vary from market to market and from transaction to transaction.

      Reply to Hank Lerner, Esq.
  • Peter Muehlbronner, ACI   January 11, 2017 at 8:52 am

    Interesting issue. As a Home Inspector, its good to hear the “U&O Inspection” and “Point of Sale Inspection” (Home Inspection) will be treated as separate entities as they are very much different. The Home Inspection is not a “Code Inspection” and should not be used for such purposes or enforcement. Also, its important to understand if a municipality performs an U&O Inspection it should not preclude the buyer (or seller) from performing a pre-purchase/sale Home Inspection.

    Reply to Peter Muehlbronner, ACI

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