Can a buyer terminate a contract because the seller cannot produce a building permit?

QUESTION: I represent a seller whose property is under contract using the Offer to Purchase and Contract (Form 2-T). The Due Diligence Period has expired, and we’re scheduled to close in two weeks. The buyer’s agent recently contacted me because the county’s online records do not show a building permit for an addition constructed several years ago. My seller does not have a copy of the permit but believes the work was properly permitted. The buyer’s agent insists that the property violates paragraph 8(h) of Form 2-T and has sent a termination notice demanding the return of the Earnest Money Deposit and Due Diligence Fee. Does the buyer have the right to terminate under these circumstances?

ANSWER: Not necessarily. Paragraph 8(h) provides important protections for buyers when a property has an undisclosed material violation of a law, ordinance, permit, or governmental regulation, which we’ve previously discussed here. However, there are several requirements that must be satisfied before a buyer can exercise the right to terminate under this provision.

First, the buyer has the burden of establishing that a material violation actually exists. The fact that the county’s online records do not show a permit does not necessarily mean one was never obtained. Older records may be purged by the permitting office, and certain improvements may not have required permits when the work was performed. Before relying on paragraph 8(h), the buyer must establish that the property is in material violation of an applicable governmental requirement. Suspecting that a permit was never obtained is not the same as proving a violation.

Second, the seller must be given an opportunity to cure the violation. Paragraph 8(h) expressly requires the buyer to promptly notify the seller once a violation is established. The seller then has the option to correct the problem. However, the seller is not required to resolve the issue immediately upon receiving the buyer’s notice. The contract provides that the seller may cure the violation prior to Closing. Therefore, a buyer generally cannot discover a permitting issue, demand an immediate refund of the Due Diligence Fee and Earnest Money Deposit, and terminate the contract without giving the seller the opportunity provided by paragraph 8(h) to fix the problem.

Third, the buyer’s termination right ordinarily does not arise until the seller has failed to cure the violation by Closing. If the seller is working to resolve a material violation, the buyer generally must allow that process to continue through Closing, which may include a grace period beyond the Settlement Date. An exception may arise if the seller clearly refuses to cure the violation. In that case, the buyer may have an argument that they have the right to terminate earlier than Closing, but they should speak with their attorney before sending any notice of termination.

If a material violation remains uncured when the seller’s opportunity to cure has expired, the buyer may either proceed with the purchase or terminate the contract and recover the Earnest Money Deposit and Due Diligence Fee. That refund is the buyer’s contractual remedy under paragraph 8(h), rather than the broader right to seek other out-of-pocket costs incurred during due diligence that may be available for a seller’s material breach of contract.

Release Date: 11/5/2026

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