The Pennsylvania Municipal Code and Ordinance Compliance Act (MCOCA) sets forth procedures which must be followed by municipalities that require property maintenance and other code inspections upon the sale of a residential property. MCOCA was recently amended through Act 133 of 2016 to address situations in which municipalities were not following the Act, leading to some real estate transactions being postponed or cancelled due to minor property maintenance violations. The amendments in Act 133 clarify the rights and responsibilities of both municipalities and property owners so these issues don't occur in the future.

Municipalities are not required by the Act to inspect existing homes that are being sold. However, municipalities that do require such inspections must issue a Use and Occupancy Certificate, prior to the date of purchase, in the following manner:

1) USE AND OCCUPANCY PERMIT: If no property maintenance or other code violations are found, a Use and Occupancy Certificate must be issued allowing the property to be used or occupied as intended.

2) TEMPORARY USE AND OCCUPANCY PERMIT: If the municipal inspection reveals at least one violation, but no substantial violations (see definition below), the municipality shall issue a Temporary Use and Occupancy Certificate. The purpose of a temporary use and occupancy permit is to authorize the purchaser to fully utilize or reside in the property while correcting code violations.

3) TEMPORARY ACCESS CERTIFICATE: If the municipal inspection reveals a substantial code violation which renders a building “unfit for habitation,” a Temporary Access Certificate must be issued. The purpose of the certificate is to authorize the purchaser to access the property for the purpose of correcting substantial violations.  No person may occupy a property during the term of a Temporary Access Certificate, but the owner shall be permitted to store equipment that is related to the proposed use or occupancy of the property or is needed to repair the substantial violations during the time of the Temporary Access Certificate.

SUBSTANTIAL VIOLATION: A Substantial Violation is a condition which makes a building “unfit for habitation.” Unfit for habitation is defined as: “A condition which renders a building, structure, or any part thereof, dangerous or injurious to the health, safety or physical welfare of an occupant or the occupants of neighboring dwellings. The condition may include substantial violations of a property that show evidence of: a significant increase to the hazards of fire or accident; inadequate sanitary facilities; vermin infestation; or a condition of disrepair, dilapidation or structural defects such that the cost of rehabilitation and repair would exceed one-half of the agreed-upon purchase price of the property.”

ESCROWS AND BONDS PROHIBITED: A municipality may not require the escrowing of funds or posting of a bond, or impose any similar financial security as a condition of issuing a certificate. But before accessing the property, a property owner is still generally required to follow all the applicable rules for permits, fees, escrows, etc., under existing building, property maintenance and fire codes or other health or safety codes.

COMPLIANCE PERIOD: A new owner will have 12 months from the date of purchase to either bring the property into compliance with codes or demolish the building. At the request of the property owner the municipality may negotiate a longer time period, but may not shorten it.

REINSPECTION OF PROPERTY: (1) At the expiration of the 12 month time period or before that time, if requested by the property owner, the municipality shall reinspect the property to determine compliance with the cited violations. (2)  If a temporary access permit has been issued and reinspection indicates that the noted substantial violations have been corrected but other cited violations have not yet been corrected, the municipality shall issue a temporary use and occupancy permit to be valid for the time remaining on the original temporary access permit. (3)  If the reinspection indicates that all noted violations have been corrected, the municipality shall issue a Use and Occupancy Certificate for the property.

FAILURE TO COMPLY BY OWNER: If the property owner fails to correct the code violations cited by the municipality, the following actions may occur: 1) Revocation of the temporary certificate; 2) The purchaser will be subject to any existing municipal ordinances or codes relating to the occupation of a property without a Use and Occupancy Certificate; 3) The purchaser will be personally liable for the costs of maintenance, repairs or demolition sufficient to correct the cited violations, and a fine of not less than $1,000 and not more than $10,000.

PRE-EXISTING VIOLATIONS: This Act generally applies to violations that are found as a part of the municipal inspections done for property resale. But these rules do not apply to violations of a local code or ordinance that are already the subject of a fine or some other judicial action against the current owner, or to properties that are subject to certain other statutory provisions. In those instances, the violations must be addressed under the other applicable rules, whatever they may be.

More resources:

View our Act 133 page for more information.

To read Act 133 of 2016 in full, click here.

For more information about Act 133 of 2016, visit the Pennsylvania Association of Realtors' Legal Resource Library here.

To read our blog post, "What You Should Know About Act 133," click here.

If you are a member of the Suburban REALTORS^® Alliance and have a question about enforcement of the Municipal Code and Ordinance Compliance Act, please call our staff at (610) 981-9000 or email sra@suburbanrealtorsalliance.com

PLEASE NOTE: This issue brief is being provided as a service to our members. The SRA and its shareholder associations do not provide individual accounting or legal advice.

BACKGROUND

A resolution recently passed by Philadelphia City Council called for an audit of real estate activity in the city, and a determination of whether business privilege taxes were being paid, and appropriate commercial licenses obtained, by suburban Realtors doing business in the city.  The audit, titled the “Tax Discovery Initiative,” was completed in April 2015 and found that about 28 percent of the 389 real estate agents surveyed did not have a required commercial activity license or business income and receipts tax account number. According to the audit report, approximately 72 percent of Realtors contacted failed to respond to the survey, which “strongly suggests they, too, are most likely non-compliant," the report states.

The report, which has been shared with City Council, recommends the following steps to improve compliance with city license and tax requirements:

• Legislation that requires Realtors to provide their commercial activity license and business income and receipts tax account number as part of the closing process.
• Developing and implementing an outreach effort to ensure that Realtors conducting business in the city are aware of Philadelphia license and tax requirements.
• Further identifying entities without proper licensing or tax account numbers.
• Establishing a more aggressive license and tax enforcement program for the real estate industry.
  
  

CURRENT PHILADELPHIA LICENSE AND BUSINESS TAX REQUIREMENTS

Commercial Activity License: Every business that operates in Philadelphia is required to obtain a Commercial Activity License. This license is required for every individual who conducts business within Philadelphia’s city limits, regardless of where the main business is located. Additionally, the City considers every employee to be a sole proprietor if their employer does not pay wage taxes on behalf of that employee. Thus, under this designation, the employee must apply for a Commercial Activity License to work as a sole proprietor in the City. There is no fee for this license.

Business Income and Receipts Tax (BIRT): Those who do business in Philadelphia, including selling real estate located within the city limits, also need to pay a Business Income and Receipts Tax (BIRT). The Business Income and Receipts Tax (BIRT) is based on both gross receipts and net income (1.415 mills on gross receipts; and 5.81% on taxable net income, as of March 2024). Any entity conducting business within the City for profit – regardless of whether any profit was realized – is obligated to file a BIRT return. 

Net Profits Tax: The Net Profits Tax is levied against individuals, partnerships and associations, among others. This tax is levied on the net profits of the resident organization, regardless of where it conducts business; and against the non-resident organization conducting business within the city. Unincorporated businesses are required to file and pay both the Net Profits Tax (NPT) and the Business Income and Receipts Tax (BIRT). There is a credit that can be taken on the NPT based on the amount of tax owed from your BIRT.

City Wage Tax: The City Wage Tax is owed by all residents of Philadelphia, regardless of where they work, and by any non-resident who works or conducts business in the city. If an employer is not required to withhold wage taxes, then the employee must register with the city for an Earnings Tax Account through which such taxes are to be paid. The tax, 3.75% for residents and 3.44% for non-residents (as of March 2024), is based on wages earned in the city.

For further information about Philadelphia’s business license and tax laws, please follow the links to the city’s website provided in this report. Should you have specific questions regarding complying with Philadelphia’s license and tax requirements, please consult a tax professional.

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