Real Estate Investing

The Significance of a Certificate of Occupancy

April 23, 2024

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Importance Of A Certificate Of Occupancy For Landlords

Investors who deal with new construction, renovations, or house flips are likely to encounter certificates of occupancy many times during their investing careers. What is a certificate of occupancy?  

In this article, we’ll provide insights into why this document is vital for property safety, building code compliance, and legal requirements. You’ll discover why knowing about CO regulations is essential for successful real estate ownership, impacting property transactions, tenant attraction, and overall legal compliance. 

Let’s dive into the definition, importance, and process of obtaining a certificate of occupancy. 

What is a Certificate of Occupancy? 

A certificate of occupancy (CO) is a legal document that signifies that a property can be safety utilized as a home. It is a permit that verifies that the property complies with local housing, building, and safety codes and is zoned correctly for its intended purpose. 

For instance, a CO for a multi-family property would indicate that the property is correctly zoned for residential purposes, that the building and its systems are up to code, and that each unit is safe and ready for tenants to move in. 

A certificate of occupancy is different from a complying development certificate (CDC), which is a planning and construction approval. 

Without a CO, you may encounter difficulties in attracting tenants, face costly repair bills, and risk legal issues. It’s a necessary step in real estate transactions to guarantee that the property meets all safety and code requirements, making it habitable and legally compliant. 

When is a Certificate of Occupancy Required? 

Certificates of occupancy are required in many municipalities by local building or zoning authorities for properties at the time of their construction. They are also often required before selling a property. 

A new certificate of occupancy may be required in any of the following circumstances: 

  • Change in property type – Any time an existing building is converted to a different use or purpose than it was originally zoned for, a new certificate of occupancy is necessary. Condos, single-family homes, commercial properties, etc. each have their own permitting requirements that must be verified by the municipality, and changes to the property’s classification require a new CO. For example, if you’re a house hacker looking to add an ADU onto your single-family home, you’re effectively changing the classification from a single-family home to a multi-family property, which will require documentation in the form of a new CO. 
  • Major renovations – If you make substantial renovations or additions to a property, a new certificate of occupancy will likely be required before you can sell the property with its new changes. 
  • New owner or occupant – In some localities, COs are required anytime the property title changes hands, or when a new tenant/occupant moves in.  

Each municipality is different, so be sure you’re aware of which laws apply in your city regarding certificates of occupancy. For instance, a certificate of occupancy NYC considers compliant might differ from a CO in another city (see how to obtain a NYC certificate of occupancy here ). 

Process of Obtaining a Certificate 

To obtain a certificate of occupancy, your first step is to visit the local building/zoning inspection website for your city or municipality. Their website should include information about how to fill out an application for a CO and what the required fees are. For example, here’s what an application for residential certificate of occupancy looks like in Washtenaw County, Michigan. 

After submitting an application, the next step is to set up inspections with the municipality. A professional inspector will come to the property to inspect plumbing, electrical systems, fire safety, and general building codes to assess compliance. It’s essential for you to be present during these property inspections. If there are no issues with your inspection, you will be granted a certificate of occupancy; if any issues are detected, you’ll be required to address them before re-applying for inspection. 

Sometimes it will be possible to obtain a temporary certificate of occupancy. This might be the case if you or your buyer want to move into the new property before is fully finished. In this case, a temporary certificate of occupancy can be issued after initial safety items have been assessed, but you will still need to schedule a full inspection and obtain the final occupation certificate after the property is completely finished. 

Barriers and Consequences Without CO 

The consequences of lacking a certificate of occupancy include fines, penalties, legal entanglements, invalidated insurance, difficulty in selling or renting the property, and risks to safety and health.  

A non-compliance might seem minor to you, but it could lead to tenant complaints, safety issues, or even more severe legal consequences if you are determined to be at fault for an occupant’s injury or health issue. 

To avoid these issues, ensuring compliance with CO regulations is vital. Seek professional guidance from real estate agents or other professionals to navigate the complexities of obtaining and maintaining a certificate of occupancy to safeguard your interests as a landlord and your tenants’. 

Cost of a Certificate of Occupancy 

The cost of a CO varies by municipality. In Ann Arbor, Michigan, for instance, a certificate of occupancy inspection for change of use costs $170, while renewals and temporary COs cost $30. In Hamilton County, Ohio, the fee varies from $135 to $719, depending on the nature of the property and its features/amenities.  

In general, factors that could influence the price of your CO include the size of your property, its type, and whether it has any built-in features like decks or pools that would require additional inspection. Inspection and Co fees are typically the responsibility of the seller or current property owner. 

Comparison With Building Permits 

When discussing regulations governing real estate, it may be helpful to understand the difference between certificates of occupancy (CO) and building permits. Building permits are obtained before construction begins to ensure legal compliance, while COs are issued after construction completion to verify the property’s habitability. 

A building permit confirms the legality of the construction process, whereas a CO confirms the property’s approved use and occupancy. Both documents are crucial for adhering to building codes and zoning regulations. Failure to obtain either could lead to fines, legal issues, and challenges in selling or renting the property. 

Therefore, landlords should be aware of the specific requirements and timelines associated with both building permits and COs to avoid complications during real estate transactions. 

Conclusion 

Now that you understand the importance of a certificate of occupancy for landlords, make sure you stay informed and compliant. 

Knowing the process of obtaining a CO, who requires it, and the consequences of not having one is crucial for successful property ownership. 

Stay ahead of the game and ensure your properties are safe, up to code, and attractive to tenants by staying informed about CO regulations. 

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