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When you're buying, renovating, or in a legal fight with a landlord, the term Certificate of Occupancy, or C of O, may come up. And while this legal document doesn’t sound all that important, it actually has the power to win legal cases, end negotiations, put the kibosh on your mortgage, and more.
So what is it, exactly? Simply put, it's a document that lays out a building's legal use and occupancy, meaning if it's zoned for commercial or residential use, and how many residences are allowed at that address.
There's also a document called a Temporary Certificate of Occupancy, which means a building is safe to inhabit but still has some outstanding work to do or permits to obtain before a C of O is granted.
[Editor's note: An earlier version of this post was published in February 2016. We are presenting it again with updated information for November 2019.]
What makes a C of O and a TCO such a big deal? Without them, no one can legally occupy a building, so if you are in a building that doesn’t have these documents, except in some rare instances, you run the risk of the city issuing a vacate order.
Find your buildings C of O status
Not sure about your building's status? You can look up any property's C of O through the city's Buildings Information System.
If you’re a renter, the burden is on your landlord to correct any missing documentation, and they have no legal right to collect rent from you if there’s no C of O or TCO.
Lack of C of O can hurt your financing
If you're in the process of buying an apartment in a building and have found out it lacks a C of O or TCO, a major wrench just got thrown in the deal. For starters, problems or delays with the C of O can throw off your mortgage process. Banks need at least a TCO to issue financing.
"We may consider a TCO for a mortgage loan, however additional stipulation for the loan approval may be required," says Brittney Baldwin, vice president and loan officer at National Cooperative Bank (fyi, a Brick sponsor).
If you’re renting in a building that doesn’t have a Certificate of Occupancy allowing residential use of your space, your landlord may not be able to legally collect rent from you. Additionally, says real estate attorney and buyout expert Steven Wagner, “if your landlord can’t get a Certificate of Occupancy allowing you to reside in your space, you might be able to negotiate a lucrative buyout deal.” To schedule a free 15-minute telephone consultation with Steven Wagner of Wagner Berkow & Brandt, click here or call 646-780-7272.
What triggers a change in C of O?
There are a few common scenarios in which buyers might run into C of O issues. It’s often an issue with houses that may have been upgraded to create additional living space. A two-family turned into a three-family is the classic C of O screw up.
If you're doing significant renovations or purchasing a fixer-upper with the intention of launching into extensive work, you may need to update the C of O, in addition to getting all the requisite permits.
"Any renovation that creates a change in the number of rooms, or a change in the use of the spaces will require a permit, and thus a check on whether a Change in Occupancy has been triggered," says Fraser Patterson, founder of Bolster (a Brick sponsor). He recommends having a qualified architect review your plans to flag any potential issues. "It's certainly worth the cost of investigating prior to purchasing a property, or at the start of planning and design."
What new development buyers need to know
C of O problems also tend to rear their head for buyers in new construction buildings, which might have a TCO, but can't get a finalized certificate of occupancy until they're completed.
"You’ll find that the C of O is always a moving target as far as when it’s going to arrive, so [the developer or sponsor] is doing their best to estimate, incentivize, and keep people in the transaction," says Nicholas Palance. He’s the founder and CEO of Nicholas Palance Real Estate, a brokerage, and Stacks, a real estate tech company.
To avoid the hassles and expenses that come with a delayed move-in date (such the need for storage and the cost of temporary digs), Palance recommends adding an extra three months onto whatever date a developer gives you for building's approval.
It’s also especially important to keep a very close watch on TCO expiration dates, Palance says. Buyers can use them for leverage.
“I had a $10 million deal get derailed because an expired TCO renewal came one day after the buyer was able to back out of the contract. In a declining market, a drawn out process presents an opportunity for the buyer to renegotiate a lower price with the leverage of walking away. In many cases, this can be avoided,” he says.
There are also situations where a building’s C of O may be inaccurate, for example, if you have a condo conversion where the developer only obtained a TCO, or co-op buildings that are somehow in violation of the C of O. (Note: Unlike condos, individual apartments in co-op buildings don't have Certificates of Occupancy; there's simply one C of O for the entire building, meaning your fate might be in management’s hands.)
How to correct C of O problems
The easiest solution is to hire an experienced expeditor to help speed along the paperwork fix, and the cost that will vary depending on the severity of the issue. "It's a problem that can be fixed assuming the breach is not so terrible as to be a threat to safety or health," says Dean Roberts, a real estate attorney.
Usually any C of O problem will surface in the title search. "It's one of those things that needs to be addressed well before you close," says Roberts. "As a buyer, first assess how serious the problem is and if it's fixable." And one solution, he says, is to have the seller put money aside in escrow to allow you to fix the problem. Because expeditors don't work for free.
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