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What Is a Certificate of Occupancy?

Jul 28, 2020 by Maurie Backman

If you're selling a home or building, buying property, or engaging in any type of real estate transaction, you'll likely hear the term "certificate of occupancy" tossed around. But what does it actually mean? Here, we'll walk you through what a certificate of occupancy is, how to get one, and why it's necessary.

What is a certificate of occupancy?

A certificate of occupancy is a document that's issued by a local zoning or building department stating that a home or property is suitable for occupancy. But to be considered suitable, it needs to be compliant with the building code that applies in that area (which means it needs to adhere to safety standards).

A certificate of occupancy will also identify what class a building or property falls into or what its use is. For example, a building will generally be designated as residential versus commercial. You may hear a certificate of occupancy referred to as a use-and-occupancy certificate as well, but they're the same thing.

Who needs a certificate of occupancy?

There are different scenarios where you may need to obtain a certificate of occupancy:

1. You're building a new construction home or commercial property

New construction, by nature, has never been used or lived in before. As such, a certificate of occupancy is needed to ensure a new home or building is habitable.

2. You're buying a home

Sellers don't always need a certificate of occupancy to sell a home. But as a buyer, you'll generally need one to move forward with the mortgage process. That said, in a home sale transaction, it’s usually the seller’s responsibility to obtain a certificate of occupancy and to bear the cost (though sometimes buyers and sellers split that cost).

3. You're changing the way a property is used

As a property owner, your needs might change. You might, for example, choose to take a building you're using as a commercial storage facility and convert it to an apartment building instead. In that situation, you'll need a certificate of occupancy.

4. You're renovating or adding on to a property

In some cases, you may need a certificate of occupancy when you're renovating a home or building, such as finishing a basement or constructing an addition.

How do you obtain a certificate of occupancy?

To obtain a certificate of occupancy, you'll need to fill out an application with your municipality or city's local zoning or building department and pay a fee. If you're building from scratch, you may need to obtain a certificate of occupancy before any work is started.

Of course, your local zoning or building department isn't going to just issue you a certificate of occupancy out of the goodness of its heart. Rather, your property will need to pass a series of inspections if it's being constructed from scratch. These include:

  • A fire inspection.
  • An electrical inspection.
  • A plumbing inspection.
  • A general building inspection.

Keep in mind that the above inspections may come in shifts. For example, you might first need a rough plumbing inspection followed by a final plumbing inspection to obtain a certificate of occupancy.

On the other hand, if you're seeking a certificate of occupancy for a home that already has one (because you're selling it), you may need just a single inspection.

Another thing you should know is there's no single standard for approving a certificate of occupancy. Each municipality or city has the right to impose its own laws, so the certificate of occupancy inspection process in one area might vary from another.

Why is a certificate of occupancy important?

As mentioned earlier, a certificate of occupancy is often required to complete the sale of a property. Furthermore, if you're building a new property you must, by law, obtain a certificate of occupancy. If you don't, you could be fined for each day work commences on your property or your property is utilized or occupied without having that certificate in place.

But also, having a certificate of occupancy ensures your home or building is safe, which is something you'll need to attract commercial or residential tenants. After all, why would someone want to rent from you if you have no proof that your building is a safe place to live? Similarly, in the context of a home sale, a certificate of occupancy is proof that the property has been inspected and is up to code. As a buyer, having your seller obtain a certificate of occupancy means you're less likely to encounter costly surprises once that sale goes through.

What barriers might you face when obtaining a certificate of occupancy?

If you're building from scratch, failing to comply with local requirements could result in no certificate of occupancy. Generally, if the property you're building doesn't pass a given inspection, you'll be told what items you'll need to address to adhere to local safety codes. From there, you'll be given a time frame (the extent of which depends on where you're building) to correct those issues and request a new inspection.

If you're selling a home, you might fail to obtain a certificate of occupancy if certain aspects of your property are outdated and therefore not up to code. Often, people who try to sell older homes run into issues with non-compliant wiring and outlets and piping issues. Remember, safety codes can change over time. If you bought your home 20 years ago, it may have been up to code back then, but that doesn't mean it's up to code now. In that case, you'll need to make whatever changes your inspector calls for to get that certificate of occupancy.

Keep in mind that in some places you may be allowed to obtain a temporary certificate of occupancy if your zoning or building department isn't ready to issue you a permanent one. But to get one, your building will need to be generally safe for occupancy. A temporary certificate of occupancy will usually expire after 90 days, but that timeline depends on where you're building.

The bottom line on certificates of occupancy

A certificate of occupancy is something you often can't get around. But remember, there's a reason this key document is needed, so rather than grumble about it, figure out what you need to do to obtain yours and get the ball rolling sooner rather than later.

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