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If you have bought or built a home or residential investment property, you might be familiar with a Certificate of Occupancy. As a commercial real estate tenant who has leased a building, you might think you don't need to worry about these certificates. This is a mistake. If your landlord doesn't have a Certificate of Occupancy, you might face costly consequences. This guide provides a broad overview of what you need to know about a Certificate of Occupancy as a business tenant. After discussing the purpose of the certificate, we will discuss when property owners need Certificates of Occupancy, where they get them and the requirements for getting them. Finally, you will learn what to do if the building you are paying rent for fails a required inspection and the consequences for landlords and tenants when a current Certificate of Occupancy isn't on file for a building.
A certificate of occupancy is a legally required document which each property owner must have for every building they own, and it is provided to them by the tenants, and it permits the business to rent the building and carry out the lease.
This essential document includes the following information:
Each city or town has different requirements or rules for when a building owner or lessee needs a certificate of requirement. You will likely need one in the following situations.
Property owners and business owners who need to obtain a Certificate of Occupancy need to visit their local government. The issuing agency varies based on whether the building is located in a large city or a small town, but typically an application for a Certificate of Occupancy goes through a housing department or building department.
Property owners and b usiness ownersmust request the certificate before they begin any construction or modifications on a structure with their contractors.
Yet, the issuing government entity will not grant a property owner or lessee a Certificate of Occupancy until associated fees have been paid and the structure has passed all necessary inspections.
In some jurisdictions, the issuing agency might issue a temporary Certificate of Occupancy for a limited amount of time, giving property owners and tenants some time to get all the inspections they need.
As a commercial business owner, you might be in a situation where you must wait for your landlord to obtain a Certificate of Occupancy, or you might be overseeing construction or a build out with the permission of your landlord.
You cannot receive their certificate until the building passes an inspection.
The issuing government entity or agency hires licensed inspectors to approve or deny a Certificate of Occupancy after determining whether the building owner is in compliance with all codes.
Depending on the exact situation in which a building owner requests a Certificate of Occupancy, and city-specific and state-specific requirements, their building might have to undergo one or more of the following inspections:
Fire Inspection. A fire inspection might include different things depending on whether the structure is new or existing construction. Inspectors will typically look at fire proofing between walls and in ceilings and ensure that any construction related fire hazards are addressed. This might include adding more drywall in an area or ensuring fire exits are adequate in number and placement for a building. Fire inspectors also check for carbon monoxide detectors, smoke detectors, and fire extinguishers. Not only do commercial building owners need these items in their buildings, but these items must be in proper working conditions.
If a tenant owner fails one or more of the previously listed inspections, the issuing authority will not grant them a Certificate of Occupancy.
The inspector(s) who find problems with a property typically provide the owner with a list of issues which need to be corrected or addressed so the property complies with all safety and building codes at a municipal, county, and state level.
Building owners typically have an assigned amount of time to make corrections, such as 30 days, 60 days, or 90 days, depending on the location.
Once the tenant ensures all repairs and additions have been made, they can call the appropriate inspector for a new inspection.
This might result in additional fees depending on local policies.
Once a building passes all required inspections, it qualifies for a Certificate of Occupancy.
If you are overseeing construction for your landlord, keep in mind that it can take weeks or months to get an inspector to come out a second time depending on what city you are are located in.
It's in your best interest to make sure contractors don't cut corners and do things right the first time to avoid second and third visits by the city.
Some property owners and business owners play with fire and do not get the required permits, inspections, or a Certificate of Occupancy.
It's difficult to get away with this when new construction or major construction projects occur, but some try to skip the process with smaller projects or build outs.
While this might save money for your landlord in the short run, it can be very costly for everyone involved in the long run.
First, property owners risk fines and additional fees when they don't get a Certificate of Occupancy. In some jurisdictions, fines might accrue daily from the day the owner should have had the certificate.
Without a Certificate of Occupancy, the city or town where the property lies can legally issue a vacate order at any time.
If you are renting from a property owner who hasn't gone through the proper channels, this could cost you dearly. Not only loss in revenue, but the additional expense in finding additional office space, moving, and have to acquire new clients or customers in a new location can hurt your bottom line.
Although being forced to vacate isn't likely your fault, it can also carry heavy social consequences for your business.
Existing and potential customers might assume you aren't doing business on the up-and-up, or you are struggling financially. Either situation can damage your company's reputation.
Further, if safety issues lead to an accident, property owners also risk being named in a personal injury lawsuit. If a customer suffers harm in your space, and you knew about the issue, your business might also be liable for damages in a personal injury lawsuit.
It's always in your best interest to make sure the building where you rent space for your business has an updated Certificate of Occupancy. In some states, you can even withhold your rent if your landlord doesn't have a current certificate.
Finally, some cities consider the failure to obtain a Certificate of Occupancy as a misdemeanor crime, allowing them to punish those who don't comply.
Some municipalities might force community service or up to 60 or 90 days in jail, depending on local laws.
As previously mentioned, fines and the opportunity to fix the oversight are the most common response to those who don't follow the rules. Yet, repeat offenders can expect to face the full penalties associated with applicable laws.
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