Browse Proptionary encyclopedia

Build your real estate vocabulary to be able to communicate and invest more effectively and professionally.

Certificate of Occupancy

DEFINITION

An official document issued by local government which acts as a guarantee that a structure  adheres to all local building and zoning laws.

EXPLANATION

A certificate of occupancy (CO) is issued after a building is inspected by a representative of the relevant local government agency and found to be in compliance with all local building and zoning ordinances. The document also establishes things like the intended use of a property and the expected number of occupants. You can think of a CO as the “other side” of a building permit, the building permit establishes beforehand that a structure will adhere to local codes,    and the CO checks the finished structure to make sure that it is does.

A CO must be issued under three circumstances:

-When construction of a new building is completed.

-When the main purpose of a building changes. (E.g. Residential to Commercial)

-When ownership of a commercial or multi-residential building changes.

A CO is required in order to make everyday use of a space for either commercial or residential purposes, and is also necessary for most mortgages. In some cases, a temporary CO    may be issued to a property owner. This would generally be done when a building is still partially under construction, but certain floors or parts of the building are deemed habitable and fit for use.

A certificate of occupancy generally does not need to be issued when a single-family home changes ownership.

-Example

Restaurant Owner is in the process of constructing a new commercial building for their restaurant. Upon completion of the building, an inspector from the city government would ensure that all local laws and codes are adhered to, and then give the go-ahead for city hall to issue a Certificate of Occupancy to Owner for their new restaurant. After several years, the restaurant under performs financially so Owner decides to sell the structure to their friend  Buyer. As a part of the purchase, a new Certificate of Occupancy would need to be issued to reflect the change of ownership. If, after several more years, Buyer decides to leave the   restaurant business and convert the building into a block of townhouses; then yet another   Certificate of Occupancy would need to be issued, this one reflecting the change in purpose of the structure.

[quiz-new]