What Is a C of O, and Why Should You Care?
Have you ever heard the term Certificate of Occupancy (C of O) and wondered what it is? Despite what its catchy nickname might suggest, this crucial document plays a pivotal role for commercial tenants, ensuring operability and transferability in certain situations.
Let's explore what a C of O is, why it’s essential, and what commercial tenants need to know about obtaining and keeping one on record.
What Is a Certificate of Occupancy?
A C of O is an assurance that the space you occupy–or intend to occupy–has been authorized for a specific use. This document is issued by the local government or building department certifying that a commercial property complies with applicable building codes, zoning laws, and other regulatory requirements at the time of issuance and has been approved for occupancy and use.
Certificate of Occupancy Basics:
Purpose: A C of O verifies compliance with local regulations at the time of issuance and certifies the property’s suitability for occupancy.
Types: C of Os are typically issued at the building-wide level to establish habitability of the structure but then also apply at the tenant level, too. They can be issued for retail, offices, restaurants, etc.
How It’s Issued: A C of O is granted after a final inspection of the property after construction, which ensures construction, renovations, and zoning requirements have been met by the overseeing agencies.
Why Is a Certificate of Occupancy Important for Commercial Tenants?
For commercial tenants, a C of O serves as an important layer of protection. Here’s why it matters:
Legal Assurance: A C of O guarantees that the premises have been inspected and approved for its intended commercial use by the governing agencies at a certain point in time. This ensures that the property meets all local regulatory requirements, reducing the risk of compliance issues.
Tenant Rights Protection: If the property lacks a valid C of O or if the C of O’s designated use doesn’t match the tenant’s intended activities (e.g., running a restaurant in a space zoned for a retail use), the tenant’s lease or business license application could be called into question and reinstatement could require additional parking or restrooms, for example, or upgrades to existing facilities to meet newer code requirements.
Lease Compliance: Many commercial lease agreements include provisions requiring a valid C of O. Without one, tenants might face legal issues or eviction, even if the problem stems from the landlord’s failure to obtain or maintain the C of O.
Levels of Necessity
For tenants planning a full-scale remodel, the current C of O has less utility. Verifying the current C of O on file with the zoning department should suffice because a new C of O will be issued after construction is complete (see Keeping a C of O Record below).
For spaces with minor construction work, however, a C of O is very important. It ensures the space meets code requirements and prevents potential delays in occupancy.
For spaces that will be used as-is, a valid C of O can be a huge win. Some jurisdictions do not require a new C of O, even under new ownership, if the use is the same (verify in your area). If your jurisdiction does require a new C of O, having a current valid one is a good starting point.
Without it, the absence of a valid C of O can lead to significant risks and possible challenges. Here are some of the risks:
Fines and Legal Penalties: Local authorities may impose fines on tenants or landlords if a property is occupied without a C of O. In some cases, authorities may even revoke the right to use the space until a valid C of O is obtained.
Business Interruption: For commercial tenants, not having a valid C of O can result in forced closures, lost revenue, and disrupted operations. This is particularly critical for businesses that require permits or inspections tied to the C of O. Getting a new C of O could require additional permitting, construction and professional fees to justify and come into compliance with current codes.
Compliance Issues: A C of O confirms that the space has been cleared for occupancy and meets local building and zoning regulations. Not having a record that previous improvements were authorized and deemed complete can limit the ability to apply for permitted improvements in the future.
Real world example: A medical office tenant signs a lease, but when they apply for a business license at the City, they are informed that the last documented use was "office" and that "medical office" is a different use. “Medical office” usage has more intensive parking requirements, and their use of the premises is called into question.
How Commercial Tenants Can Verify and Keep a C of O on Record
To avoid the risks associated with a missing or invalid C of O, commercial tenants should take the following steps:
Track down C of O before signing a lease: Request a copy of the C of O from the landlord or previous tenant. Check with the local building or zoning department to confirm the C of O’s validity and ensure it matches the intended commercial use of the space or consult with a building professional to assess the impact of making the change.
Keep a copy on file: Retain a copy of the C of O for your records. This is especially important for commercial tenants who may need to provide proof of compliance during audits, inspections, or acquisitions.
Understand the C of O’s limitations: Confirm that the C of O aligns with your specific needs. For example, a C of O for a general retail space might not be sufficient for a restaurant that requires additional approvals for food service. Additionally, ensure that the lease space itself has a separate valid C of O if required.
What Commercial Tenants Should Do If a C of O Is Missing or Invalid
If you discover that a property lacks a valid C of O or that the C of O doesn’t match your intended use, take these steps:
Communicate with the Landlord: Notify the landlord of the issue and request that they resolve it promptly. Landlords are typically responsible for obtaining and maintaining a valid C of O.
Consult a Professional: Seek advice from a real estate attorney or architect to understand your options and rights.
Avoid Risky Leases: Do not sign a lease or move into a property until the C of O is verified and valid. Occupying a space without a C of O can expose you to significant legal and financial risks.
The Architect’s Role in Ensuring Proper Certification
Architects play a crucial role in ensuring that commercial buildings meet the requirements for obtaining a C of O. Here’s how:
Design for Compliance: Architects design buildings and renovations to comply with local building codes, zoning laws, and safety standards. This ensures that the property is eligible for a C of O upon completion and that the filed use is in line with intended business operations.
Educating Clients: Architects, real estate professionals, landlords, and contractors should all look for opportunities to outline the importance of this document and make recommendations to keep it on file.
Expertise in Navigating Regulations: Architects understand the complexities of local regulations and can guide tenants through the C of O application process. This can save time, money, and headaches for both landlords and tenants.
Real-World Example: A client was under contract (and with a short timeline) to receive funding for a portion of their business. During the due diligence process, the buyer requested C of Os for all 27 retail locations to close the deal. Sound important?
A Certificate of Occupancy is more than a regulatory formality; it’s a vital document that confirms the premises have been cleared for occupancy by governing agencies. Whether you’re a business owner or managing a commercial lease, understanding the importance of a C of O can help you avoid risks and safeguard your rights.
If you’re unsure about your property’s compliance or need expert guidance on C of O requirements, contact our team at Erin Morris Architects. Our team specializes in making the compliance process seamless and stress-free for tenants and landlords alike.