Before you can buy, sell, or lease a new commercial building, it must have a certificate of occupancy (CO)—often the final hurdle before a tenant or owner can legally move in.
What is a certificate of occupancy?
A certificate of occupancy confirms that a property is safe and legally approved for its intended use. That means it meets local safety standards, building codes, and zoning regulations.
The official document is typically issued by a local government authority that has verified the building’s suitability for occupancy through inspections.
Certificate of occupancy vs. certificate of completion
Though related, a certificate of occupancy and a certificate of completion are not the same.
The former certifies that a building is ready for occupancy, while the latter only certifies that a construction project has been completed according to approved standards and codes.
Here are the most common scenarios under which either document is issued:
| Certificate of occupancy | Certificate of completion |
| New construction building ready for immediate occupancy | New building not yet ready for immediate occupancy (e.g., a shell building waiting for tenant buildout of individual spaces) |
| Existing building that has been remodeled and approved for a different use than the original certificate of occupancy | Existing building that already has a certificate of occupancy but undergoes a remodel that doesn’t change its intended use |
| Old building that was deemed unsafe for occupancy and was consequently remodeled and brought to code again | Completion of infrastructure, utility, and other non-occupied spaces (e.g., electrical substations, water treatment plants) |
Importance of a certificate of occupancy
Obtaining a certificate of occupancy is a critical step in many commercial building projects.
For one, it’s a legal requirement. Before you or a tenant can move into a building, it must be certified as safe for occupancy by local authorities. Otherwise, you could incur fines and face other legal challenges for allowing unauthorized occupancy.
However, it’s not just the government that requires a certificate of occupancy. Buyers, tenants, lenders, insurance providers, and other stakeholders generally want to see a certificate of occupancy before investing in a building because it minimizes the safety and legal risks.
Ultimately, procuring a certificate of occupancy should be a top priority for any commercial real estate investment.
What is included in a certificate of occupancy?
A certificate of occupancy typically includes the following:
- Property address and legal description: boundaries, square feet, easements, etc.
- Occupancy classification and intended use: commercial, industrial, retail, etc.
- Confirmation of building code compliance: structural, safety, accessibility, etc.
- Inspection approvals: electrical, plumbing, fire safety, etc.
- Date of issuance (and expiration if temporary)
- Signatures: from government officials, inspectors, etc.
Types of certificate of occupancy
There are three main types of certificate of occupancy:
1. Residential certificate of occupancy
A residential certificate of occupancy is sometimes required for selling or renting out single-family homes, townhomes, and condominiums. It ensures the house is habitable and meets local residential zoning laws.
2. Commercial certificate of occupancy
A commercial certificate of occupancy is issued for commercial buildings, such as offices, retail spaces, restaurants, and industrial properties. It confirms compliance with local building codes, zoning laws, and safety regulations and is often required to sell or lease commercial property.
3. Temporary certificate of occupancy
A temporary certificate of occupancy is granted when a property is mostly compliant but minor issues remain. For example, a building might get a temporary certificate if all but the landscaping is done. This can keep a project moving while the final construction wraps up.
Keep in mind that most temporary certificates expire after 90 days, after which they must be replaced with a permanent certificate of occupancy. However, the exact rules vary by market.
When do you need a certificate of occupancy?
You may need a certificate of occupancy to complete a real estate deal if you fall under any of the following categories:
Property owners
As a property owner, you buy commercial buildings to sell or lease. However, before you can do either, you must get a certificate of occupancy to show that the building is safe and up to code (unless you sell “as-is,” in which case a certificate of occupancy may not be necessary).
Developers
As a developer, you construct commercial buildings to sell for a profit. Before transferring ownership, you’ll need a certificate of occupancy to show that the building is ready for tenants.
If you’re renovating an existing building, it may already have an existing certificate of occupancy, though you’ll need to get a new one if the intended use changes (e.g., adaptive reuse projects).
Real estate investors
As a real estate investor, you shop for commercial buildings with high return potential. One of your due diligence steps is checking for an existing certificate of occupancy to ensure the property is rentable. This minimizes the risk of poor performance for you and other co-investors.
Commercial tenants
As a commercial tenant, you rent building space to run your business. In some cases, you may be responsible for obtaining a certificate of occupancy, e.g., if you change the use of the space or make significant tenant improvements.
If nothing else, you should always verify that a valid certificate of occupancy is in place to avoid legal issues related to unauthorized occupancy.
Mortgage lenders
As a mortgage lender, you finance real estate investments. To ensure a property will generate rental income to cover loan payments, you may require the borrower to produce a certificate of occupancy.
Insurance providers
As an insurance provider, you insure commercial buildings for owners. Like mortgage lenders, you may require building owners to have a certificate of occupancy before offering coverage.
Key requirements for obtaining a certificate of occupancy
Here are the key requirements for obtaining a certificate of occupancy:
- Get required building permits. Whether you’re building from the ground up or renovating, you must get the proper permits for electrical, plumbing, mechanical, and structural work.
- Follow building codes and regulations. Every market has building standards for structural integrity, fire safety, accessibility, and environmental impact.
- Implement necessary safety measures. These can include fire alarms, sprinkler systems, emergency exits, proper ventilation, drainage, and handicap accessibility.
- Pass final inspections. Your local building department will inspect the property to ensure it’s up to code. Any issues must be resolved before a certificate of occupancy can be approved.
How to obtain a certificate of occupancy
The step-by-step process for obtaining a certificate of occupancy looks like this:
- Contact building authority. Every jurisdiction has different occupancy requirements, so contact or visit the website of your local building authority to learn what they need to issue a certificate of occupancy.
- Finish construction. Once you know what’s required, address any pending construction or zoning issues for your building.
- Apply. Typically, applying for a certificate of occupancy will require submitting supportive documents, such as blueprints, new construction plans, and questionnaires about potential hazards and risks.
- Schedule inspections. Schedule necessary inspections for electrical, plumbing, fire safety, and structural integrity. If any issues arise, address them before scheduling a re-inspection.
- Pay fees. Fees vary by market, property size, and occupancy classification, but you’ll need to pay them before a certificate of occupancy can be issued.
- Receive the certificate. Once all inspections are passed and fees are paid, you’ll be issued a certificate of occupancy, allowing the property to be legally occupied.
Pros and cons of obtaining a certificate of occupancy
While obtaining a certificate of occupancy is generally required, it has its pros and cons:
| Pros | Description |
| Enhanced asset value | A property with a valid certificate of occupancy is more attractive to buyers and tenants, which can raise its market value. |
| Legal safeguard and protection | Obtaining a certificate of occupancy can reduce the risk of fines, legal disputes, and forced evictions. |
| Facilitates real estate transactions | Certificates of occupancy are generally required for mortgage approval, real estate sales, and lease agreements. |
| Cons | Description |
| Lengthy and complex process | The multiple inspections and lengthy paperwork required for certificates of occupancy can delay a project or sale. |
| Additional associated costs | On top of the application and inspection fees for obtaining a certificate of occupancy, bringing a building up to code may be costly. |
| Challenges in compliance | Complex building codes can be hard to comply with, especially when dealing with an older, outdated building. |
How much does a certificate of occupancy cost?
The cost of your own certificate of occupancy varies by location, property size, and types of commercial real estate. However, it generally isn’t more than a few hundred dollars. That said, you may incur additional expenses for failed inspections and reapplications.
Common reasons for CO denials and how to address them
Here are the most common reasons applications for COs get denied and how to avoid them:
- Incomplete or incorrect documentation: Double-check all documents before submitting and consider hiring a professional to help you avoid clerical errors.
- Non-compliance with building codes: Hire experienced local contractors who are familiar with local building codes and conduct pre-inspections to identify potential issues.
- Safety violations and structural issues: Address any fire safety, ventilation, load-bearing, and other concerns early, so you can implement the necessary repairs.
- Zoning and land use conflicts: Only take on projects that comply with local zoning regulations. If necessary, apply for a zoning variance.
Should your CO application get denied, request a list of required corrections, complete the necessary repairs, schedule a re-inspection, and maintain clear communication with the local building authority throughout.
Best practices for obtaining a certificate of occupancy
Of course, you want your CO application to be approved the first time around. To boost your chance of success, follow these best practices:
- Work with experienced professionals: Hire the best local architects, contractors, and legal experts to help you navigate the CO process and ensure your building meets all occupancy requirements.
- Keep thorough documentation: Maintain copies of every building permit, inspection report, application form, and other relevant document in case of disputes (or the need to re-apply).
- Ensure compliance with local regulations: Stay updated on changes to local zoning and building codes so you can proactively address any compliance issues during construction.
Conclusion
Whether you invest in Class A, B, or C real estate, obtaining a certificate of occupancy is essential. While the process can be daunting at first, you now have the tools to streamline it and avoid unnecessary delays.
If you want to optimize more of your real estate investment operations, Agora’s comprehensive platform can help—by streamlining workflows, providing full transparency, and empowering you to scale efficiently.
