What is the certificate of occupancy, and why is it such a big deal?

When you’re buying in New York City, one of the documents you will need to obtain is the certificate of occupancy, which is sometimes shortened to C of O, or sometimes just CO. It is the document that identifies how a building can be used, for example, whether it is zoned for commercial or residential use and how many households can be accommodated at the address.

It might not sound all that important, but if you’re buying and the paperwork doesn’t match your plans, the bank isn’t going to approve your mortgage. If you’re a renter and you find out the apartment doesn’t have a certificate of occupancy, you can withhold rent from the landlord.

Read on for more about what you need to know about a certificate of occupancy.

[Editor's note: An earlier version of this article was published in November 2022. We are presenting it again with updated information for October 2023.]

What is the purpose of a C of O?

The certificate of occupancy is issued by the Department of Buildings and is needed for both townhouses and apartment buildings. There's also a document called a Temporary certificate of occupancy or TCO, which means a building is safe to inhabit but still has some outstanding work to do or permits to obtain before a C of O is granted.

Without either document, no one can legally occupy a building, so if you are in a building that doesn’t have these documents, except in some rare instances, you run the risk of the city issuing a vacate order. 

Not sure about your building's status? You can look up any property's C of O through the city's Buildings Information System. If you’re a renter, the burden is on your landlord to correct any missing documentation, and they can’t collect rent from you if there’s no C of O or TCO. 

Do you need a certificate of occupancy to close?

If you're in the process of buying an apartment in a building and have found out it lacks a C of O or TCO, you’ll want this addressed immediately. 

“You don’t want to inherit other people’s legal messes,” says Dean Roberts, a real estate attorney at Norris McLaughlin. For starters, problems or delays with the C of O can throw off your mortgage process. Banks need at least a TCO to issue financing. 

"We may consider a TCO for a mortgage loan, however additional stipulation for the loan approval may be required such as verification of the TCO and validating that the dates do not expire prior to the loan closing date," says Ryan Greer, senior vice president at National Cooperative Bank (and a Brick Underground sponsor). Appraisals and underwriting guidelines would need to be met as well.

C of O problems tend to rear their head for buyers in new construction buildings, which might have a TCO, but can't get a finalized certificate of occupancy until they're completed. This is fairly common. 

"You’ll find that the C of O is always a moving target as far as when it’s going to arrive, so [the developer or sponsor] is doing their best to estimate, incentivize, and keep people in the transaction," says Nicholas Palance, founder of brokerage Highland Advisory.

To avoid the hassles and expenses that come with a delayed move-in date (such as the need for storage and the cost of a temporary place to stay), it may be worth adding an extra three months onto whatever date a developer gives you for a building's approval.

How do you change a C of O?

There are a few common scenarios in which buyers might run into C of O issues. It might be that a townhouse has been upgraded to create additional living space: A two-family turned into a three-family would typically need a new C of O, but you may find owners who neglected this step.

If you're doing significant renovations or purchasing a fixer-upper with the intention of launching into extensive work, you may need to update the C of O, in addition to getting all the requisite permits.

Any renovation that creates a change in the number of rooms, or a change in the use of the spaces will require a permit, which will mean it is worth checking whether a change in occupancy has been triggered. A qualified architect will be able to review your plans and flag any potential issues. 

The easiest solution is to hire an experienced expeditor to help speed up the paperwork. If you’re doing the work and your contractor files through the Department of Building’s Professional Certification program, you can get the application approval and permit within a day or two. 

If you’ve inherited an issue as a buyer, the time frame for getting the C of O to match the property will all depend on the extent of the work, whether it is up to code, if the layout needs to be reconfigured to meet the DOB’s requirements, and whether the zoning for the property allows the change in the first place. Once the DOB receives an online request for a new certificate of occupancy, it takes on average 10 business days to review the request and make a determination. 

As a new owner, you would not be responsible for any violations related to illegal work performed by a previous owner, provided you submit the required paperwork, but you’d still need to make sure it is brought up to code, and any C of O issues are corrected. 

How do C of O issues affect a sale? 

In your contract for an apartment in a new construction, there may be a clause to allow you to get out of the purchase if the closing does not happen by a particular date. If the C of O or TCO is delayed beyond that date, you may be able to walk away from the deal. 

Palance points out it is especially important to keep a very close watch on TCO expiration dates. 

“I had a $10 million deal derailed because an expired TCO renewal came one day after the buyer was able to back out of the contract. In a declining market, a drawn-out process presents an opportunity for the buyer to renegotiate a lower price with the leverage of walking away. In many cases, this can be avoided,” he says.

There are also situations where a building’s C of O may be missing or problematic, for example, if you have a condo conversion where the developer only obtained a TCO, or co-op buildings that are somehow in violation of the C of O. 

Usually, any C of O problem in a condo or townhouse will come up in the title search. "It's one of those things that needs to be addressed well before you close. As a buyer, first assess how serious the problem is and see if it's fixable," Roberts says. One solution is to have the seller put money aside in escrow to allow you to fix the problem. Expeditors don't work for free.

Individual units in co-op buildings don't have certificates of occupancy; there's simply one C of O for the entire building, meaning your fate might be in management’s hands.

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