Is Your Certificate of Occupancy Up to Date?

During the renovation of a duplex apartment in an Upper East Side co-op, a hiccup arose. The upper level of the apartment was classified as a professional space, while the lower level was classified residential. The co-op owned it and wanted to sell the entire apartment as residential space, thinking it could reap a higher price for that use. The board had a purchaser lined up, but he wanted assurance that the entire duplex was a legal residential unit before completing the purchase.

The cure for this hiccup: obtaining a valid Certificate of Occupancy from the city’s Department of Buildings (DOB).

A C of O states a building’s legal use and type of permitted occupancy. All new buildings must have one, and existing buildings must have a current or amended C of O when – as in the Upper East Side duplex – construction will change the use, egress or type of occupancy.

This was only a handful of times in his 20-year real estate career that the co-op’s property manager, Daniel Wollman, CEO of Gumley Haft, had to obtain a new C of O.

“The first thing you need to do is get a violations report (for the building) and see if there are any violations,” Wollman says. “You must clear every single violation to move forward.”

Failure to obtain a permanent C of O can have unpleasant consequences, Wollman says. Apartment transfers can become “exponentially” more difficult, and when boards refinance their underlying mortgage, lenders have been known to require the building to obtain a permanent C of O within three years, or the bank would have the right to rescind the loan.

An out-of-date C of O can even lead to lawsuits. When the Seward Park co-op board switched from a park-and-lock to a valet parking system earlier this year, opponents seized on the lack of a new C of O as the basis for a legal challenge to the changeover.

The second component of obtaining a C of O involves closing all outstanding permits. After the work is completed, the DOB must sign off that it’s been properly done. Unless all permits have been signed off, DOB will not issue a permanent C of O.

Wollman has unearthed dozens of open permits in a single building, some of them dating back 30 years. “You need an experienced archivist to obtain all these files from the Department of Buildings,” he says. Also, he adds, hiring an expediter who knows how to “maneuver their way through the bureaucracy can quicken the entire process. These expediters are familiar with how the DOB works and how to get stuff done.”

The costs of clearing all violations and open permits can vary widely, but Wollman says he has seen a building’s costs go as high as $100,000.

In the 2016 Management Leaders Report in the July-August issue of Habitat, Wollman offers this advice for co-op and condo boards: “A document needs to be created that requires any shareholder or unit-owner who does work that could affect the current C of O to be fully responsible for the reinstatement of the C of O with all required changes.”