The Importance of City Certificates

There are many variables in the purchase of a home, and one of the most vital is the status of city certificates. City Certificates can make or break a home investment, so proper due diligence will save you time, money and headaches in the process of acquiring and eventually leasing out a rental property.

A Certificate of Occupancy (C of O) is an official document from the city in which your rental property is located, and it states that the home meets all current building codes, and is deemed safe and habitable. It must be approved to legally collect rent, and you may run into many problems if you are offering a home without the certificate.

During the construction of a new home, city officials often drop in during the various stages of a build to perform inspections. These inspections proceed through certain stages, in order to ensure that guidelines and safety codes are met. If at any point something is off, progress is put on hold until the guidelines are met. During the acquisition of a previously inhabited home, when it comes to city certificates, things can get tricky. Items required to pass city inspections may have been present at a point, but in time have been destroyed or damaged.

Always check with the local building department to ensure that a C of O is present. Unless circumstances are dire, you should always require the seller to provide a C of O before purchase, and arrange for any repairs/inspections.

If you are hoping to tenant to Section 8 eligible families, whom the US government assists in rental payment, there are additional requirements for certification of a home. Items such as screens on windows, electrical outlet and window count minimums, among others can be deciding factors in the pass or failure of a home during section 8 inspection. Always keep a checklist handy during your pre-purchase walkthrough, and be ready to identify what is expected and required.

Working with a multifaceted property developer will increase the odds that you will not have C of O issues. While it is not uncommon for a property developer to initially acquire a home that requires certification work and inspections, a quality renovation should always address and take care of these issues. If a property developer does not provide proof of certifications and recent inspections, this should raise red flags.

As a landlord, once the ownership of a home is transferred, all liability and certification requirements are also transferred. Without proper due diligence, the likelihood of tenanting out a home before certifications are made is a possibility, and may pose many problems. One example of an issue is tenant refusal to pay rent—it’s technically illegal to rent an un-certified home, and most tenants know these laws.

Different markets have varying regulations, and some insurance companies will not fully insure a home that doesn’t have a C of O. Additionally, most lenders will reject financing to an individual, based solely on the absence of a C of O. This poses another reason to move quickly on the C of O following purchase (if it is not already available). Furthermore, city fines and late fees are often tacked on the price of a C of O, if it is not completely in a timely manner. Additionally, there can even be the situation where a judge can order that rent is not due, or drafted into a designated account until items on a checklist (CofO) are completed.

In the event of an emergency resulting in a tenant moving out, or suffering damage to their property inside
a home that has not passed city inspections, a lawsuit can ensue. The landlord at this point is fully responsible and might not even know it. Many foreign investors are not fully aware of the legality and importance of city certificates, so it is important to stay educated and up to date on the subject.

Purchasing a home that you intend to utilize as an investment property can be a great way to make money. City certificates are necessary, and should never been downplayed or pushed back on your list of pre-tenant-move-in tasks. From mechanical, to plumbing and flooring, the smallest things can set a landlord back thousands of dollars. Stay on top of city requirements, and keep profits where they should be!