Certificate of Occupancy – When you Need it and When you Don't in NJ

First and foremost, I will only talk about my experience thus far with them with the deals that I have closed or am closing. I am not an attorney so please ask them during your deal what needs to be done exactly. Also, I am a real estate agent, but each town is different with building departments so some towns are more strict than others on their requirements. I have experience in some towns such as Irvington, Maplewood, Elmwood Park, and a few others.

Now, most of you might be asking yourself, what is a certificate of occupancy? Well, in short, as wiki puts it nicely: it is a document issued by a local government agency or building department certifying a building's compliance with applicable building codes and other laws, and indicating it to be in a condition suitable for occupancy. In other words, it is an inspection the town requires for people to be able to live in the residence. If things fail in the inspection, the inspector will have to come back again and check that those issues have been resolved BEFORE anyone can live there.

Now, the State of New Jersey requires that before a closing on new construction can occur, the builder/seller must obtain a Certificate of Occupancy from the municipality wherein the property is located. However, for existing homes to be resold, the State does not mandate that a seller obtain a Certificate of Occupancy or Certificate of Continuing Occupancy. The requirement is left to the jurisdiction of the municipality where the property is located. However, the State of New Jersey does mandate that the seller of the property obtain a certificate of smoke detector, carbon monoxide and fire extinguisher. Overall though, from what I have seen, most do require some sort of Certificate of Occupancy if you plan to immediately live there or have a tenant in place.

This brings me to a situation I faced as an agent not too long ago. I spoke to the lender my client was using and asked if a certificate of occupancy was necessary to close the deal. The lender said no since it was a 203k loan and repairs would be done anyways. As a result of this conversation, I was under the impression that the lender spoke with the municipality of where the property was located since he was so confident and expressed that he has done several deals in the area. Regardless, a few days prior to closing, I get a call from the attorney saying that we need a certificate of occupancy from the municipality even if we do not need it for the lender. (First lesson, never take a lender’s word on the phone. Put it in writing. Second, be explicit with asking the lender questions. Third, talk to the municipality about the situation first).

So, I spoke with a building department about what would be required for the Certificate of Occupancy. I told them the situation that it is a 203k loan and that there was a tenant that will move out 30 days or so AFTER closing and that the owner does not plan to live in it immediately. I emphasize after because that is significant in this experience. The person at the building department told me that a full Certificate of Occupancy would not be required since the tenants are leaving and that a temporary one could be issued since no one will be living there very soon. Later, I go to pick up the paperwork for my client and fill it out on his behalf and pay the requirements (he paid using check). I finish the paperwork and expect the temporary certificate that same day. (At this point, it is closing day.) The inspector then asks if there are tenants and I am honest about the situation. As a result, he tells me that no tenant can be living there at all. Consequently, I must schedule a date for the inspections. (Lesson 4: At the municipality, make sure you speak to the right person. Apparently I spoke to the secretary when I should have spoke to the inspector.) At this point, I had to call the attorney to ensure everything would work out. The attorney and the inspector speak and everything is cleared. Now, that same day, the lender also asks that the Certificate of Occupancy is required. (Lesson 5: I must emphasize.. Get everything in writing as the lender before told me verbally. Lesson 6: Most of the time, just get the Certificate of occupancy because it is only a few hundred dollars and could save a lot of headaches.) Finally, the attorney and I speak to the lender about the situation and it is resolved as the lender is promised the Certificate of Occupancy in the coming days as this deal needed to close that day or else the short sale would be lost. In conclusion, if you are buying a home that you plan to live in immediately or if you have tenants, it is best to schedule beforehand even if others in the transaction say it is not required.

Finally, to note: for investment properties in which a certificate of occupancy inspection by the town would not pass, you are going to have to sign a CO waiver with you attorney . Which means that you understand that you are closing without a CO and that you are responsible for it and anything that happens. After that you will get all the due permits with the municipality in order fix the property . After that when everything is done . you go to the municipality and apply for the CO. Overall, if you have any questions, comments or concerns about the issue, please feel free to reach out and I would be glad to explain the process in depth.