It is available only for properties being held for investment.They would qualify for the sec 121 primary residence exclusion once they have lived in the property long enough that they can claim residency for 2 out of the 5 years immediately prior to sale.You could certainly enter into an option and cooperation agreement with them that would allow you to pursue the entitlements/permitting you might need. 

Emergency escape and rescue openings shall open directly into a public way, or to a yard or court that opens to a public way.Garages cannot open into bedroom/sleeping rooms requirementR302.5.1 Opening protection.Openings from a private garage directly into a room used for sleeping purposes shall not be permitted.

I've thought about putting something weird in the ad before - "5-armed martians require extra deposit", but I just let it roll. 

Permits are in the final approval stages with the city, only in need of the final stormwater approval.

We have lived here for 10 years, and during the last 3 years I have been paying about 3k per month extra to the principle.

Also, what extra am I receiving for this Commercial account aside from a 3x higher bill?

Outside the commercial core, there is a limit on the number of permits (1400) and they are all taken, with a waiting list. 

Also how many on-street parking permits are allowed per resident.

Advice needed ona) Financingb) Stepwise process to get this to from inking the deal on the land, to getting a permit from town, to getting plans drawn and approved to putting in a nice spec for the build.c) Steps to liberate some of the cash/refi at a better rate whilst the house is being marketed.As for me, I think I can pull 100k by liquidating stocks and 200k by borrowing from 401k.

In sum, if fees are going to be your breaking point I wonder, did you buy correctly, are you committed to the buisness or are you committed to making a few extra bucks.