Complete guide to getting your certificate of occupancy

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How to get your certificate of occupancy?
The complete guide

It's a common scenario: You secure the land, get permits and start construction on your dream home or commercial property development project.

Things are going well until you hit a snag - the building surveyor won't issue a Certificate of Occupancy (CO)  or completion certificate because some final building work hasn't been completed by your builder. All the money you've put into the development project is at risk and you are at a stage when you have drawn down most of your construction loan. So the interest is ticking on the full amount and every single day can setup back hundreds of dollars if not thousands.

So, How can you ensure that your development project is completed and that you receive your occupancy permit on time?

Complete guide to getting your certificate of occupancy

What is completion in a real estate project?

For some people, completion entails different things. If its intent is unclear, it may result in drawn-out disputes that cost money and could impact the construction lender.

When a contract's documentation is vague or has errors or inconsistencies in its terminology, plans, or specifications, it may be difficult for a contractor to complete their work. 

Due to the lack of legal representation in most contractor contracts, there are always concerns with specificity that leave too much room for interpretation. 

The most frequently encountered issues are...

  1. missing completion dates,
  2. workmanship,
  3. quality, and
  4. material and equipment substitutions. 

Project Completion occurs when

  • The architect or building certifier shall have certified to the lender that the improvements have been substantially completed in accordance with the plans, in the reasonable opinion of the lender and the Construction Consultant.
  • All tangible personal property necessary for their use and operation and any that may be called for by a governmental body or by a legal requirement shall be contained within the improvements.
  • For all facets of the improvements, all temporary certificates of occupancy and all other permits necessary for their use and operation must have been provided by or obtained from the relevant governmental authorities.
  • All fees and expenses related to the project must have been entirely covered.
  • The lender must have received and deemed reasonably acceptable an as-built survey of the project.

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Project Occupancy

Obtaining a certificate of occupancy, either a permanent one (CO or C of O) or a temporary certificate of occupancy (TCO), is typically the definition of completion. Because a CO permits the building to be utilized and occupied, which in turn enables it to earn income, it is defined in this way. 

Without a CO, the investment property is a wasting asset, burdened by ongoing construction loan interest and, perhaps, obsolescence, in addition to ongoing tax, maintenance, and utility expenditures.

Project Occupancy

How to obtain the occupancy certificate for existing building

The developer must complete the project as per the plans and specifications submitted to the municipality (and any other relevant agencies) and approved before the commencement of construction to receive a certificate of occupancy. 

Doing this ensures that the finished structure at least satisfies the basic construction standards outlined in the local building rules.

There are always delays in receiving a CO for inexperienced or experienced property developers without local experience. It is because the necessary filings are not made on time, the necessary ongoing inspections are not performed, and the necessary sign-offs from the relevant municipal departments and agencies are not obtained.

Fire prevention is one area that could result in delays and pointless duplication of tasks. Although requirements vary and can be both labour- and technically-intensive, they are generally similar across the nation. 

For instance, any open chases between vertical penetrations and the floor and ceiling must be fire-stopped. In other words, an approved compound must be used to seal any joints, fissures, or gaps between the penetration and the floor or ceiling. 

Doors that can close automatically during a fire must be installed in ducts. A fire-proof coating must be put on steel columns and beams to keep them from falling apart. 

It is impossible to evaluate floor and ceiling penetrations, ductwork, and insulation if finished floors are installed, columns and beams are filled in, or walls are sheet rocked. This necessitates "opening up" the floors and ceiling for examination, which could be expensive and delay the inspection and the construction process.

The real estate developer may employ an inspection firm that is licensed and permitted to conduct the required continuous field inspections to exert more control over the inspection process and boost efficiency. 

Because the developer is paying the inspection company, which responds by being accessible to do inspections and frequently providing guidance and advice, this can save a significant amount of time. 

In some countries, an inspection business is not permitted to conduct field inspections that the local authority will accept for specific types of work or at specific points in the construction process. The inspections must be carried out by a municipal employee instead before the developer may proceed. 

Scheduling an appointment in advance with the appropriate municipal inspector can save expensive delays. As was already indicated, failing to prepare ahead might lead to the destruction of already completed work because a necessary inspection was missed or ignored.

Final inspections

When the physical work is finished, the municipal inspector must conduct a final inspection. Due to the complexity of real estate development, it is not uncommon for projects, even those of small scale, to fail their initial "final" inspection. 

The inspector will be on the lookout for minor issues like missing or misplaced exit signs, doors that don't swing in the right way, and walls that aren't shown on the submitted designs, among other things. 

A note from the project architect, engineer, or contractor saying that repairs have been made will often satisfy the inspector if there are only minor exceptions, errors, or omissions. The inspector might decide to conduct a repeat inspection at other times. 

It may be a few weeks before an inspector returns to the project in some places due to the shortage of inspectors and their heavy schedules. As was already noted, the developer risks an expensive delay if he doesn't organize an inspection in advance. 

However, planning too far ahead has risks as well. A new inspection must be planned if the work was supposed to be finished but wasn't when the inspector arrived. It can prolong the project by a few weeks. 

Prior construction experience and the jurisdiction in which the property is located are crucial. Knowing the local government laws and regulations is beneficial, but it may also help coordinate trades so that areas for inspection are available when they are most convenient. 

If one knows, for example, the average or customary lead time required for an inspector to arrive at the site after an inspection has been requested, scheduling can be done with more assurance. Research has been done, and successful builders have practical experience.

Maintaining Records

The developer must maintain an appropriate paper trail and be aware of when and what has to be inspected. Due to regional politics, traditions, and municipal bureaucracy, paperwork can be overwhelming. 

For instance, a municipal building department often contains several divisions, such as ones for structural construction, electrical work, and plumbing work. Each will have its file systems, specific forms, and inspectors with a specialized understanding of their disciplines. 

An inspector may request paperwork from various sources since one trade or department (including nonbuilding institutions like the fire service) is frequently dependent on another. 

It is always the developer's responsibility to gather and arrange papers, not the municipality. There will be a lot of files on the website in a problematic project, and the developer will probably need to engage an administrator to handle the paperwork and filing needs. 

The administrator's role in the team grows more critical as the project progresses. The necessary paperwork must always be in order and accessible to the inspector. It can be difficult, mainly if the inspector is arrogant, as many of them are. 

The inspector might have left and won't be available to return for several days or weeks by the time the project manager finds what is needed. The inspector will review papers, such as prior sign-offs and inspection reports before he visits the project to ensure that work was completed correctly. 

To confirm that the actual construction work complies with the approved plans and specifications, he may inspect them. Often, omissions that seem innocent and unimportant can significantly impact, especially when getting the final approval for completion. 

Examples include adding or removing a water tank without the appropriate permits and notifications or having a parapet only an inch above or below the required height. Another typical annoyance is mislabeled or outdated merchandise. 

For instance, a water heater is exempt from inspection requirements. However, a separate boiler check is required if it is incorrectly identified as a boiler. Even though there is no boiler to inspect, the inspector may request documentation of a recent boiler inspection.

The construction team, including the architect, engineer, contractors, and project manager, must be aware of inspection requirements and required paperwork daily due to the uniqueness and features of each location. 

It can cost the developer a lot of time, money, and stress if they are not, or if there is a weak link on the team. Experience is significant in this field. Unfortunately, many project managers and contractors are excellent at building the project physically but are not as knowledgeable about the legal needs. 

They frequently are not informed of various local laws. They are also ignorant of the severe repercussions and punishments for disobeying even obscure rules. The property developer must be aware of regulatory difficulties even though they may not be thoroughly familiar with them. 

He will frequently be held responsible for a contractor's ignorance. By asking the proper questions and selecting the right personnel, he can reduce the chance of failure to adhere to municipal regulations and delays in inspections.

Protection of lenders

How do you guard against mistakes and delays while dealing with all the paperwork and inspection work? The majority of the time, you cannot. 

However, you can take a measure to safeguard yourself by determining if the necessary inspections are being carried out directly or through your inspecting engineer. An excellent consulting engineer with knowledge of the municipality can significantly assist the developer. 

Obtaining copies of inspection reports can assist in identifying flaws that you can fix before suffering significant consequences. It can prompt the construction crew to perform the required checks. 

Additionally, it enhances the inspecting engineer's standing with the borrower, which may be beneficial down the road if additional issues arise. As a result, you, the lender, have more power to ensure that the borrower follows the procedures strictly. 

Even though this would be a very uncommon circumstance, you may threaten not to move on unless the inspection reports that your inspecting engineer requires are generated.

Temporary Certificate of Occupancy

Even if the property developer carried out the construction work correctly, saw that the requisite inspections were conducted, and had the necessary documents approved by the right people, the building project may still only acquire a temporary certificate of occupancy rather than a permanent one. 

Many seasoned developers want to get a TCO first and a CO later; in many cases, a property might not get a CO until a year or more has passed.

A TCO denotes that the existing building is safe, livable, and capable of being utilized for its intended purpose, although the municipality has not yet finished it.

The municipality and developer create a punch list, a list of tasks that must be finished before a permanent CO can be given, and include the work that still needs to be done on it. 

Examples include:

  • Rebuilding brick.
  • Adding the final coat of stucco to an exterior wall.
  • Installing a ceiling fixture.
  • Hanging a door.
  • Finishing the insulation and moulding around windows.

A TCO has the following benefits: 

  • It enables a portion or the entirety of the structure to start producing income sooner.
  • It may be a trigger in the construction loan documentation for additional funding, frequently in the form of a retainage reduction.
  • It might be the only thing needed for a takeout lender to fund, potentially increasing the developer's leverage (a bigger loan) or lowering the cost of debt.
  • It provides the developer with a focused list of things to do to receive a per-project payment.

The TCO indicates that the structure is fundamentally finished for you, the lender. It has evolved from an asset unable to generate income to one where the new building is no longer essential for project profitability.

It indicates that its value has significantly increased from its previous incomplete condition. Risk is present in the TCO, though. The TCO needs to be updated because it is transitory. 

Typically, all that is required is the development application and renewal money. However, renewals might only be valid for a year or two, depending on the municipality.

Following that, there may be significant costs, such as fines, the submission of more documentation with associated charges, and costs for specialists who could be required to handle and negotiate the process.

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TCO to CO - Completion of real estate work

Work must still be done once a TCO has been issued. However, the work rate usually slows down after the TCO is in place. 

It is due to a few factors. From the developer's perspective, the property is producing income or, in the case of a property sale, has produced income in the past. In the first scenario, it might make sense to put off taking care of the punchlist items as long as you can.

The final work is paid for using the property's income rather than the developer paying out of pocket. The second situation presents the possibility that investing the proceeds of a sale right away may be emotionally taxing and financially foolish. 

The developer has already reaped all of his rewards. He might desire to generate interest on money set aside for punchlist items by keeping it in reserve for as long as possible.

The developer's focus being diverted is another cause of a delay. He may feel pressured to aggressively market unoccupied space if the property is not filled rather than using those resources to complete punchlist tasks. 

It makes sense, given that the developer will want to lower his monthly carrying expense and possibly start making a profit. The desire for a permanent CO frequently fades away if a TCO time horizon is up to two years. He might perhaps be focusing on other tasks that require more urgent attention.

The fact that the remaining work is of a low level and volume may also cause delays in completion. It might be challenging to reinstate a contractor, especially if he has already been paid in full. 

In some circumstances, the developer must look for and select a new contractor to complete the project. It can be costly and time-consuming.

Additionally, if the project involves occupied space, it may hamper the development if tenants cause a complication. Due to its disruptive character, some types of labour are far more challenging to perform. 

Security, liability, tenant and employee safety become much more significant, as do schedules, noise, and cleanup. Tenants must be taken into account. It may be difficult or impossible to enter the work location during regular business hours or even very early in the morning.

Lender risk

Obtaining a permanent CO after receiving a TCO can be difficult and time-consuming, adding to the risk. It is not your problem if the takeout lender can use a TCO to get you out of the loan.

You should work to include the TCO as one of the takeout triggers in your buy-sell agreement. The construction loan could be increased if the takeout commitment necessitates a permanent CO. 

In the worst situation, there won't be any permanent funding if a CO is necessary under the takeout lender's commitment and the commitment expires. Until another takeout is found, the construction loan must be in place; otherwise, the construction lender may need to restructure the loan with a longer term (e.g., a bridge loan, a term loan, or a permanent loan).

The developer may experience difficulties leasing or selling the property if there is no takeaway because the project will be sold, for example, as condominium units or if it is a build-to-suit structure. This is because there is no permanent CO. 

Commercial tenants may not have an issue with this because location and rent considerations outweigh their worries about a CO, but closing attorneys and home buyers may have serious concerns. 

People may opt to shop elsewhere if they cannot or do not want to comprehend the connection between a TCO and a CO. This prolongs the absorption period, which delays revenues and raises costs.

C of O holdback guarantee

Even a novice buyer or lessee will request some assurance that the property will eventually acquire a permanent CO (if not directly, then through his attorney). Typically, a letter of credit or an escrow deposit is used. 

Its total sum must always exceed the estimated cost of the work. The buyer assumes the risk that the developer might abandon the project to save time and money if the escrowed payment is less than the cost to finish. 

A strong incentive to keep the borrower committed to finishing the project is to keep more money than is required invested in it until it is fully completed. 

Make sure you have authority over releasing any remaining funds if your loan has not yet been repaid and there is still money in the project. You can ensure that the borrower will complete the task; if they don't, you or the takeout lender will have the resources to do it. 

If the release provision in a condominium project were properly considered at loan origination, the lender would be paid off through sales before the escrow deposit becomes the lender's responsibility. 

Remembering that getting the construction loan paid down to zero as soon as the work is over is ultimately the most crucial goal for a construction lender is always a good idea.

Actions lenders should take

Lender oversight of the evaluation of the remaining work is necessary as the job nears completion. You do not need to oversee the process unless there is a problem. To avoid underreacting or overreacting, you should comprehend the procedure.

Inquire as to when a TCO or CO will be acquired. Ask the cause of any delays. Inquire as to the anticipated occupancy date. Inquire about sales, completed leases, and other matters. 

Do not be caught off guard. You can get ready to change and react if you foresee specific issues or the chance of them occurring. From a professional standpoint, nothing beats being ready.

An occupancy permit is important for new buildings because it is the document that officially states that a building is safe to occupy.

It is issued by the local municipality and it indicates that all the necessary inspections have been carried out and that the building work meets all safety codes. The permit must be displayed in a prominent location in the building.

Without an occupancy permit, you cannot legally occupy a building. So if you are planning to build a new home or office, make sure you apply for an occupancy permit as soon as construction is completed.

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What is the difference between a completion certificate and occupancy certificate?

A completion certificate is essentially a certificate that states that a building or structure has been completed in accordance with the approved plans and specifications. An occupancy certificate, on the other hand, is a document that declares that a building or structure is safe for use based on accepted occupancy standards.
Typically, an occupancy certificate will not be issued until the owner/developer has provided evidence of conformance with all applicable codes and ordinances (e.g., fire safety, life safety, accessibility, etc.), as well as compliance with any special permit conditions that may have been imposed by the city or municipality.

Why is occupancy permit important for new buildings?

An occupancy permit is important for new buildings because it is the document that officially states that a building is safe to occupy.
It is issued by the local municipality and it indicates that all the necessary inspections have been carried out and that the building work meets all safety codes. The permit must be displayed in a prominent location in the building.
Without an occupancy permit, you cannot legally occupy a building. So if you are planning to build a new home or office, make sure you apply for an occupancy permit as soon as construction is completed.

What are the documents required for the completion of the project is?

The documents that are typically required for the completion of a project vary depending on the type of project and the organization involved. However, some of the most common documents include a project charter, work breakdown structure, risk management plan, procurement plan, and quality assurance plan.

It's important to note that not all organizations require all of these documents for every project. And, in some cases, additional or different documents may be required. So it's always best to consult with the relevant parties early on in order to determine exactly which documents are needed for your specific project.

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