Certificate of Occupancy Explained for Construction

Construction closeout can be both exciting and stressful. The owner is excited to move into their building, open it for business, or sell it. Contractors are ready to collect final payments and invest their earnings in the next project. 

But for all those things to happen — and to truly complete closeout — they need a certificate of occupancy. A certificate of occupancy (CO) is a legal document that certifies a building is safe and ready to be used, by verifying the structure complies with local building codes, usage regulations, and safety requirements.

In this article, we’ll explore how to obtain a certificate of occupancy for commercial construction projects, when it’s needed, and who’s involved in the process. 

Where to Start With a Certificate of Occupancy

Local building authorities — usually government agencies or building departments — issue certificates of occupancy. A certificate of occupancy is usually required anytime a property is newly constructed, has been converted to a different usage classification, has had major renovations, or is changing ownership. Requirements vary based on where the building is and how it’s going to be used.

A CO is obtained near the end of closeout, as a way for a municipality to check a building’s safety after work is done but before people begin to use it. To do this, a local building authority will ensure all permits are closed and conduct any necessary inspections to check if a structure meets relevant codes and laws.

The Importance of a Certificate of Occupancy

Most places require a certificate of occupancy for a building to be sold, units to be rented, or businesses to open, so for owners, obtaining a CO represents a building’s readiness to fulfill its intended use and to offer a return on the money invested in its construction.

Obtaining a certificate of occupancy is one of the final steps of the project closeout process, so for contractors, a CO can represent the successful completion of key parts of their work. Some contracts also require an occupancy certificate for contractors to receive final payment, which we will cover more below.

In some places, a CO is required for utilities to be turned on in the building. For example, in Dallas, an approval must be obtained from building, electrical, and plumbing/mechanical inspectors before electricity can be turned on. 

What’s included in a certificate of occupancy?

The information on a certificate of occupancy generally includes the following: 

• Building information: Including the building’s address and square footage
• Owner’s name
• Occupancy Classification: Certifying building as residential, commercial, retail, industrial, or mixed-use
• Construction information
• Inspection information: Including types and dates of completion
• Number of occupants
• Date of issuance
• Signatures
• Conditions or provisions

Obtaining a Certificate of Occupancy for Construction Projects

The general contractor is typically responsible for obtaining a certificate of occupancy. However, it can also be done by a building owner or someone working on their behalf, like a construction manager or owner’s rep. The person who applies for the CO will be required to attend all inspections. 

Obtaining a certificate of occupancy almost always starts by contacting or visiting the website of the local zoning or building authority to learn about the process and what will be required. Here are examples from Dallas, Miami, New York City, Larimer County (CO), and Boise. 

While requirements vary based on a building’s use and where it’s located, the process of getting a CO usually includes the following:

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Apply

Most places have an application that asks for the necessary information to complete a certificate of occupancy (see above section on “What’s Included in a Certificate of Occupancy). The application process usually requires submitting additional documents to show all work done to meet local building codes. As is the case in places like Boise, ID, the list of necessary documents is often included on the application. Common documents include: 

• Copies of plot/site plans to show things like the building’s current layout, accessibility for people with disabilities, and points of access for pedestrians and cars
• Copies of construction plans to show details for things such as floors, ceilings, exits, framing, plumbing, and lighting
• Questionnaire about hazardous material
• If the building will include businesses or services relating to food, a letter of approval from the local Health Department

Pass Inspections

A variety of inspections are usually required, and are determined based on the building and its intended use. Inspections are needed to close work permits received at the beginning of construction. Each inspection should be scheduled separately (often according to construction milestones) and conducted by an inspector licensed for that specific type of inspection. Applications or websites, like the one for New York City, usually list necessary inspections. Possible inspections can include:

• Fire safety
• Electrical 
• Plumbing and sewer
• HVAC
• Insulation
• Mechanical systems like elevators or irrigation
• Final inspection

Pay Fees

Fees are usually listed on a municipality’s website and is determined by factors such as the occupancy classification (residential, commercial, etc.) and square footage. All other fees and fines connected to the building must be paid before a certificate of occupancy will be issued.

What if a Certificate of Occupancy Is Denied?

There are many reasons an inspector might decide to not issue a certificate of occupancy, such as being unable to open windows, inadequate storm drainage, improper signage for fire exits, not having enough smoke or carbon dioxide detectors, or lack of accessibility for people with disabilities. Some places — like Rockhill, Missouri or Monroe Township in New Jersey — provide a list of things at which an inspector will be looking.

The reasons for not passing should be included in the inspection report. The local building authority will give a timeframe for issues to be addressed. The contractor (or whoever is applying for the CO) is responsible for getting issues fixed and scheduling another inspection which will ensure the work has been done. Another fee is usually charged for all additional inspections.

What is a Temporary Certificate of Occupancy?

Some building authorities offer a conditional or temporary certificate of occupancy (TCO), which says a building is generally safe but has minor issues to resolve before receiving a final CO. Dallas allows for a TCO when the rest of the building is done but issues that relate to “non-life safety,” like landscaping, are almost done. Depending on the location and the outstanding issues, getting a TCO can mean the building is safe or partially safe for people to be in. 

A temporary certificate of occupancy can be useful to keep the closeout process moving while minor issues are resolved. Some contractors approach TCOs strategically, by planning ahead to obtain one on projects that include extensive details that don’t impact the safety of the actual building, like landscaping or installing a pool.

TCOs usually require a fee in addition to the fee charged for the final CO. Temporary certificates of occupancy also expire and usually cannot be renewed, so issues must be resolved and an inspection for a final CO scheduled in the time given. Most TCOs expire after about 90 days, though some places take different approaches. For example, TCOs in Evanston, IL must be applied for every 30 days and cost $125 each. In Larimer County, Colorado, a TCO expires after 180 days and costs $600. 

What Happens if a Certificate of Occupancy Isn’t Obtained?

Repeated failure to obtain a certificate of occupancy can lead to significant delays in the project closeout. These delays can result in the building owner losing money and, in worst-case scenarios, the general contractor having to pay liquidated damages. 

Opening a building to use without a CO can have major consequences for the owner. In these cases, many local governments issue lawsuits or repeated fines. Most buildings cannot be sold without a certificate of occupancy. Tenants who find out their building doesn't have a certificate of occupancy are often able to break their lease and can sometimes file a lawsuit to get back money. 

Does a Certificate of Occupancy Impact Payment for a Contractor?

Obtaining a certificate of occupancy can be connected to contractors’ ability to receive final payment. Some contracts define the deadline for final payments as a project being “substantially complete.” Other contracts allow for a retainage, which is a percentage (usually between 5% and 10%) of a contract's value that is withheld from a contractor until the end of the job. 

Determining “substantial completion” can be complex, but many projects, especially those using contract documents from the American Institute of Architects (AIA), consider a building to be sufficiently done when both a CO and a certificate of substantial completion have been obtained.

What’s The Difference Between a Certificate of Occupancy and a Certificate of Substantial Completion?

Certificates of occupancy and certificates of substantial completion are two distinct but connected parts of closeout. 

A certificate of substantial completion is a document signed by the owner and contractor that agrees a building is ready for its intended use, even if minor work still needs to be done. This is often good news for an owner eager to access their building and a contractor eager to be paid. However, owners and contractors cannot legally determine whether a building is up to code and safe. That’s up to the local building authority charged with looking out for people who will live or work there. Because of that, getting a certificate of substantial completion often requires first getting a certificate of occupancy.

Improving the Closeout Process

Obtaining a certificate of occupancy can be confusing and difficult simply because of how much requirements vary for different types of buildings and in different towns and cities. Gaining an understanding of how to do it and of local requirements can help keep the closeout process on schedule, on budget, and easier to manage.

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