Certificate of Occupancy Risk: When a Cheap Hotel Isn’t

A certificate of occupancy dated 1993 tells you almost nothing about the building and everything about the risk. It means no city inspector has formally signed off on that structure in three decades, and any unpermitted work done in the meantime becomes your problem the day you take title. That is why certificate of occupancy due diligence belongs on every older commercial deal before price ever enters the conversation.

Hussain Abdullah of H.A. Homes walked away from a 23-room hotel priced at $300,000 with no renovations apparently needed, because the records check told a different story than the offering did. He also lost investors $40,000 on a flip that turned out to be on a city teardown list nobody thought to pull.

Below: what a stale CO actually signals, how grandfathered status disappears, and the under-an-hour records check he now runs on every deal.

From the Real Estate Pros Show

This article draws on an interview with Hussain Abdullah of H.A. Homes on the Real Estate Pros Show, hosted by Meghan Escobar.

What a Stale Certificate of Occupancy Actually Signals

The hotel penciled. Twenty-three rooms at $300,000, and per the offering, no renovations needed. Abdullah had already passed on it at $600,000 and said yes at half that. The numbers made sense on every line.

Then he pulled records and found the last certificate of occupancy on file was issued in 1993. That single date reframed the deal. A CO is the city’s statement that the building, as it exists, is approved for its use. Thirty-plus years without one means no inspector has reviewed the structure through three decades of ownership changes, mechanical replacements, room reconfigurations, and whatever contractors did without pulling permits.

None of that shows up in a walkthrough. It shows up when you apply for a new CO — which, in most jurisdictions, is exactly what a new owner has to do.

The other signal was in the chain of title and the price history. A new owner bought the hotel in February. By the time Abdullah looked at it, that owner still had no certificate of occupancy, and the asking price had dropped $300,000 in two months.

Abdullah declined to make accusations about what that owner found. He did not have to. A buyer who takes possession, cannot get a CO, and cuts the price in half inside of eight months is broadcasting the cost of compliance. Read the seller’s behavior as data. On older commercial buildings, the discount you are being offered is frequently a rough estimate of the code work you are about to inherit — and frequently an underestimate.

Grandfathering, Non-Conforming Use, and What Breaks It

Grandfathering is real, and it is more fragile than most buyers assume. Abdullah’s framing is the clean version: the status is called non-conforming but active. If a building is 50 years old, it does not have to meet today’s code, because it predates today’s code. That protection holds as long as nothing significant changes.

Make a significant change, and the exemption can evaporate. At that point the jurisdiction may require the building to be brought current — not just the portion you touched, the building. On a 23-room hotel, that is hundreds of thousands of dollars in electrical, fire suppression, egress, accessibility, and mechanical work that was never priced into the deal.

Two things make this sharper for buyers of older commercial property.

• Unpermitted work transfers. If a prior owner reconfigured plumbing, added units, or rewired without permits, the violation does not stay with them. You own it the day you close.
• Transfer itself can be the trigger. Abdullah’s concern on the hotel was that the day he took ownership he would have to apply for a new certificate of occupancy — and that application is the inspection. Everything the 1993 CO predates gets examined at once.

Rules on what constitutes a significant change, and on whether a change of ownership forces a new CO, vary widely by city and county. Confirm locally with the permitting office before you rely on grandfathered status as part of your underwriting. Do not take a broker’s word for it, and do not assume the seller knows.

The last time they had something called the certificate of occupancy was from 1993. So what that means is if they did anything without a permit or touched anything it wasn’t supposed to, when I purchased it, I’d be liable and then have to bring everything up to code.

— Hussain Abdullah, H.A. Homes

The Teardown List Nobody Thinks to Check

The expensive lesson came from a residential flip, not a hotel. Abdullah had expanded into a new city in a new county. The deal ran like every other flip his team does: property acquired, scope written, bids collected, crews scheduled.

Then the roofer went to pull a permit. The clerk recognized the address. “We know that house. That house is a teardown.”

It was a small county, small enough that the city knew the property by street number. The house was on a demolition list, and it could only be saved by completing ten specific items. Those ten items would have added roughly $80,000 to the project. The deal died. The investors funding it lost about $40,000, and it was their first deal — one of them had put in her savings.

Here is the part worth sitting with: the house did not look like a teardown. Abdullah’s own assessment was that he would never have thought to check a demolition list, because nothing about the property suggested it needed to come down. Cities place structures on these lists for accumulated code violations, open cases, and prior enforcement history — none of which is visible from the curb, and none of which surfaces in a standard title search.

The practical rule: a clean visual inspection and a clean title commitment do not cover municipal enforcement status. Those are three separate records systems. If you are buying in a jurisdiction you have not worked before, assume your local knowledge is zero and check the municipal side explicitly.

The Pre-Close Records Check He Now Runs on Every Deal

After the teardown loss, Abdullah built a fixed pre-close routine — and the hotel was the first deal he ran it on. He spent a day driving around the city to code enforcement and to the permitting office, pulling records and filing Freedom of Information Act requests for public records on the property.

The offices are the point. Code enforcement and permitting hold different files. Code enforcement has open violations, complaint history, and enforcement actions, including demolition designations. Permitting has the permit history and the certificate of occupancy record — what was pulled, what was closed out, and what work happened with no permit at all. Comparing the two is how you find work that was done but never inspected.

What made the hotel visit productive was a local contact. Abdullah had the right person in his phone; she recognized the property immediately, told him to come to her office, and then walked him office to office. More usefully, she told him what questions to ask in each one, knowing that the answers he could not get would tell him everything.

If I don’t have her number, I might be in contract today losing my shirt.

His rule now is simple and non-negotiable: this check happens on every deal, no exceptions. It takes 30 minutes to an hour. Against a $40,000 loss on a first-time investor’s savings, that hour is the highest-return time in the entire acquisition process. Build it into your contract timeline the same way you build in inspection and title.

Walking Away Is a Position, Not a Failure

Abdullah refused the hotel at $600,000. He agreed to it at $300,000. Then the records came back and he walked entirely. Nothing about the physical building changed between those three decisions — only what he knew about its code status.

That discipline is consistent with how he is positioned right now. He has liquidated roughly 95% of his portfolio — single families and multifamilies across several states — and gone heavily to cash rather than hold through a soft market. His reasoning is unsentimental: he does not want to be the operator holding 100 doors with 50 vacancies, or 100 mortgages while values slide. He has lived that. He would rather sit on cash and buy when other people are forced sellers.

His flip buy box tells you the same thing about tight criteria. He buys at $30,000 to $50,000, puts $50,000 to $60,000 into the work, and sells at $180,000 to $190,000. He does not move walls. He gets in and gets out. That’s how he has closed over 300 flips, at roughly a 90% win rate.

The other 10% he posts publicly, with the actual numbers — a $65,000 loss on one house, $58,000 on another. His reasoning:

The only person who had a 100% win streak was Bernie Madoff.

An operator who has never walked away from a deal that penciled has not yet had the deal that would have cost them. Passing on a property after due diligence contradicts nothing. It is the diligence working.

Frequently asked questions

What does it mean if a building’s last certificate of occupancy is decades old?

It means no inspector has formally certified the building for its use since that date, so any work performed in the years since — permitted or not — has never been reviewed. On the hotel Abdullah evaluated, the last CO was from 1993, leaving more than 30 years of unverified alterations, ownership changes, and possible unpermitted work.

The exposure is that when you apply for a new certificate of occupancy after closing, that application functions as a comprehensive inspection. Everything accumulated since the last CO surfaces at once, and it is your cost, not the seller’s.

Does buying a grandfathered building force you to bring it up to current code?

Not automatically, but the protection is conditional. Abdullah describes the status as “non-conforming but active” — an older building is exempt from current code because of its age, until a significant change is made, at which point the jurisdiction can require the whole building to be brought current.

What counts as a significant change, and whether transfer of ownership alone triggers a new certificate of occupancy application, varies by city and county. Confirm with the local permitting office in writing before you underwrite on the assumption that grandfathered status will hold.

How do you find out if a property is on a city teardown list before closing?

Go to code enforcement directly and request the property’s enforcement file, and pull permit history at the permitting office. Demolition designations, open violations, and complaint history are public records, and in most jurisdictions you can request them under the Freedom of Information Act or a state equivalent.

Do not rely on how the property looks. Abdullah’s flip was on a teardown list despite not appearing to need demolition, and the only reason it surfaced was that a roofer went to pull a permit and the clerk recognized the address.

How long does a public records and code enforcement check take before you buy?

Abdullah puts it at 30 minutes to an hour per deal, and he now runs it on every acquisition without exception. Most of that is visiting or contacting two offices — code enforcement and permitting — and requesting the violation file, permit history, and current certificate of occupancy.

Having a local contact who knows the offices compresses it further. On the hotel, a contact walked him from office to office and coached him on what to ask in each one.

If the numbers work but the code status is unclear, is it worth closing anyway?

Unclear code status means an unpriced liability, and on older commercial buildings it can run into hundreds of thousands of dollars — enough to erase the margin that made the deal attractive. Abdullah passed on a hotel where the acquisition numbers worked cleanly, specifically because the CO gap meant he could not size the compliance cost.

If you cannot get a clear answer before your option period expires, extend the contract or walk. Closing on an unknown transfers the entire unknown to you.

The bottom line

Add code enforcement and permitting to your pre-close checklist as a named step with a deadline inside your inspection period, the same way you treat title and survey — pull the violation file, the permit history, and the current certificate of occupancy on every deal, in every jurisdiction, including the ones you think you know.