A reader recently wrote me to ask if we had any advice before the buy their own money pit… ahh I mean brownstone. The email was a great reminder that while we discussed in a few past articles details about the Alt 1 vs Alt 2 we never specifically gave advice on how to avoid our expensive experience (aka fiasco).
Tip: As part of your contract make sure the stipulate that the seller must provide either a Certificate of Occupancy (CofO) or Letter of no Objection.
Here’s generally how the issue works out. Historically, most old building didn’t have C of O because they were built back before the DOB issued them. The DOB only asks you to get one when you do a major renovation. Such as conversion from 1 to 2 family or an extension, which affects the building egress. If you’re building doesn’t have anything (like ours, Yeah!) then the DOB records probably show the house as a 1 family even if it’s been used as a 2 family for 60 years. Our home has 2 power meters, 2 gas meters, tax records and more yet the the DOB considers it a 1 family.
As a result we had to file what’s known as an Alteration type 1. Essentially despite all our evidence the DOB is forcing us to legally convert the building from a 1 family to a 2. What’s the difference? The Alt 1 carries higher filing fees, more costly inspections and in some cases we have to do additional renovation work to comply with building codes. For example, to comply with fire rating codes to the tenant’s staircase we have to install sheetrock to the hallway and add a metal door for the tenant apartment. Depending on the home of course there could be more work. An expeditor can help you get the details if needed.
The alternative is a Letter of No Objection. This is sort of a compromise where the DOB agrees that while there’s no C of O they will legally agree to allow you to continue to use the building as is. If you qualify for this you can file what’s called a Alteration type 2. This is the filing type for a renovation on a home with a C of O where the renovation doesn’t change egress or occupancy. This is less expensive because you don’t have as many inspections or extra work to comply with codes. You want this if you can get it.
Looking back we should have forced the sellers to obtain the Letter of No Objection for the building before we closed. They filed for one before the closing but we were so eager to get started that we went ahead and closed before we heard back from the DOB. As a compromise they put some money in escrow to pay for some Alt 1 expenses if the letter wasn’t approved at the closing. Just to give an example, the expeditor fees are doubled with an Alt 1/C of O.
Of course it wasn’t approved and all their motivation disappeared after the closing. We thought about pursuing it further but it could have taken months to work out the letter with the DOB and with our new mortgage kicking in we decided to avoid the delay risk and go for the C of O. It was a trade off of unknown time vs known expenses and time is money when you’re paying 2 mortgages.
Had we had stuck it out and forced them to get the letter we could have waited out the months just fine. Expensive lesson to learn but one I share with you here for free.