June 24, 2026
You found a property. The numbers work. The neighborhood is up and coming. You are ready to make an offer. Then your attorney asks for the Certificate of Occupancy. It comes back saying the building is a legal two family home. But you just toured it, and it clearly has four rentable units.
That is a red flag, and for a lot of first-time investors, it is the most expensive lesson they will ever learn about NYC real estate. What you see when you walk a building and what you are legally allowed to do with it are often two very different things.
The Certificate of Occupancy, or CO, is issued by the NYC Department of Buildings and it states a building's legal use, including how many dwelling units it is permitted to have and how each floor may be used.
If a building's actual use does not match its CO, that mismatch creates real problems:
You’ll hear this phrase a lot from sellers and brokers: “Don’t worry, it’s grandfathered in, it’s been like this for forty years.” Take that with real skepticism. In NYC, “grandfathered” usually refers to something that was legal when it was created, but later zoning or code changes would no longer allow it. In those cases, the city may allow the existing use to continue as a legal non-conforming condition.
The 1938 Certificate of Occupancy cutoff is a separate issue. It doesn’t create grandfathering or legal protection. It simply reflects that buildings built before 1938 often weren’t issued modern COs, so their legal use is established through other Department of Buildings records instead.
The key distinction is this: grandfathering only applies when a condition was legal at the time it was established and the rules changed later. The 1938 rule is about documentation, not protection.
And importantly, even if a condition has existed for decades, that doesn’t automatically make it safe or protected. If you alter the building—change the layout, add or convert units, or change the use—you can trigger current code requirements and lose whatever non-conforming status may have existed.
Do not fall in love with a property before you have looked closely at its Certificate of Occupancy. The CO tells you the truth about what you are actually allowed to do with a building, regardless of what it looks like on a tour or what the seller tells you about its history. Skip that step, and you are not really investing, you are taking on a liability you do not fully understand. Pay attention to it from the start, and you will be able to recognize real opportunities that less careful buyers walk right past.
Disclaimer: This content is intended for informational and educational purposes only and is not intended to be construed as legal, tax, financial, or insurance advice. Every property and tax situation is unique. Please consult a licensed attorney, CPA, or tax professional regarding your specific circumstances before making any decisions related to property improvements, tax assessments, or real estate transactions. Mohammed M. Rahman is a licensed real estate broker in New York. Contact: Mo@ClosedByMo.com.
