Posted by Tim (Cleveland, OH) on December 04, 1999 at 18:03:16:
Rich:
I am a newbie to REI, so take this with a grain of salt. I have been insurance underwriter for some years, so I think I can add to your question.
As I understand it, codes are local and not only differ from state to state but city to city. I have never heard of any locality requiring a property be updated with significnat changes just because it changed hands. This is distinguished from a requirement to make the property safe (e.g. replacing broken sidewalks to prevent falls etc.) which can happen when a property changes hands following a POS or if the condition makes things very unsafe.
I have heard of updates being required if the owner is doing major renovations anyway. So if you bought a board up to do a major rehab, count on having to add in the cost of a sprinkler system in your deal.
The requirement to add these features can be triggered regardless of the reason for the renovation. For instance, if you have a property that is damaged by fire greater than a certain percentage, when you have it repaired, you may have to include the addition of a sprinkler system as part of the repairs. On your insurance policies, there is typically an “Ordinance or Law” exclusion which states that if there is a covered loss, the insurance company will pay to put the property back like it was before the loss. They will NOT pay for additional costs required by codes, even if the requirement to comply with the code was triggered by an otherwise insured loss. You can “buy back” this exclusion by purchasing “Ordinance or Law” coverage on your policy. It costs extra, but the coverage will provide for excatly the situation detailed.
Lastly, changes in codes apply separatly to commercial and non-commercial property. Commercial codes are always much more stringent than non-comm, in mu experience. If you paid less tahn $75K for your property, I am betting it is less than 4 units, which usually falls under the non-comm classification.
But again, I am a newbie and things could be very different in MD than where I have had experience in RE or insurance.
Just some input from a newbie.
Tim