Most municipalities around here have some sort of compliance guidelines for secondary suites eg. subdivison of a primary residence only, square footage limitations, fire alarm/egress/separation/etc.

I would find out from the AHJ what sort of scrutiny a potentially non-compliant suite (or suites) may come under during a service upgrade.

This could be something the owners are not prepared for. OTOH, this may the driving force behind the upgrade.

Unless most of you are up to the gills in work, I question the logic in turning away jobs that are less that ideal. (Isn't that what T&M is for?)