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The fire code violation meter determines how much you can build and buy. If the limit is reached, no more can be bought or built and flames can randomly appear anywhere on the lot.

After a certain amount of time, the fire code violation meter (fcvm) on a given lot won't go down anymore, even if things are sold. If there is still room left in the fcvm, something bought that is sold within a certain amount of time can still be refunded from the fcvm, but I think that, once the bug appears, an item takes a permanent toll in the fcvm whether or not it is removed. This seems to be a bug affecting others (if not all).
It comes to the point where one must live with random fires and the inability to buy anything, move lots, or quit, because there may be something other than buying or building which also raises the fire code violation meter, like maybe the newspaper, just being more clutter to the lot.

What triggers this bug, and how can it be avoided?

I think it's rather important to denote that this is The Sims 2 (TS2) for consoles (in particular, the Nintendo GameCube), because I think The Sims 2 is rather different between console and PC.

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