This can yield a significant cost savings. For residential occupancies, most of it is limited to multi-family dwellings, although the garage separation in 1-family homes is a candidate. There are three types of separations: area, occupancy and vertical. In theory, area separation walls are designed to limit the spread of fires. They are usually a minimum of 2-hour fire resistance and in some occupancies are required to extend above the roof (parapet walls). Experience has shown, however, that this often does not hold, so fire officials have been willing to accept sprinklers in lieu of them. You will also find that fire officials will amend their building code to drop the language that allows area separation walls to reduce building area below the threshold for sprinklers. Occupancy separations walls, like area separation walls, are supposed to limit fire spread between different occupancies. An example is the separation between a restaurant and dwelling units. The problem of theory v. experience holds here, also. Vertical separations are not usually considered for reduction in fire resistance, and certainly not for exemption.