This is similar to laws that require buildings be brought entirely up to code any time any renovations are done. The intent is to keep buildings up to code, but one of the nasty side effects is that buildings which are already substandard continue to deteriorate because of the massive expense (in time and effort as well as money) that is required. I've seen half a dozen instances with churches and other nonprofits deciding against simple renovations (like adding a wheelchair ramp) because they didn't want to have to redo the entire building's wiring, widen every doorway, and put in an elevator.
If you require a massive overhaul to be tied to a minor fix, one likely outcome is that the minor fix simply doesn't get done.
If you require a massive overhaul to be tied to a minor fix, then you have let the thing rot for too long.
In your example, those buildings that deteriorate will at some point stop being liveable, and lose in value, which will finally mean that the proprietor's failed business approach will become weeded out. I, personally, welcome this sort of development.
"Being out of code" isn't always a result of deterioration or neglect; sometimes it's just a matter of the code changing. Structures built in the 1950s may not have, for example, ADA-compliant accessible restrooms, though the restrooms may be perfectly usable. But putting in something as simple as a wheelchair ramp at the front door might require also remodeling every single restroom in the building to be ADA-compliant.
I've seen half a dozen small religious groups go through this sort of problem -- because they can't afford to make the church/synagogue/etc completely accessible, they aren't able to make incremental improvements. The buildings remain perfectly functional and well maintained and retain all of their value, except in the eyes of the one guy in a wheelchair who can't get a ramp put in because his church can't afford to drop 15 grand on all the other not-very-useful-but-required stuff.
Relating this back to code: if you have a policy that requires any old code must be brought up to new standards any time it's touched, then there are at least some occasions in which someone could have made a useful incremental improvement, but is stopped by a stupid policy decision that would saddle them with burdensome work. The net result is that small, high-value fixes get put off because of large, low-value busy work.
If you require a massive overhaul to be tied to a minor fix, one likely outcome is that the minor fix simply doesn't get done.