Okay folks, here are the details:

Three unit, three story building, in NJ has fire escapes on floors two and three on the rear side of the building. The fire escape leads into a courtyard which is shared with five buildings (3 residential, and 2 commercial). The three residential buildings have access to the courtyard while the larger commercial ones just border and basically enclose the outside area making it a courtyard. There is currently no way to escape the courtyard unless you a) go through one of the three residential buildings, and b) through a 1-foot wide space between one of the residential and commercial buildings (which i think cannot be considered a legal "pathway" or "means of egress".

To obtain higher rents from the first floor unit, we are looking to enclose our portion of the courtyard with a fence (8 feet tall) and build a decking system (elevated 6 inches off the dirt floor).

I'm worried about what the fire inspectors may say to this? Can the city (or state) tell me i am not allowed to build a fence due to the possibility of endangering the tenants who may use the fire escape should there be a fire? There was no way for them to escape the courtyard in the first place - how could this be an issue right?

My question to you is: Do you think putting up the fence will pose any issues?

PS: Area is old. My building and the neighboring buildings were built in the 1880s.

Putting a swinging gate on the fence, giving access to the full courtyard, may help. 

If there is a fire, chances are they will find a way to fit down the 1 foot gap or through one of the other residential buildings.  As long as the fences don't restrict the exit from the 2nd and 3rd floor people and force them to stay next to the building, it shouldn't be a problem.

@Mike Kostner and @Theresa Harris I've thought about putting a door on the fence, but would that really help the situation? Expecting people to flee to safety via an extremely narrow space between two buildings (which I presume was not left there for that intended purpose) really a viable escape route?

I'm just trying to understand what type of laws are out there regarding courtyards and means of egress from them. For example, what if there were no space as the one described in my situation. would a fence be acceptable? 

How is this situation viewed for the many courtyards with no way of escape that exist in the urban areas around the country?

Are there any windows on the front of the building?  If so, you can have a metal emergency ladder that is stored inside the unit and hooks over the window sill.  They can use it to climb out of the window and get down to the ground.  Not  much different than being stuck on the second floor of a house with no way down.

Hmm. Good suggestion, but I'm wondering if that's even a viable option (meaning one that would be accepted by the city). The way I see it is, if that was an option, wouldn't it replace the expensive fire escapes property owners have been putting in and maintaining all these years? I'm not sure if i can substitute one for the other.