Issue is the other way....once sheetrock is hung, will be within an inch or so of the new lid.It is a sidewall
1. Depending on where finished ceiling is it may be legal as is.
2. Also depends on brand/ model of sidewall. Some are allowed more than 4-6 inches down.
Think about that for a minute. For a sidewall head ... would it make sense for it to be 4” from the wall? In that case wouldn’t the adjacent surface ... the ceiling ... require the standoff distance?, but I haven't done that many sidewall to know if there is a head that can go that close...
Condo on the beachAS a side note, the sprinkler looks like it should be replaced due to the corrosion on the finish ---- Is this area near the beach/ocean???