The Dilemma of Renting an Illegal In-Law Unit or Illegal Apartment

What is an illegal unit or also known as illegal apartment?
Typically, an illegal in-law unit or illegal apartment is one that was built without permits, or one in which the rooms were constructed with the blessing of the building inspector, but with the kitchen or stove put in afterwards.  Another way to determine this is by counting the number of units in the building and comparing this with the “Certificate of Occupancy” issued by the City.  The benefit for the landlord of owning a building with an in-law unit is the extra cash flow it produces.  This article will explore some of the risks of such an endeavor and how they can best be managed.

What are the problems with illegal apartments and in-law Units?
The tenant can be evicted from the illegal unit and the landlord may have to make them a stiff relocation payment (presently $5,101 per tenant, maxing at three tenants, plus possible extra money for the disabled or elderly).  There are also some theories that tenants can claim as justification for the repayment of part or all of the rent that they paid while they were living in the unit.  Additionally, there is the potential for habitability claims since, quite often, the unit does not conform to building code requirements.  Sometimes there are serious safety lapses due to the fact that there is lack of a second exit.  This can result in an affirmative lawsuit by the tenants for these conditions.  Sometimes the landlord has the proper type of insurance and sometimes not.  Therefore the cost of defending these lawsuits can often be considerable.  It is important to note that when selling the building the non-complying unit should be properly disclosed as an illegal unit without any attempt to embellish it.  If the building inspector issues a Notice of Violation, the owner will likely be forced to remove the unit.

How should the landlord properly terminate such a tenancy?
If the building inspector has issued a Notice of Violation, under the local San Francisco ordinance the landlord will need to obtain permits and issue a proper eviction notice.  This will usually require sixty days notice (30 days if the tenancy is a year or less in duration), and payment of the relocation money mentioned above.  Typically, as there is no legitimate defense since the landlord seemingly has no choice in the matter, these cases are rarely contested.  However, the tenant can still bring his affirmative claims.  In some cases, the tenant will have breached the rental agreement and this may allow the landlord to sue them for nonpayment of rent or nuisance.  Interestingly enough, the courts will not enforce the terms of such a rental agreement, because it is considered an illegal contract.  However, other court decisions have held that the landlord should be able to recover possession of the premises, i.e., terminate the tenancy.  Therefore the landlord could bring a nonpayment of rent case, and certainly a nuisance case, and recover the unit, while most likely not recovering a money judgment in his or her favor.  In that scenario, the landlord could avoid paying the relocation money to the tenant.  Of course, each case depends on its merits, and sometimes the landlord may agree to pay some voluntary relocation money to the tenant, to avoid the cost of trial.

How Owner of illegal In-Law Units and Illegal Aparments may avoid being sued.
First of all, the landlord should obtain an appropriate insurance policy for an income property, rather than a homeowner’s policy.  The owner should also be sure that there is coverage for claims such as “wrongful eviction” and other broad forms of liability.  It could also be helpful, despite the downsides, to the landlord initially disclosing to the tenant that she is renting an illegal unit.  That way, at least, the tenant would not be able to claim that she was defrauded into renting an illegal unit.  It is common that utility bill disputes arise in these situations because the tenant is not afforded her own individual meter.  These minor disputes can erupt into major litigation.  The same can also happen with security deposits.  The landlord should be careful to avoid disputes with tenants and refund deposits in full.  We also often see personality disputes, since sometimes the landlord is living upstairs and the tenant right below, and noise and even cooking smells can easily permeate from one unit to the other.  Often no one is to blame for this since the extra unit was not built into the original design for the structure.  It is also helpful if the landlord is careful in selecting their tenants.  Getting a personal recommendation from a friend or family member can be helpful.

In general, a landlord is best advised to treat his tenants with respect and understanding.  In particular, the landlord should understand that renting such a unit puts him or her in jeopardy of some or all of the consequences outlined above.  As in most personal and business relationships, some effort at keeping peaceful communications in place may very often preserve the relationship as a healthy and profitable one for the owner, as well as for the tenant.

For more information about renting illegal in-law or illegal apartments contact Steven Adair.

Steven Adair MacDonald, Esq. has been representing landlords and tenants in San Francisco since 1982 and is the author of two books, Landlord Tenant Solutions in California, and The San Francisco Rent Board User’s Guide.

 


Similar Posts

6 Comments

  1. Great Article, Thanks for Sharing.

    As a property investor enthusiast, i’ve run across several opportunities which include illegal units on a multi-unit property (such as 5-units on a 2-unit property).

    I’m shocked at the number of these that knowingly exist in SF and that nothing is being done to restore lawful order. Yet even worst, the city makes it very difficult for an owner/landlord to restore lawful order if he/she so morally desires to do so!
    Such a shame.

    – Ayall Sagi

  2. I have been renting an illegal in-law unit since last May 2014. The unit is built into the bottom floor of a three-story house in Oakland. Since living there, I have had the only source of heat boarded over by a handyman per the landlady’s direction, the only porch light for my unit disabled (my unit is at the bottom of a steep stairway), and have had to periodically fish my mail out of the recycle can (all mail to the address is delivered via a slit in her garage door. She sorts it and gives mine to me in a mailbox by her front door.)

    Now my cat is sick, I am sick, and wondering if she is going a step further with her vendetta to be rid of me – all because I asked to have the vent cover to the only heating source replaced by one with a workable open/close lever. Unfortunately, I gave her my reason for making the request, which is that the air coming through the vent is highly fragranced and the smell makes me ill.
    Last night, a work night, she had loud friends over until 11:30 p.m., and now has a radio that plays into the vent.

    What can I do. Moving is very expensive and I can find nothing in my price range. I am 65 years old and still fully employed.

    Regards,

    Linda

  3. I am calling BS on this. Even if this is actually a bullshit law on the books of San Francisco, the law is totally unconstitutional and needs to be challenged in Federal Court (Federal Laws trumps all state and local ordinances). The tenant should have to prove in a court of law their actual damages as a result of the relocation. If the damages are minimal, than the payout is minimal. Landlord not liable for damages that exceed what is not warranted. Sounds like another stupid BS law that totally violates property rights.

  4. IF you do not like where you are living, then MOVE THE OUT!!! You are a renter, nobody is forcing you to live there. GET THE OUT!!! LOSER !!!

  5. I have had this situation blow up on me after 11 years. Nothing is in writing but I have always disclosed the fact that my property was considered single family with non-economic second unit. There haven’t been permits for any of the work since the 60’s. in Oakland I have heard of building inspectors fining homeowners for all un-permitted work no matter who owned the property at the time. I know for a fact that reclassifying my property as legal rentals would nearly double my property taxes.
    The tenant moved in 11 years ago. She had and still has horrible credit from not paying bills and running up credit cards. She had 2 giant dogs, one of whom was a 120 pound Rottweiler who was fear aggressive. I was offering her refuge from the modern rental conditions of credit checks and no pets, certainly no giant dangerous dogs. I was new to being a landlord. I wanted to help a fellow dog loving subsistence worker. She has been paying about half the market rate which meant about $500 below market 11 years ago and $1500 below market now. Even at the low end that is a savings of $66,000, a place to live by herself with her dogs, a private fenced yard. She has even used her house to board her client’s dogs – making money off my property. Her comfy rental situation made it easy for her to start her own business.
    I did renovate to code – just not with permits – the electrical and the plumbing walls, floors, front and rear decks. I even opened accounts ( since her bad credit prevents her from being able to) and paid for a DISH account for 9 years and then opened her a netflicks account and gave her a roku box and a digital antenna when I no longer wanted Dish.
    I proposed raising her rent $500 in increments over the next year, $100 now, another $100 in 3 months and so on. In total she would be paying $1250 for a 1 bedroom house with a private fenced yard, allow her to have 2 giant dogs, no deposit, … the apartments next door rent for $2500- no yard, 1 dog etc.
    Her response to my request was to threaten me with contacting the city. She writes about searching the property records and ‘discovering that she is living in an illegal unit. As if I had been hiding that fact. Then she threatens habitability because she replaced linoleum, painted rooms, did yard work in her yard and exterminated the mice that have moved in since she has been living there. She whines about doing this all by herself – I am not responsible for her love life or crappy friends.
    What I really want to know is what happens now. Until this exchange of information we had maintained that we were friends. Her response made it clear that she is only my friend as long as it benefits her. She is not really a friend. So I have a long time tenant who will have a hard time relocating. I feel threatened by having her remain. I have not cashed her last rent check and another is due soon. i was thinking i should put the payments into some kind of escrow account. Any thoughts would be welcome –

Leave a Reply

Your email address will not be published. Required fields are marked *