Real Estate Column: Illegal Rental Units – Tenant & Owner Concerns
by Jim Rudoff

San Francisco is an unusually dense city of old buildings that oftentimes have been modified over the years to meet the needs of various owners and residents. In part, our beautiful hills have encouraged the addition of small in-law units often referred to as garden apartments.

Regardless of what they are called, these units may or may not have been built with the benefit of permits, and might or might not meet safety standards required by the building code.

If you live in, or are contemplating renting a unit that you suspect may not be legal, chances are that everything will be fine, especially since your rent is an important income source for the property owner. However, according to Boyd McSparran, an attorney at Goldstein, Gellman, Melbostad, Gibson & Harris, “The biggest risk that a tenant faces in renting an unwarranted unit is that the owner may apply to demolish the unit or remove the unit from housing use, and evict the tenant on those grounds.”

Although there is little protection from this type of eviction, the tenant may actually be able to sue for recovery of rent paid on the basis that a lease to rent an illegal space is inherently invalid.

Another risk facing tenants in illegal units is that if the owner is in the process of converting the property to condominiums, the City may require the owner to remove the unit if there is no way to make it conforming, which might be the case if it exceeds the permissible number of units allowable by zoning.

If you own or are contemplating buying a home that has an in-law apartment, it is very helpful to start with a complete history of the building from a permit perspective. This is because any use that was ever permitted will continue to be allowed, even if it could not currently be permitted.

Whenever property changes hands in San Francisco, a summary of the known permits is issued in what is known as a 3R Report. Although it may be a useful starting point, the 3R report is not sufficient because it is a secondary source – it is important to go to the original source, which can be difficult.

It is also important to fully understand what the permit record is telling you. Most of us (Realtors included) are not qualified to do this, so you may wish to hire a professional permit reviewer.

If you determine that the unit is not likely legal, you have a few options. You are not required to take any action based on this knowledge, and can continue to use the property as you see fit.

However, some of your options may carry some risks. You can, of course, use the extra space yourself for your own private purposes, without significant legal risk – but keep in mind that most code has been written for health and safety purposes, and the illegal rooms may not provide a fire escape, or the electrical wiring may considered unsafe.

On the other hand, it’s entirely possible that the unit was built to code, but exceeds the number of living units permitted by zoning.

If, however, you plan to rent out the unit, you may open yourself to significant liability. This includes – as mentioned earlier – a tenant lawsuit to recover all rents paid for the space, since any contract with an illegal purpose (in this case rental of a non-permitted space) is inherently invalid.

Additionally, if the unit was not built to code, it might not be safe to inhabit, and you could be liable for the safety of your tenants in case something goes wrong, like a fire.

Depending on the zoning, it may or may not be possible to legalize the unit, but it would probably be worth exploring, possibly with private consultants before involving the City’s inspectors.

Jim Rudoff, Realtor with McGuire Real Estate, lives in Duboce Triangle and is happy to consult on any real estate matter. To reach him or subscribe to his complimentary monthly newsletter, call (415) 296-2102, e-mail jim@jimrudoff.com, or visit jimrudoff.com.

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