Renting Unpermitted Units Is Not A Good Idea For Landlords

Written by Posted On Tuesday, 21 March 2017 11:38

California, like some other parts of the country, is facing a shortage of affordable housing. One consequence of this is that, in many areas, rental rates just keep going up and up. A recent report noted that one-third of tenants in California spend more than half of their income on rent. For some, of course, such conditions create opportunity -- the opportunity to start, or expand, one's own landlord business.

Unfortunately, such opportunities also present temptations to cut corners and to break the rules: with some creative handiwork, single units turn into duplexes, triplexes sprout a fourth unit, and garages become living quarters -- all without obtaining permits.

A recent California Appellate decision (North 7th Street Associates v. Constante, Appellate Division of Los Angeles Superior Court, Nov. 16, 2016) reminds us that landlords and potential landlords ought to think twice before they rent out units that are unpermitted.

Constante, the defendant, had lived for some time in a unit for which he paid, pursuant to an oral month-to-month agreement, $166.95 per month. The unit had never been permitted and lacked a certificate of occupancy. During the year of 2014, he fell behind on his rent to the point that, in August of that year, the landlord filed an unlawful detainer, after having served a three-day notice to pay or quit. The three-day notice alleged past-due rent of $739.35. The unlawful detainer action sought possession of the premises, forfeiture of the rental agreement past-due rent, damages, and attorney fees.

The defendant filed motions in opposition, and a number of other motions were filed subsequently. On April 9, 2015, the defendant filed a motion for summary judgment (essentially, dismissal) arguing that the undisputed facts previously established that the unit was unpermitted and that it lacked a certificate of occupancy. Therefore, the tenant argued, the landlord could not enforce any rental obligations for an unlawful unit, and that therefore the three-day notice to pay or quit was defective, thus making the unlawful detainer void.

In opposition, the landlord conceded that the unit was unpermitted and therefore the rental agreement was void and unenforceable. However, even though the landlord was not entitled to past-due rent, he argued that the defendant was likewise not entitled to possession of the premises.

The court ruled in favor of the tenant, and the landlord appealed.

The Appellate Court noted that "one of the statutory requirements for an unlawful detainer is the service of a three-day notice stating the amount of past-due rent. (California Code of Civil Procedure § 1161, subdivision (2)) The amount of rent must be stated accurately. ‘A notice that seeks rent in excess of the amount due is invalid and will not support an unlawful detainer action.'"

The Court went on to say, "Put differently, if plaintiff could not collect any rent from defendant, then defendant had no obligation to pay any rent to plaintiff. Furthermore, if defendant did not owe any rent to plaintiff, the three-day notice claiming $739.35 in past-due rent was necessarily an overstatement of defendant's rental obligation, which could only be properly calculated as zero. Since the three-day notice which was the basis for this unlawful detainer action failed to comply with the strict statutory requirements, it was invalid and could not support the action."

Inasmuch as the unlawful detainer was invalid it could neither support the claim for money nor the claim for possession. The Appellate Court upheld the trial court's summary judgment (dismissal) ruling. The defendant (tenant) was awarded attorney fees as well.

Thinking about creating and renting out an unpermitted unit? You might want to think again.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way. His email address is This email address is being protected from spambots. You need JavaScript enabled to view it..

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Bob Hunt

Bob Hunt is a former director of the National Association of Realtors and is author of Ethics at Work and Real Estate the Ethical Way. A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at [email protected].

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