To maximize income, should we rent individual rooms in a single-family home that we own and where we don’t reside? What about renting individual rooms in a multi-bedroom apartment?
Both are bad ideas and this author implores the membership to stay away from such strategies no matter how alluring the potential income numbers may be. There have been some recent press accounts of owners getting caught by the Planning Department for converting homes and apartments into what amounts to a “boarding house,” and besides fines from the government there are other serious ramifications for going down this road.
First, in the case of a single-family home, making a decision to rent individual rooms effectively removes the property from the benefits of the Costa-Hawkins Rental Housing Act. Under Costa-Hawkins, when there is only one rental unit in a pre-June 13, 1979 constructed building (a single-family home or a condominium), and the tenancy began on or after January 1, 1996, then the tenancy is exempt from the rent increase limitations of the rent law, meaning rent may be adjusted to fair market at the landlord’s discretion. However, owners who subdivide these homes and condominiums, even if done so illegally and without permits, make these properties subject to rent increase limitations and completely vitiate the benefits of Costa-Hawkins.
Second, should you create illegal dwelling spaces (for example, you build unwarranted units on your property like inside of the garage), to go back and remove these structures and to evict tenants that may be residing there on the just cause ground of unit demolition is now exceedingly difficult under current City guidelines. Indeed, if you are even allowed to obtain such removal permits, you may be forced to legalize the unit as an alternative regardless of the costs associated with that process. Moreover, a recent case from the Los Angeles Superior Court’s appellate panel, which may be followed by our local superior court Housing Department, states that landlords who rent out illegal dwellings may not evict a tenant for nonpayment of rent should the tenant decide to stop paying rent. As such, you may be faced with the nightmarish scenario of a tenant deciding to withhold rent with very little recourse to end the tenancy.
Third, the Planning Code, as referenced above, generally prohibits an owner from running a boarding or rooming house without a permit for such use. Converting a single-family home or apartment into group housing where individual rooms are rented and there is no permit for such a use will, if discovered by a building inspector, result in a Notice of Violation. Since quickly removing occupants will likely not be possible, you could be faced with fines and abatement actions by the City.
Lastly, don’t think that local tenant attorneys are not aware of the civil liability associated with these types of unpermitted uses, especially in instances where you as the landlord intentionally created the environment. Any time you offer housing that is violation of the housing or planning codes, you risk a tenant lawsuit, which could be predicated upon fraud, breach of the warranty of habitability, unfair business practices, and the like. These claims are expensive to resolve, and conceivably you may not be insured for them if your insurance company discovers that you knowingly created the problem.
In sum, the current political and legal climate will not look kindly on these activities. Properties should be rented in a manner that is consistent with how they are constructed. This means that homes and apartments, unless legally converted for group or boarding house usage, ought to be leased as a single tenancy.