An illegal unit or illegal tenancy is one used for a residential purpose that is not legally established with the local municipality.  For example, a landlord who rents out space to a residential tenant even though the space is not legally considered a residential space, such as garages or storage sheds, is renting out an illegal unit.

What are Some Concerns Owners Should Consider Before Renting Out an Illegal Unit?

Owners who rent illegal units open themselves up to substantial liability.  Some items to consider: 

  • There is a penalty (probably a fine) for violating local zoning requirements for building without permits, and unlawfully renting the unit as a separate residence
  • The owner will be forced to evict the tenant of the illegal unit, who could sue for violating the terms of the rental agreement
  • The owner may be liable for the cost of relocating a tenant
  • Insurance may balk at paying for damages caused by the tenant of the illegal unit, or not pay for injuries to the tenant of

What Happens if a Unit is Found to Be Illegal?

If the local municipality finds that the landlord's unit is illegal, some states declare that the parties’ rental agreement is unenforceable. Some municipalities allow tenants to collect “eviction fees” for having rented an illegal unit so that the tenants can find another suitable place to live. 

However, landlords are still entitled to receive rent for the reasonable value and use and occupancy of the premises that is due, and may evict tenants if there is a good faith reason (such as nonpayment of rent).

What are Some Ways a Landlord Can Protect Himself?

When renting an illegal unit landlords should:

  • Attempt to make the tenancy legal so that your rental agreement can be honored in court
  • Correct any licensing requirements
  • Keep the premises in good order
  • Serve proper notice when attempting to evict an illegal tenancy
  • Check with the municipality to see if your tenants would be awarded relocation benefits for the termination of an illegal tenancy

Should I Consult a Lawyer if I am Having Problems With an Illegal Tenancy?

Even though renting illegal units is a common practice, it has substantial risks that should not be ignored. A landlord should consider all the possible ramifications of such a practice and speak to a knowledgeable real estate attorney in the area.