Landlord’s Rights to Illegal Units

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 What is an Illegal Unit?

An illegal unit, also called an illegal tenancy, is a rental unit which is used for a residential purpose but is not legally established with the local municipality. For example, if a landlord rents out a space to a residential tenant even when that space is not legally considered a residential space, like a storage shed or a garage, it is renting out an illegal unit or renting an illegal apartment.

An illegal unit is a unit which is used for a residential purpose but that is not registered with the local authorities as required by law. If an individual occupies this type of unit as a residence, it may be an illegal tenancy. There are also other conditions which may make a rental unit illegal, including if the unit has been condemned and is considered uninhabitable by the local housing authorities.

An individual can determine whether or not a unit is legal by searching the public files. This can be done at the housing inspection department or agency of the city or county where the unit is located.

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

An owner who rents an illegal unit opens themselves up to substantial liability. There are several issues for an owner to to consider prior to renting out an illegal unit, including:

  • There is a penalty, likely a fine, for violating local zoning requirements for building without permits and for unlawfully renting the unit as a separate residence;
  • The owner may be forced to evict the tenant of the illegal unit. The tenant could then sue for violating the terms of the rental agreement;
  • The owner may be liable for the cost of relocating the tenant; and 
  • Insurance may not be willing to pay for damages caused by the tenant of the illegal unit or for injuries to the tenant.

What Happens if a Unit is Found to be Illegal?

There may be a penalty for renting illegal units. If a local municipality determines that a unit is illegal, in some states, the rental agreement is then unenforceable. Certain municipalities permit a tenant to collect an eviction fee for having rented an illegal unit in order for the tenant to find another suitable residence.

A landlord, however, is still entitled to receive rent for the reasonable use, value, and occupancy of the premises which is due. A landlord may evict a tenant if there is a good faith reason for the eviction, such as the nonpayment of rent.

The consequences for an illegal unit may depend on why the unit is illegal. For example, the rental unit may be found to be unfit for human habitation. 

If this occurs, the unit may be condemned and the tenant may be required to move. On the other hand, if a rental unit is not in the condition that a landlord is legally obligated to maintain, the tenant may complain to local housing authorities who may take action to require the landlord to upgrade the condition of the unit.

In many jurisdictions, local ordinances or state laws may require a residential landlord to register their rental properties with a government agency. The registration process may serve numerous purposes. 

For example, in cities which have rent control ordinances, this registration may permit the agency where the unit is registered to monitor the rent amount. The registration also ensures that any increases are properly implemented and do not exceed the annual allowable increase. Typically, the penalty for failing to register rental units is the imposition of a fine.

Another way a rental unit may be illegal is that it violates a local zoning ordinance. For example, a residence may be designated as a single family residence wherein only one family can legally reside. 

However, a landlord is permitted to rent out a room or a floor of the home to a number of different tenants. The tenant would be required to check with the local zoning authority to determine whether this arrangement would make a tenancy illegal and, if so, what the legal consequences would be for the tenant.

In order for a landlord to evict a tenant in a rental situation, the landlord is required to file a court action. This process takes time and, in some jurisdictions, the tenant can remain until the court orders the tenant to leave.

The landlord may also be required to return the tenant’s security deposit if the tenant has complied with all of the rules requiring the tenant to leave the unit in the same condition as it was when they moved in. Tenants should always take photographs of any unit prior to vacating so they can prove the condition it was left in, if necessary.

If, however, the tenant caused damage to the unit, the landlord is permitted to deduct the cost of repairing the unit from the security deposit. It is also important to note that, in some jurisdictions, a landlord cannot deduct from the security deposit for unpaid rent if the unit was illegal. 

There are also other legal requirements in some jurisdictions, such as requiring the landlord to obtain a business license. As previously noted, failure to register typically results in fines for the landlord but does not have a meaningful impact on the tenant’s rights.

In some jurisdictions, if a unit is found to be illegal by the local municipality, it means that the parties’ rental agreement is not enforceable. However, this does not mean that the tenant has the right to withhold rent or to remain on the premises. 

It simply means that the rental agreement cannot be used against the tenant. In addition, if the tenant fails to pay rent, they can be evicted.

If a unit is cited as illegal, it may require the landlord to fix the violations either by bringing the unit up to compliance with the law or to demolish the unit. If a landlord cannot cure the violation, it may require the unit to be removed and the tenant to be evicted. If a tenant is evicted because the rental unit cannot be brought up to code, the landlord may be liable to a tenant for their cost of finding a new residence.

What are Some Ways a Landlord can Protect Himself?

If a landlord is renting an illegal unit, there are some steps they should take to protect themselves, including:

  • Attempting to make the tenancy legal so that the rental agreement can be honored in court;
  • Correcting any licensing requirements;
  • Keeping the premises in good order;
  • Serving proper notice when attempting to evict an illegal tenancy; and
  • Checking with the municipality to see if a tenant 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?

Yes, it is essential to have the assistance of a landlord-tenant lawyer for any issues related to an illegal tenancy. Although renting an illegal unit is a common practice, there are risks which should not be taken lightly. 

A landlord should consult with their attorney for advice regarding local applicable laws and ways to make the unit legal. Of course, not renting an illegal unit is likely the best practice, having an attorney can help a landlord make the best possible decisions regarding their unit.

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