The Other Side
by Andrew Westley
Editor's note: Last January, the San Francisco Apartment Association hosted a panel discussion by San Francisco's top tenant attorneys. The evening provided the membership of SFAA with insight into the concerns and principles that guide these attorneys' landlord-tenant practices. With this issue, we introduce a new column that capitalizes on the discourse presented last January, offering a forum to hear from “the other side” on crucial matters involving landlord-tenant law.
Renting out an illegal apartment unit—particularly a nonconforming in-law unit constructed without permits—is risky business. The landlord's risk is compounded if he or she endeavors to demolish or to otherwise “permanently remove the rental unit from housing use.”
Merely renting out a nonconforming unit can be dicey. The California Court of Appeal has held that because residential use of the unit is illegal, the lease agreement is void and unenforceable by either party. Precisely how far-reaching the notion of “unenforceability” extends is an area of strong disagreement between tenant and landlord attorneys.
A landlord's failure to obtain a certificate of occupancy for the unit is a defense by the tenant to any unlawful detainer for nonpayment of rent. However, there is disagreement about whether the tenant of a nonconforming unit could prevail in an affirmative lawsuit that seeks reimbursement of rent already paid for the unit. There is no clear appellate authority on this issue. Tenant attorneys argue that it is an unfair business practice and in violation of public policy to collect rent on a unit that cannot lawfully be rented out for residential purposes. Landlord attorneys argue that even if the unit is nonconforming, the tenant still has received some benefit. For now, the issue remains unresolved.
The landlord's risk is compounded if he or she seeks to recover possession of the nonconforming unit pursuant to Section 37.9(a)(10) of the San Francisco Rent Ordinance, which provides the following “just cause” for terminating the tenancy:
The landlord seeks to recover possession in good faith in order to demolish or to otherwise permanently remove the rental unit from housing use and has obtained all the necessary permits on or before the date upon which notice to vacate is given, and does so without ulterior reason and with honest intent…
Often, the landlord of a nonconforming unit will invoke Section 37.9(a)(10) after the Department of Building Inspection has issued a notice of violation, usually in response to a tenant's habitability complaint. Typically, DBI not only cites the landlord for the underlying housing condition that triggered the complaint but also instructs the landlord to either legalize the nonconforming unit or revert back to the last legal use. However, the fact that DBI directs the landlord to cease from using the nonconforming unit for residential purposes does not insulate the landlord from potential legal claims by the tenant, which include possible claims of fraud, unfair business practices, retaliation and even wrongful eviction.
At the inception of the tenancy, the landlord should always disclose in writing to the tenant that a unit is nonconforming. Otherwise, the landlord exposes himself or herself to a potential claim of fraud by the tenant if the landlord terminates the tenancy pursuant to Section 37.9(a)(10). The failure to disclose a material fact by someone who is bound to disclose it amounts to fraud.
Removing the unit from housing use, pursuant to Section 37.9(a)(10), may also expose the landlord to an unfair business-practices claim by the tenant. Damages recoverable on an unfair business-practices claim include restitution.
If the landlord's decision to remove the unit from housing use is predicated upon a notice of violation issued by DBI in response to a tenant complaint, the landlord may also be at risk of a retaliation claim by the tenant. The law protects tenants against retaliatory eviction; and proscribed landlord retaliation is both a defense to an unlawful detainer and may render the landlord liable to an aggrieved tenant for damages.
The landlord is also at risk of a wrongful eviction claim if the unit is used in any way for housing after the tenant has vacated. Section 37.9(a)(10) of the Rent Ordinance requires the landlord to “permanently remove the rental unit from housing use,” which is more restrictive than removing the unit from “rental housing use.” Some landlords believe that “removing a unit from housing use” for purposes of Section 37.9(a)(10) merely prohibits use of the unit as a “separate unit.” But “removal from housing use” would also seem to prohibit incorporating the nonconforming unit into another housing unit. In view of the fact that wrongful eviction claims under the Rent Ordinance place landlords at risk of treble damages and attorney's fees, the best advice to any landlord in order to shield against a wrongful eviction claim is to avoid utilizing the unit for housing or housing-related purposes after the tenant vacates in response to the termination notice.
The best and most obvious advice to a landlord who is contemplating renting out a nonconforming unit is to resist the temptation. It is simply too risky. Alternatively, the landlord should disclose in writing that the unit is nonconforming, for disclosure may be a shield to a tenant's potential fraud claim. Also, every landlord who rents out a nonconforming unit should carry liability insurance that protects against the tenant's potential claims. Last, it goes without saying that the landlord should maintain the nonconforming unit in a safe and habitable condition to avoid any DBI involvement.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Andrew Westley is a San Francisco attorney, specializing in tenant representation. He is the lead editorial consultant for California Landlord-Tenant Litigation (LexisNexis 2005). Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.