Renting an Illegal Unit in California: Risks and Realities

California’s housing market is notoriously challenging, with high demand and limited supply driving up costs. In this environment, illegal rental units have become a common option for tenants seeking affordable housing. However, renting an illegal unit comes with significant risks for landlords. Understanding these risks is crucial to making informed decisions.

What Is an Illegal Rental Unit?

An illegal rental unit is a property that does not comply with local building codes, zoning laws, or permitting requirements. These units may lack proper safety features, such as fire exits, smoke detectors, or adequate ventilation. They might also violate zoning regulations, which dictate how properties can be used in specific areas.

Illegal units can take many forms, including:

• Converted garages or basements.
• Unpermitted accessory dwelling units (ADUs).
• Rooms rented out in single-family homes without proper authorization.

While these units may appear functional, their lack of compliance with legal standards poses risks to landlords.

Pros and Cons

Renting out an illegal unit can result in hefty fines from local authorities. In some cases, landlords may be required to pay back rent to tenants or cover relocation costs if the unit is deemed uninhabitable. In addition, landlords face liability exposure if a tenant is injured due to unsafe conditions in an illegal unit.  Further, local governments may require landlords to bring illegal units up to code, which can be expensive and time-consuming. In some cases, the unit may need to be demolished entirely. Illegal modifications can also negatively impact a property’s resale value. Potential buyers may be deterred by the prospect of addressing unpermitted work.

One of the primary reasons landlords rent illegal units is the overwhelming demand for affordable housing. California has a severe housing shortage, and renters often struggle to find available, reasonably priced homes. Many residents, including students, low-income workers, and immigrants, are willing to rent non-permitted units if it means securing a place to live. Landlords recognize this desperation and take advantage of the situation by offering substandard accommodations at lower prices—often under the radar of local authorities.

For many landlords, renting illegal units is a financial decision. Converting garages, basements, attics, or backyard structures into living spaces allows them to maximize rental income without paying the costs associated with legal renovations and permits. The expenses required to bring a unit up to code—including plumbing, electricity, safety measures, and zoning compliance—can be prohibitively high. By bypassing these costs, landlords generate additional income at a fraction of the investment required for legal rentals.

The popularity of short-term rental platforms like Airbnb also has encouraged landlords to convert properties into illegal rental units. Some owners avoid obtaining the required permits because they see short-term rentals as a lucrative business opportunity. By renting out unpermitted spaces for vacation stays, landlords can charge high nightly rates without facing the same long-term risks as traditional illegal rentals.

Conclusion

Renting an illegal unit in California may seem like a quick fix to the state’s housing challenges, but it creates significant risks for landlords. While the affordability crisis is real, cutting corners on safety and legality can pose problems for the landlord down the line.