A Guide to Illegal Rental Units

An illegal rental unit is one that is rented out for a residential purpose when the property is not legally considered to be residential. Landlords and tenants both have certain rights when it comes to illegal rental units, but make sure you know how to remain legally-compliant.

Common Types of Illegal Rental Units

Illegal rental units are pretty common, but many landlords and tenants don’t know that they are dealing with one. Most illegal units take the form of an “in-law suite,” which is a private space attached to or located on the same lot as the main home. Other illegal units could be spaces like garages, sheds, trailers, or recreational vehicles that are located on a certain lot and rented out as a separate unit. These kinds of alternative living spaces are usually not considered legal for residential purposes. However, you may be able to turn them into a vacation rental, like an Airbnb, where people search for cool, unconventional properties for a temporary stay. Here a few other common types of illegal rental units:

  • A unit without a designated address
  • A unit without its’ own gas/electric meter
  • A basement unit
  • Cottages or in-law quarters
  • Attic units with low ceilings
  • A unit with outlets that are not electrically grounded, like 2-pronged outlets
  • A unit without a modern electrical system
  • A unit without proper heating and a/c requirements

How to Know if Your Unit is Illegal

Besides that, there are a few signs you can look out for to identify whether or not your rental unit is illegal:

  • No separate utility bills. If the tenant is sharing the utility bills (gas, electric, water, etc.) with the landlord, or the landlord is paying for the utilities entirely, the rental unit may be illegal. This is a sign because it means that the rental unit is not being separately metered. That means that the utility bill is accounting for usage in the entire property, not just the rental unit. So, the landlord may charge whatever they choose for utilities, since the tenant’s respective bill is unknown.
  • Low ceiling height. Generally, the Uniform Building Code requires a minimum ceiling height of 7’6”. If a unit’s ceiling height is lower, then there is a pretty good chance chance that it is illegal.
  • No second means of egress. A means of egress is a way to escape a unit in the case of an emergency, like a fire. If a unit does not have second means of egress, this indicates that it is illegal. Units are usually required to have another way of escaping the unit if needed, like a second door or window that you can safely exit through. Cottages located in gardens only have an entry and exit through the garden, which causes an issue in the event of an emergency. Units that have exits through a garage are also illegal most of the time. Converted attics without a fire escape are typically illegal too.
  • No address or way of receiving mail. Most of the time, a rental unit that does not have its own address is illegal. Also, if there is not a method for the tenant to receive mail, like their own mailbox, then the unit is probably illegal. Make sure you are aware of landlords’ mailbox requirements as well. It is against the law to obstruct or delay the delivery of correspondence.
  • Other uninhabitable conditions. While uninhabitable living conditions don’t necessarily make the unit itself illegal, it is illegal for a tenant to live in a unit that is considered uninhabitable. Maintaining your property in good condition is essential to avoiding issues in the future.

What to Consider Before Renting Out an Illegal Unit

If you have an illegal unit that you would like to rent out, you should consider some key details before doing so:

  • 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.
  • You may be forced to evict the tenant, who could sue for violating the terms of the rental agreement.
  • You may be liable for the cost of relocating a tenant.
  • Insurance companies may deny coverage (for damages, injuries, etc.), considering the rental unit was illegal.

What Happens If Someone Finds Out

If your local municipality finds out that you are renting out an illegal unit, usually the state will deem your rental agreement “unenforceable.” Some states allow tenants to collect “eviction fees” or another form of payment from the landlord to find another place to live. However, as a landlord, you are still entitled to receive rent that is due. After all, the tenant has been residing in the unit for a certain period of time. A landlord also has the right to evict a tenant if they have a valid reason, such as not receiving rent payments.

How To Protect Yourself

There are many ways that you can protect yourself as a landlord, but in the case of an illegal rental unit, here’s what you should do:

  • Try to make the tenancy legal so that you have a valid lease agreement.
  • Correct any licensing requirements.
  • Maintain the property’s cleanliness and security and make sure everything is in working order.
  • Give the tenant proper notice when attempting to evict them from the illegal rental unit.

If you are aware that you have an illegal rental unit, be sure that you are also aware of the consequences. Illegal rental units are quite common and not all of them cause problems, but if your local municipality finds out, you could be in trouble.