Illegal Rental Units

Illegal Rental Units

Last Updated: June 8, 2023 by Phil Ahn

Landlords and tenants both have certain rights when it comes to illegal rental units. It is important to understand these rights to remain legally compliant.

What is an Illegal Rental Unit?

An illegal rental unit is a rental unit that is used for a residential purpose, but is not legally established with a local municipality, city, or town. A unit can also be illegal if the space is being used for a purpose other than what is specified in the building permit.

Furthermore, rental units are governed by specific building and health codes to ensure the safety of occupants. When those conditions are not met, a unit may not qualify as a legal dwelling, therefore, becoming an illegal unit that cannot be rented out.

Common Types of Illegal Rental Units

Illegal 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, a landlord may be able to turn them into a vacation rental, like an Airbnb, where people search for unconventional properties for a temporary stay.

Here are 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
  • A unit without a modern electrical system
  • A unit without proper heating and A/C requirements

How to Know if the Rental Unit is Illegal

Besides that, there are other signs to identify whether the rental unit could be illegal:

  • No separate utility bills. One utility bill for multiple units could indicate an illegal unit because it means that the units are not being separately metered—the utility bill is accounting for usage in the entire property, and not just the rental unit. The landlord may be charging whatever they want for utilities, rather than ensuring fair value. 
  • Low ceiling height. Under the Uniform Building Code, the ceiling of a space must be at least 7’6”. If a unit’s ceiling height is lower, there is a good change 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. Units are generally required to have another way of escaping the unit if needed, like a second door or window that one can safely exit through. Without one, the unit is likely illegal.
  • No address or way of receiving mail. A rental unit that does not have its own address is usually illegal. This extends to a tenant not being able to receive mail, as it is illegal to obstruct or delay the delivery of correspondence.
  • 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 the property in good condition is essential to avoiding issues in the future.

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What to Consider Before Renting Out an Illegal Rental Unit

There are some things to consider prior to renting out an illegal unit. These include:

  • Potentially penalties
  • Forced evictions, thus opening up the door to getting sued
  • Liability for the cost of relocating a tenant
  • No insurance coverage

What Happens If Someone Finds Out

If a local municipality finds out that a rental unit is illegal, the state will usually deem the 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, the landlord will still be entitled to receive rent that is due. A landlord also has the right to evict a tenant if they have a valid reason, such as not receiving rent payments.

Depending on the reason why the rental unit is illegal, there are different consequences. For example, if local authorities find that the unit does not live up to habitability requirements, the unit may be condemned, and the landlord may be required to upgrade the condition of the unit.

If the unit is not registered properly, the local authority could impose a fine, and make the landlord go through the proper registration process.

How to Protect Oneself

There are many ways that a landlord can protect themselves, starting with the following:

  • Try to make the tenancy legal to ensure there is 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

Tenant’s Rights for Living in an Illegal Rental Unit

Tenants that live in an illegal rental unit still have rights. Those rights may vary depending on the jurisdiction, but usually, the tenant of an illegal unit has the same rights as a tenant renting a legal unit. For example, if a unit needs repairs, and a landlord ignores requests for that repair, the tenant may be eligible for rent reductions to cover the costs of the repair.

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File a Complaint

If a tenant believes the landlord has rented out an illegal unit, a tenant would be able to report it to the local housing authority. The local housing authority would check to see whether the unit checks all the prerequisites in being a valid rental unit.

A tenant would also be able to file a complaint against the landlord, if the landlord was required to evict the tenant from the illegal unit. Because the unit was illegal, it would technically be a violation of the lease agreement, for which the tenant would be able to recover damages.

Stop Paying Rent

Since renting out an illegal unit would be considered a violation of the lease agreement, the tenant would not have to continue paying rent if they had no knowledge that the rental unit was illegal.

Move Out

Generally, there may be provisions in the lease referring to the rental unit that point towards it being illegal. If the rental unit is illegal, then the lease itself is void and unenforceable. In this case, the tenant would be able to terminate the lease.