California Courts Say Rents Not Collectible for Unpermitted Units

Today’s lesson of the day: “If you are renting out a unit that has not been permitted for occupancy, don’t count on being able to collect a judgment against a tenant who defaults on the rent.”

Maria Espinoza had rented a unit to two tenants, Gudelia Calva and Jorge Soqui, and after three months of not collecting the $750 monthly rent, Espinoza had them evicted. The eviction action was upheld and the landlord was awarded possession of the premises, but the tenants had raised various claims about the sub-standard conditions of the unit, including the fact that it had not been certified for occupancy.

The court ruled that the tenants had owed $3,350, but the amount was reduced by $1,000 because of the condition of the property.

For some reason, the case was appealed. The appellate court upheld the eviction, but disagreed with the first court with respect to the amount due from the tenants. The court referred to the fact that the Santa Ana municipal code prohibits the use or occupation of a building “until the building official has issued a certificate of occupancy,” and because no occupancy permit had been issued, the court held that “the occupancy was unlawful and the lease constitutes an illegal contract.” Therefore, they ruled it was incorrect for the first court to have given an award of any rent at all, and they ruled that no money was due.

Was this ruling a good thing or a bad thing? Realty Times highlights some of the unintended consequences, including a reduction in the number of affordable rental units due to the fact that there are a significant number of unpermitted rental units.  Many of those units could never be permitted because of various zoning and building ordinances. Many landlords of unpermitted units will take them off the market rather than run the risk of collecting nothing in an eviction action.

This is a huge win for tenants, and this court decision certainly diminishes the appeal of being a landlord – but is it really that bad? Should landlords have been renting out units if they were not certified to be occupied in the first place? What do you think?

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This entry was posted on Thursday, June 25th, 2009 at 11:25 am and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.