We all know the State of California is a stickler for permits. But did you know that a tenant living in an unpermitted structure has no legal obligation to pay rent?
Every multi-family structure in San Diego—and just about everywhere else—requires a Certificate of Occupancy issued by the city. This includes (among other things) the number of residential units on the lot. The City fully expects the number of units listed on the Certificate to be accurate. Its rationale is that additional units constructed without a permit are unsafe.
Therefore, imagine you—or the former owner—decides to convert a hobby room into a studio unit without obtaining the proper permit. If the eventual tenant discovers this, she has no legal obligation to pay rent for the remainder of her tenancy. The Court of Appeal held that this situation renders the lease void as a matter of public policy. See Gruzen v. Henry (1978) 84 Cal.App.3d 515. Consequently, the landlord cannot recover any rent from the tenant.
Of course, the landlord may issue the tenant a three-day notice to vacate. However, the landlord must now go through the cost of working with city officials and enacting whatever changes are necessary to bring the structure up to code. This costs time, capital, and rent. And, worse yet, the tenant may potentially sue her landlord for the rent already paid! This latter scenario is a gray area under current case law, but should be avoided all the same.
The moral of the story: (1) do not attempt to save a dollar through unpermitted construction, because it may eventually cost you an arm and a leg; and (2) ignorance is no defense, so verify that the units’ condition matches the Certificate of Occupancy prior to purchasing a multi-family property.