Unwarranted space, In-law Units and Renting Them Out Short-Term and Otherwise

February 28, 2020
Unwarranted space; In-law (better called Out-Law!) Units; and Renting Them Out Short-Term and Otherwise
The below is based on my experience as a real estate practitioner.  It is not legal advice and if you are considering renting out an unwarranted space I strongly recommend you ask me for a referral to a qualified real estate attorney.
What is unwarranted space?  It is space that is not shown on the city records.  No one can therefore “warrant” (guarantee) the legality of this space.  Such spaces might better be described as “without the benefit of permit.”  
What is an “In-Law” Unit?  An in-law unit is a unit that is ancillary to a main house or building. They can be one of three things:  1) an actual legal unit; 2) a legal space that is being used as a 2nd unit illegally (usually the installation of the kitchen isn’t legal); or 3) completely without benefit of permit.  There is a lot of complexity in SF even about the in-law units that are legal as to whether they are independent 2nd units or some kind of permanently subservient unit (an accessory dwelling) to another legal unit or single family home.  I’m not going to get into all of that here.  Suffice to say that so many so-called “in-law” units are illegal in one respect or another I think we should call them “out-law” units.

Why is space being warranted important?  In a sale the value is questionable because at some point a governing authority could demand change to it or it’s removal.  This is not generally problem, but one time I had a buyer interested in a home where about 1/3 of the home – outside of the legal envelope – was without benefit of permit.  Having to remove or spend a lot of money to legalize this was not feasible and my buyer did not buy the property.  Rooms contained inside an envelope of an existing house can many times be legalized without too much trouble.  In the case of a 2nd unit however, providing adequate light, air, egress in case of fire can be very hard and get expensive.  So if you have an illegal space, be careful how you choose to use it to avoid these difficulties and get legal advice early and often!

Can I rent out my unwarranted space?  Yes.  But renting an illegal space is, well, illegal.  But on the other hand, some estimates are that as much as 10% of the rental housing in SF is illegal.  Is it still illegal if everyone is doing it?  Logically it seems that YES! must be the answer.  But at some level it comes down to how likely you are to have a problem because of it and this is what makes illegal spaces so perfect for short term rentals.  People in town for a few days are happy to have a nice place to stay for a good price, which makes illegal spaces attractive as short term rentals.  People here for a few months are similarly happy and generally no problems occur.  If the space is arguably part of the main unit, you may have some wiggle room on it being a “guest suite,” that is part of the main unit.  In my experience, if there is a 2nd kitchen, and the spaces do not adjoin, the risk that this could be called out as a 2nd unit is much greater than if they are physically connected and there is no 2nd kitchen.  As I see it, if you choose to rent out the space, the big risks are:  1) the tenant (or someone else) turns you in to the city and you are forced to legalize the unit more or less no matter the cost; and 2) someone is harmed in this illegal space and your insurance doesn’t cover you for that.
For more on “in-law” units, check here.
For more on San Francisco’s short term rental laws, check here.