Legal 4 unit with 2 additional non/comforting units

[Paul Bommarito]

Hi BP, I have a question about buying a multifamily property with non-conforming units. We are under contract for a very nice legal brick 4 flat in Chicago that we plan to house hack. However, the building also has two additional non-conforming/possibly non-legal units in the basement. We were trying to negotiate with the seller to remove the tenants and remove the stove and cap the gas line, but he is not willing to do this unless it becomes absolutely necessary to pass appraisal. My questions are: 1. What legal risks/other risks do we take on if we allow the tenants to continue to stay there? 2. If we try to evict, what rights do they have since the units are technically non-conforming (although one of the units does have two forms of egress and windows in most of the bedrooms. 3. How bad can the fines and expenses become if it is discovered by the city or reported to the city by the tenants? 4. Can the tenants sue us for living in a non-conforming unit? Or can we try to restructure the lease to highlight that they agree they are living in a non-conforming unit and relinquish the right to sue us for anything related to the units status as a non-conforming unit? We ideally want them to be out so that we could potentially Duplex down or convert the space to something else. The cash flow from the nonconforming units does help the cash flow significantly, but I would rather save a giant headache down the road if possible then save a few hundred bucks a month now. Thanks in advance! Paul

[Jeff Burdick]

Originally posted by @Paul Bommarito:

Hi BP,

I have a question about buying a multifamily property with non-conforming units.

We are under contract for a very nice legal brick 4 flat in Chicago that we plan to house hack. However, the building also has two additional non-conforming/possibly non-legal units in the basement. We were trying to negotiate with the seller to remove the tenants and remove the stove and cap the gas line, but he is not willing to do this unless it becomes absolutely necessary to pass appraisal.

My questions are:

1. What legal risks/other risks do we take on if we allow the tenants to continue to stay there? 2. If we try to evict, what rights do they have since the units are technically non-conforming (although one of the units does have two forms of egress and windows in most of the bedrooms. 3. How bad can the fines and expenses become if it is discovered by the city or reported to the city by the tenants? 4. Can the tenants sue us for living in a non-conforming unit? Or can we try to restructure the lease to highlight that they agree they are living in a non-conforming unit and relinquish the right to sue us for anything related to the units status as a non-conforming unit?

We ideally want them to be out so that we could potentially Duplex down or convert the space to something else.

The cash flow from the nonconforming units does help the cash flow significantly, but I would rather save a giant headache down the road if possible then save a few hundred bucks a month now.

Thanks in advance!

Paul

 Hey Paul.  I have a lot of experience with non-conforming units in Chicago.  PM me if you'd like, I'd be happy to discuss further.