Non-Conforming Units in California

[Daniel Auriemma]

I am currently looking at a 4-plex California, the financials are strong (rare for California) and thw property wIll cashflow after a small downpayment and fIllIng up the main unit wIth a renter. After finding out it fell out of escrow last week I got more details and found that 2 of the 4 units were never permitted and are “non-conforming” units. If so, I have been doing some research and found that if they have been “continuously” rented that they are grandfathered in. Has anyone had experience with non-conforming units? Is that true that they won’t need to be permitted? Thanks BP Family 🙌🏼

[Jo-Ann Lapin]

Yes Daniel we have experienced this. You must ask for a rebuild letter for the city/ county . The big risk is if the property was to burn down not sure what the city/ county would allow for a rebuild.

[Cody L.]

Originally posted by @Daniel Auriemma:

I am currently looking at a 4-plex California, the financials are strong (rare for California) and thw property wIll cashflow after a small downpayment and fIllIng up the main unit wIth a renter.

After finding out it fell out of escrow last week I got more details and found that 2 of the 4 units were never permitted and are “non-conforming” units.

If so, I have been doing some research and found that if they have been “continuously” rented that they are grandfathered in.

Has anyone had experience with non-conforming units? Is that true that they won’t need to be permitted?

As a small government guy, I don't know what "non confirming" means.  If the state of California doesn't want to lease the units from you, fine.  But if you have a unit that someone is willing to rent, that's between you and them.  Not between you and California. 

I dug a "cave" under my home (it's nicer than it sounds :).  I leased it for $500/month for years (San Diego).  I'm sure it was "non conforming" but the dude renting it was happy to have something near downtown for $500, and I was happy with the few extra bucks a month. 

[Arlen Chou]

@Cody L. the days of the wild west are gone in CA.  It is great that you were able to make some extra cash, and I think that is the way it should be... However, that is not the way the law works.  You have to be extremely careful these days as tenants will take you to court for frivolous things just in the hopes that you will pay them to shut up and go away.  If a tenant were to get hurt in your cave they could tie you up for years in the court system.  They could even make it up and just point to the fact that the unit is not up to code.  You could be paying thousands of dollars before you could even prove that it was not your fault or it was a false claim.

As an example entitled tenants tying up the court systems I give you an ongoing battle of mine. I have been fighting tenants about the status of some condos that I own.  They were saying that Costa Hawkins should not apply on them because they believed that since I had purchased multiple condos that the units should be treated as an apartment.  Even the City sided with them even though I had separate APN's and sales transactions.  Needless to say, I went through the county court and won, they appealed and we went to the State Court of Appeals.  I eventually won, but it took 3 freaking years and a ton of money and time.  The circumstances are different, but the point is the same, a tenant can tie you up for no other reason then they think they have a right...  

In my case I had the law on my side and I knew I would win.  But to build a unit without permits or inspections is what the guys who faced the Ghost Ship fire in Oakland did and take a look at how screwed they are now...

@Daniel Auriemma it is not a matter of IF you will find yourself in court, it is a question of when.  When you do get there it is important to remember that the law is not about what is right or wrong, it is about what you can prove.  The fact of the matter is that as you increase your net worth, more people will try to take it from you.  Take the time and spend the money today to protect your future self.

[Cody L.]

Originally posted by @Arlen Chou:

@Cody L. the days of the wild west are gone in CA.  It is great that you were able to make some extra cash, and I think that is the way it should be... However, that is not the way the law works.  You have to be extremely careful these days as tenants will take you to court for frivolous things just in the hopes that you will pay them to shut up and go away.  If a tenant were to get hurt in your cave they could tie you up for years in the court system.  They could even make it up and just point to the fact that the unit is not up to code.  You could be paying thousands of dollars before you could even prove that it was not your fault or it was a false claim.

As an example entitled tenants tying up the court systems I give you an ongoing battle of mine. I have been fighting tenants about the status of some condos that I own.  They were saying that Costa Hawkins should not apply on them because they believed that since I had purchased multiple condos that the units should be treated as an apartment.  Even the City sided with them even though I had separate APN's and sales transactions.  Needless to say, I went through the county court and won, they appealed and we went to the State Court of Appeals.  I eventually won, but it took 3 freaking years and a ton of money and time.  The circumstances are different, but the point is the same, a tenant can tie you up for no other reason then they think they have a right...  

In my case I had the law on my side and I knew I would win.  But to build a unit without permits or inspections is what the guys who faced the Ghost Ship fire in Oakland did and take a look at how screwed they are now...

@Daniel Auriemma it is not a matter of IF you will find yourself in court, it is a question of when.  When you do get there it is important to remember that the law is not about what is right or wrong, it is about what you can prove.  The fact of the matter is that as you increase your net worth, more people will try to take it from you.  Take the time and spend the money today to protect your future self.

Thanks for your reply.  It's a daily reminder of why I live in paradise (San Diego), but invest in Houston.  That's a f'ing disgusting story and a major pitfall of investing in a blue area.  Glad you made it out from under that situation. 

[Arlen Chou]

@Cody L. yeah there are tons of crazy stories out there so watch your 6.  I went to UCSD so SD has a special place in my heart.

[Mark Wood]

I have a building under contract in Long Beach that is physically 6 units (six 2bed/1bath), but apparently it got downgraded to a 4 unit.  It almost cash flows with the rent from 6 units.  I still have some diligence to do, but what questions should I be asking and what's the best way to vet the property and make sure I'm protected