Illegal to convert rent control unit into vacation rental/airbnb?

Question

Hello, I'm in the market to buy a duplex in LA. Most likely North east LA but all of the properties in that area are rent control. If I happen to purchase a duplex with both units vacant, can I use one of the units for an Airbnb vacation rental? I've read some articles online about how LA is cracking down on landlords who boot rent control tenants out and convert their units into Airbnb rentals. But since I would be the one who inherits completely empty units, would it still be illegal to do this? The seller is in the process of relocating the current tenant, who is an elderly disabled lady. Apparently there is an agreement that she will leave. If she does, I will consider buying this property especially if I can rent one unit out on Airbnb. So I was wondering if anyone here might know more about this.

thanks

mario

thanks

mario

David Tipton · Answer

If the tenant is leaving voluntarily, you can rent out the unit just like any other vacant unit in Los Angeles.  That is, still subject to the LA Rent Stabilization Ordinance.  As @Steve Jones mentioned, you should keep up to date with the city requirements.  As of now, you should be ok.

Account Closed renting to anyone, whether through Airbnb or otherwise, could be very dangerous.  The legislature recognized the potential for abuse of the Ellis Act and provided for steep penalties for landlords who do not comply with the requirements.  The idea is that you are taking the units permanently off the rental market.  A landlord's use of the Ellis Act is recorded with the county.  An application must be made to the Los Angeles Housing and Community Investment Department before the unit can be offered for rent or lease, which would include Airbnb.  If it's within five years of the unit going off the market, the unit would need to be offered at the same rates as before.  Presumably, your Airbnb rates would need to be a pro-rata daily rate based on the prior rent, which would probably be too low to be worthwhile for a periodic rental.  Additionally, you may have to give a right of first refusal to the evicted tenant(s) to move back in if the re-rental is done within two years.

You may be tempted to try to evade the law and rent out the unit(s) without going through the appropriate legal steps.  This could be disastrous.  If you are discovered, as a few landlords recently were, you could not only face a lawsuit from your tenants where they could recover the increased rent they paid, moving costs, etc., but you may be liable for punitive damages.  Punitive damages are designed to punish a person for wrongful conduct and to deter others from engaging in the same conduct.  While an insurance policy may cover your defense and potentially cover the actual damages of your tenants, it cannot and will not cover punitive damages.  You could potentially be liable as an individual, without the protection of a corporation/LLC, and without the benefit of insurance coverage.  I wouldn't evict based on the Ellis Act unless I intended to tear down the property or truly remove the units permanently from the rental market.

Account Closed · Answer

1) I am not an expert, but someone who has been doing a lot of reading on RSO because my family has invested in a RSO property that will be demolished into a new apartment building.

I think you will be okay if the tenant leaves. A lot of the articles that you are reading about with Airbnb have to do with Ellis Act evictions. I think it gets a bit grayer depending on how the previous tenants left. So if these tenants were evicted by the Ellis Act, I think there are some issues we need to look into.

2) Does anyone have any experience or insight with renting on Airbnb after evicting a RSO property via the Ellis Act?

Peter Vroom · Answer

I'm not an expert on the law but have been a part of the development of the short term housing ordinance in LA (from the perspective of someone who shares their home).  It was actually a life saver during some difficult times.

There are people who are against homesharing and they "say" it is illegal, however what I've heard from the city is that it is illegal for landlords to do it and illegal for it to be done in RSOs.  But it's not illegal to do it in your own place (where you live).  I believe that the reason some say it's illegal is that there is a general "nothing is allowed" approach with the municipal code unless it is specifically allowed.  The ordinance that is almost about to be put in place specifically allows it but under certain restrictions which I'll list below.  So basically it's a little gray, if it's your place.  For RSO I strongly recommend you get some solid advice on that.  Even if you're living in it.

One thing the city really don't like and are cracking down on is the larger apartment landlords who one way or another force/trick renters out of their RSO homes and then set up like hotels.

One argument has been that homesharing is a cause of the housing crisis here in LA.  This is unlikely but the argument is getting a lot of use as it's the strongest argument (if it were true). The other arguments like parties and effect on hotel jobs have not taken hold. The former because parties are a problem regardless of the length of stay and the latter I presume because short term renting simply moves jobs.

And in any case, if we're into real estate for profit we like a bit of a housing shortage don't we?  Correct me if I'm missing something here because I'm not an expert.

It's been interesting to watch democracy in process. Through all of the events I've been to there has been a majority of support for people to be able to rent to who they want to.  However on last viewing the ordinance had a lot of catches in it. In particular they are debating a limit on how many days per year you can do short term rentals.  It was at 180 days last I heard.  They also have a complicated registration process. At one point you had to visit 2 different government departments to register.  They have a couple of other restrictions lined up as well.

I have heard that an elected official will never go against the will of the people (which is generally to let people rent their space to who they want to) but that the lobbyists earn their money in the fine print. This looks like what has happened here. Yes you can do short term rentals but there are some clauses in there that make it not worthwhile.  Further, their fines are huge. For each day you short term rent over 180 days you get a $5000 fine per day. For each day you advertise but are not registered with the city you pay something like $200 per day.

The reading I've done around removing RSO tenants is that it can be done under a few limited circumstances and there is a corresponding fee to be paid that depends on age, family size??, length of tenancy etc. One is that you can evict one apartment and designate it as your place. Another reason is to convert it to a condo.

Mario F. · Answer

@Manolo D. Thanks! That's encouraging.

Mario F. · Answer

@Steve Jones  Thanks Steve. Any idea when these new laws might pass??

Steve Jones · Answer

Hi Mario, for now you can do that.

LA is currently reviewing how their policy will be in terms of regulating Airbnb....until then you are free to use rental units for your Airbnb.

That may change though, so please be aware.

Illegal to convert rent control unit into vacation rental/airbnb?

Most Popular Reply