But, I had to cover my rear to make sure he couldn't try to foreclose on me.Anyway, that was the first deal.Second deal was in 1995, when the market had crashed in CA, and there was a condo for sale, which was hard to sell because of condo financing. 

If the police made a mistake, I'd like them to replace my door ... since they broke it.This is just like when someone in front of you slams on their brakes and you rear-end them.  

I'd just suggest if you feel you really can't find something in CA, to look for another state where the property taxes won't bite you in the rear long-term.

(iii) The side and rear setbacks are sufficient for fire and safety.

A pain in the rear tenant is not worth keeping. 

I'm confused about how separate the two units are.I would suggest picturing yourself as either tenant and what the potential problems would be.As far as the legalities, if it's not legal, and there's a problem with a tenant, you can anticipate being bitten in the rear.

It's my opinion, that now they are trying to milk you, and because you have been so accommodating, they will be a pain in your rear if you keep them.  

In our state/county you won't lose homestead, but when you come to sell your home you will be required to recapture the depreciation, which will be a pain in the rear end.

Kissing the rear of a bully never works, is my point.  

This makes a clean break from the departing tenant.Anyway, just cover your rear as far as the deposit goes and that the incoming tenant agrees to step into the shoes of the original tenant as far as any damage that they inherit and become responsible for.For me, it actually worked out well.