I have seen this same approach being taken by people selling bars, where they own the property as well.  

Hi all,Are larger 10+ unit multifamilies grandfathered from major code improvements until time of renovation.

They also cannot force the landlord to make repairs.If their concern is that the landlord may be lying about these issues one option they might consider is contacting local Code Enforcement for an inspection to confirm that the rental unit is uninhabitable.Why do you believe your friends could sue for the total lease amount?

This is DTLA 90004 zip code by Jeff.

This approach is dependent on zoning/code enforcement saying it's acceptable.As far as your numbers - apples to apples... if you do it as a MF, then your renovation costs are the MF costs, and the analysis is as a MF property..

This is a clear violation of the ethics code inspectors are required to abide by.

I don't think building code and energy code will come in at $100K for a house.

There is always risk but I strongly believe if you have done your homework, your property is up to code and you are a diligent landlord you have very little chance of having problems. 

Have them sign paperwork that the systems are up to code. 

What if the house caught on fire at some point and was not repaired correctly or not to code?