Owning a rental property can be very lucrative, provided that you comply with all local and state laws governing rental businesses.
But is there such a thing as an apartment that is entirely illegal to rent out? The answer is yes, and renting out an illegal apartment can result in substantial liabilities for both the landlord and the tenant.
Violating landlord-tenant laws can lead to fines, citations, legal action from local authorities, and even prison time, as it is considered occupancy fraud. Learning what to avoid and the consequences can help you become a better rental property owner.
What is Considered an Illegal Apartment?
- Condemned Spaces
Local laws prohibit property owners from renting out condemned properties. In many cases, buildings are deemed inhabitable due to serious safety hazards. This violates the law stating that rental units must be habitable, which means they should meet basic health and safety standards such as functional plumbing, electricity, heating, and clean water.
- Units that Violate Local Zoning Ordinances
Some landlords want to maximize the space of their investment property by adding an apartment to an existing building, which may violate local zoning ordinances. This can take the form of in-law suites where family members reside or basement apartments, which some tenants rent out because they are usually affordable apartment homes.
Another example of this particular violation is when a designated single-family home houses more than one family in the rental space despite having no separate entrances. Either way, it is considered an illegal tenancy and can cause legal trouble for both parties if the tenant is aware that the unit is illegal.
- Units that Violate Building Codes
Other than potentially violating local zoning requirements, landlords can also get in trouble if the rental unit does not follow building code requirements and keeps it from the tenants. Apartments are considered legal if the following are met:
- Fire Safety
- Electrical Safety
- Plumbing Safety
- Working HVAC System
- Sound Structural Integrity
- Compliance with Americans with Disabilities (ADA) Standards
- Disclosure of Lead-Based Paint
- Property Without Necessary Permits
Property owners must acquire certain permits before renting their properties. In Milwaukee, rental units must apply for and receive a rental certificate before being allowed to be rented out. The ordinance applies to duplexes and even triplexes, although owner-occupied duplexes are excluded.
Consequences of Renting an Illegal Apartment
Fines
Fines are among the most common legal consequences for renting an illegal apartment, depending on the severity of the violations. For instance, habitability violations that are not fixed promptly can result in a $300 fine for the landlord's negligence. The possible penalties for repeat offenders can be substantially higher.
For worse violations, such as fire hazards that violate building codes, the fine can range from hundreds to thousands of dollars per violation. Examples include a lack of working smoke detectors, blocked exits, and fire escapes.
The Rental Agreement is Rendered Null
The lease agreement becomes unenforceable if the rental property is deemed an illegal apartment. That means neither the landlord nor the tenants are legally obligated to follow the terms outlined in the document. Action following this event will still depend on the circumstances and local laws, such as withholding rent, so hiring a legal expert is advised.
Relocation Assistance
If the rental unit is considered illegal, the legal recourse would be to provide relocation assistance to the tenant living in the illegal unit for alternative housing, provided that the tenant was not made aware that the rental unit does not meet the legal standards.
Demolition of the Property
Landlords are required to fix violations after an illegal unit is cited. If the required action for compliance has not been met, the property owner might be forced to demolish the illegal unit. Before doing so, they will need to provide proper notice to the tenant and cover the resident's relocation expenses.
Lawsuits
The tenant could sue you for violating the terms of your rental agreement. Furthermore, Wisconsin has legally established that landlords cannot charge a tenant for legal fees or costs incurred by legal action or dispute under the rental agreement, including deducting such costs from the security deposit.
Loss of Rental Income
While the rental home violations are being corrected, the landlord may be unable to rent out the affected units. Without tenants who pay rent, then the rental business will suffer. That's on top of the relocation expenses you may have to pay to place the tenant in a separate apartment in the meantime.
Reputational Damage
Once you get the reputation of renting out illegal basement apartments or violating local building codes, there's little legal recourse or amends you can make to restore your rental property's image. Worst case scenario, landlords can get felony charges for serious injuries or fatalities after ignoring potential hazards.
Displacement of Residents
Other than tenants, you might also have to evict relatives or family members living in in-law suites. You will have to face unpaid rent until you follow proper zoning ordinances or resolve potential risks within the rental property.
Illegal Apartment FAQs
How much do I have to pay for fines?
Monetary fines can range from hundreds to thousands of dollars per violation and may be assessed on a daily basis until they are corrected.
What is the best course of action for a landlord dealing with illegal apartments?
Courts are unlikely to dismiss litigation claims or let you continue renting your property out. The best course of action is to resolve any violations before continuing your business to avoid more legal troubles.
Can my rental license be revoked?
In severe cases, the court may choose to revoke your rental licenses. Continuing to rent your property out, despite this, can be a liability minefield.
What are the potential legal consequences?
Minor cases like misdemeanor charges can result in community service. For severe cases involving injuries or fatalities, there's a risk of jail time.
Hiring a Property Management Professional to Handle Your Property
Hiring property managers who understand zoning ordinances, building codes, and other rental property requirements keeps you from facing legal headaches in the future. Many standards need to be met before a property is legally considered a residential space, such as minimum ceiling height, division of living space, and more.
Companies like Performance Asset Management can help you ensure legal compliance for optimal financial return on your investment property in Milwaukee. Contact us now and we can tell you about our services and how we can help you as a landlord.
