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Legal NewsLandlord Required to Refund Excessive Rent paid for Unlawful Rental Unit

On September 28, a California Court of Appeal ruled that a Los Angeles tenant was entitled to recovery of excessive rent payments despite the unlawfulness of the rental unit. The guest house in which the tenant had resided was constructed without permits and had never been registered under the Los Angeles Rent Stabilization Ordinance (LARSO). After several years of significant rent increases, the tenant terminated her tenancy. About six months later the tenant hired an attorney to recover the rent she had paid. One of her claims was for all rent paid, but this was dismissed or abandoned at the trial level. At issue on appeal was the trial court’s award of $11,590 for overpayment of rent and $25,575 in attorney fees.

The landlord argued that (1) the tenant had acquiesced or agreed to rent the illegal unit; (2) because the illegal property was not, and could not be registered under the rent ordinance, the owner was not bound to the rent limitations in the ordinance and; (3) because the guest home was illegal anyway, the rental agreement was void. The landlord’s position was that the tenant was only entitled to a rent refund to the extent that her payments exceed the reasonable rental value of the guest house. The appellate court disagreed, finding that the tenant was entitled to recover her excess rent payments under the LARSO even though the rented property lacked a certificate of occupancy and was not registered under LARSO.

The court found it significant that the tenant was unaware of the unlawful status of her rental unit until two years after she had moved in. In addition, the court held that the general rule allowing an agreement to be voided due to illegality does not apply in this case, because the purpose of the law at issue (the LARSO) is to protect the tenant. For that reason, even though the tenant entered into an agreement that violates the rent control ordinance, it should not bar the tenant’s recovery for the landlord’s illegal rent increases in violation of the LARSO. The appellate court also upheld the award of attorney’s fees.

Not only is the property owner out thousands and thousands of dollars for violating the LARSO, he can’t even re-rent the unit because it was built without permits.

Kimball, Tirey & St. John, LLP
Paramount Services, Inc.
Naylor, LLC
California Apartment Association
980 Ninth Street, Suite 200 | Sacramento, CA 95814
Phone: 800.967.4222 | Fax: 877.999.7881
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