Unique considerations for landlords when a tenant operates a daycare service out of their rental unit

It has been reported that the rising cost of daycare is outpacing inflation, placing a significant financial strain on families. These escalating costs have taken a particular toll on women who are forced to ratchet back the number of hours they work or exit the workforce entirely. Using 2024 data, Child Care Aware estimated the average cost of daycare tuition for two children hovered around $39,200.

The demand for childcare in California clearly exceeds the available supply. As parents ourselves, we love children and appreciate the great need for childcare providers who take care of our little ones. However, we also cherish the rights of property owners.

Should housing providers be saddled with the responsibility of allowing tenants to run a daycare service in their rental units? 

This is really part of a larger trend by lawmakers to dump societal woes on landlords. Take, for example, the inordinate amount of responsibility housing providers had to shoulder during the COVID pandemic.

The public policy was to keep people housed, so landlords had to wait months, if not years, to collect rent, and were even tasked with helping tenants apply for rental assistance. We are unaware of any other industry forced to provide a free service.

More recently, a new law requires that housing providers change the locks (out of their own pocket) when a tenant is a victim of domestic abuse. Another example: Tenants in certain units can opt in to have their timely rent payments reported to a credit reporting agency like Experian or TransUnion. The overarching goal is to boost a renter’s credit score.

The list can go on, but the quintessential point is that landlords are no longer just in the business of providing safe, secure, and sanitary housing; they have become de facto social workers and are asked to fix problems arising from a tenant’s life.

And yes, housing providers may have to allow tenants to operate a daycare to accommodate the burgeoning demand. Let’s go over the laws surrounding this.

In 1981, the Legislature built a foundation on which the operation of family daycare homes now rests.

There is often a tug of war between state and local governments. In recent memory, California lawmakers have essentially told municipalities to get out of the way by easing restrictions on Accessory Dwelling Units (ADUs) to address the state’s housing shortage. Likewise, the state law preempts local laws, regulations, and rules that “ directly or indirectly prohibit or restrict the use of a facility as a family daycare home, including, but not limited to, precluding the operation of a family daycare home.”

It is the intent of the Legislature that family daycare homes for children should be situated in normal residential surroundings so as to give children the home environment that is conducive to healthy and safe development. It is the public policy of this state to provide children in a family daycare home the same home environment as provided in a traditional home setting.

~ California Code, Health and Safety Code - HSC § 1597.40

Let's go back in time. When we were watching Raiders of the Lost Ark and Superman II, legislators enacted legislation that permitted tenants to operate licensed family child care homes within their rental residences. A family child care home is viewed in the eyes of the law as a residential use of the property and is not considered a business or commercial use.

Some key highlights and takeaways from the law:

• A tenant is permitted to operate licensed family child care homes in their units, provided that they notify their landlord 30 days in advance. See California Health & Safety Code § 1597.40.

• The licensee must obtain the written consent of the property owner when the family daycare home is operated on a property that is leased or rented.

• A tenant cannot be evicted, nor can the landlord refuse to rent to tenants because they intend to run a licensed child care home.

• We’ll have to put a finger on the composition of the children under watch. Metrics include the number of children being cared for, the age of the children, staffing requirements, and whether there are infants. This is tricky - contact an attorney.

• Be mindful of more rigorous requirements for smoke and carbon monoxide detectors and other inspection requirements when young lives are at stake.

• Liability insurance, surety bonds, and parent affidavits should also be taken into account.

• While landlords may not include prohibitions on child care operations, they can enforce reasonable rules such as compliance with noise regulations, hours of operation, number of children.

We’ve only scratched the surface. 

Suffice it to say that when a tenant is overseeing children, there is a host of additional legal issues that go beyond the typical landlord-tenant relationship. Bornstein Law can help you navigate these minefields.