If you own and/or manage rental property in California you MUST allow your tenant to run a licensed day care business providing they abide by a few rules.
Rule No. 1: Make the tenant show you their Day Care License. It must be current and should state the size allowed, either up to 8 children (small day care) or up to 12 children (large day care).
Rule No. 2: The day care must do one of three things: If they carry liability insurance you can demand that they name the owner and property manager as additional insured, OR they must carry a bond in the amount of $300,000.00, OR they must have every client sign an affadavit that demonstrates that the parents have been informed that the Day Care Owner (tenant) does not carry liability insurance or a bond.
Rule No. 3: The security deposit can be increased to the maximum allowed by law. In California, this would be two times the monthly rent.
NEVER refuse to rent to a prospective resident because they inform you that they are intending to run a day care. If they do, tell them the above rules and qualify them as you normally would.