What is the ruling on building a rest house to be rented out for events, given that the renters may use it for parties that include forbidden things like music and dancing? And is the money earned from that unlawful?

It is permissible to rent out wedding halls or rest houses to those who hold wedding parties that do not involve disobedience (to God). However, it is forbidden to rent them out to those whom one knows, or strongly believes, will disobey Allah within them through musical instruments, intermingling (of sexes), or disturbance. If one does so, he is a partner with them in sin, and his money is null and forbidden.

If it is rented out to someone not known for committing evil, and then disobedience occurs and the owner is unable to prevent it, then there is no sin upon him and his rental fee is lawful. However, if he stipulated to them the avoidance of disobedience and they then committed it, he is obligated to annul the contract.