A new law in California, enacted this week, allows owners of properties with Accessory Dwelling Units (“ADUs”) to separately sell the ADU as a condominium. The law was enacted as yet another inventive effort to increase the supply of housing and combat affordability. With the surge of ADU development in the past 6 years, it will be interesting to see whether homeowners take advantage of this new law, and whether it has an impact on affordability throughout Los Angeles.
In 2017, California passed Senate Bill 1069, which eased restrictions on allowing garages to be converted into ADUs, commonly referred to as “granny flats”. We highlighted that law in our blog, here. Since then, ADUs have become increasingly popular throughout Los Angeles. There are even companies, like Abodu and Prefabadu, that design and build pre-fabricated ADUs to be delivered directly to a property ready for installation.
Now, Assembly Bill 1033, enacted just this week, allows homeowners to separately sell an ADU on their property, subject to many of the same rules that apply to condominiums. As with condos, the ADU must be separately metered for utilities, and an HOA must be formed to collect dues to cover the cost of maintaining the exterior and common areas. The purchaser then becomes the owner of the interior of the unit, just like the owner of a condominium or townhome. The law is similar to those that have passed in other states like Oregon and Texas.
The law creates some interesting opportunities for homeowners. Homeowners who have grown out of their primary home could construct an ADU, purchase it separately for themselves, and then sell off the primary home. This would allow a homeowner to access equity in the home without selling off the entire property. Other homeowners who utilize their ADU as a rental property could segregate their ownership interest by selling the ADU to a separate entity, thereby insulating equity in the primary home from liability arising from the rental property. Generally speaking, it will be interesting to see how property owners utilize the new law, and whether it has the intended impact on increasing supply and affordability throughout the state.
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