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You might have come across discussions about Accessory Dwelling Units (ADUs) as building regulations have eased in recent years. This shift allows property owners to leverage additional space on their lots or within their primary residences, enhancing property value. The passage of Assembly Bill 1033 by the California legislature has introduced new prospects for homeowners, developers, and investors. This bill enables the partition and separate sale of ADUs from the main dwelling unit on the property, presenting novel opportunities.

For those not well-versed in the evolution of ADU laws, this blog offers a brief overview before delving into the implications of upcoming statutory amendments, scheduled to be effective in January 2024, specifically concerning the sale of ADUs.

ADUs are standalone housing units, either attached to or completely detached from the primary residence, such as guest houses, casitas, or converted garages. Typically created for income generation or family-related purposes, ADUs allow loved ones to be cared for while maintaining independence and privacy. Before 2020, city regulations severely limited ADU construction, making it challenging for homeowners. However, legislative changes since then have aimed to address California’s housing crisis by prohibiting cities from imposing strict restrictions on ADUs. These include limitations on lot size, ADU square footage, unit size, parking requirements, height limits, owner occupancy mandates, and the need to bring existing structures up to code.

Effective January 2024, a significant opportunity arises: the option to sell one or more ADUs separately from the primary residence. Assembly Bill 1033 modifies Government Code section 65852.2 to allow property owners to divide and convey real property interests by creating condominiums. Currently, separate ADU sales are limited to specific situations involving qualified non-profit corporations, low or moderate-income buyers, and stringent deed restrictions.

Starting January 1, 2024, private owners, investors, and developers may capitalize on the new law, selling ADUs without the previous constraints related to low-income housing. It’s important to note that local ordinances may vary, as the amendment permits but does not mandate private party separate sales of ADUs. Municipalities adopting such ordinances must adhere to minimum prerequisites, including creating separate property interests as condominiums in accordance with the Davis-Stirling Common Interest Development Act and the Subdivision Map Act.

The Davis-Stirling Common Interest Development Act regulates residential real estate developments with shared ownership, necessitating the recording of a declaration and a condominium plan. The Subdivision Map Act empowers local governments to regulate land division, requiring compliance with local ordinances. Lenders and existing homeowners’ associations must approve the creation of separate property interests.

While these are minimum requirements, municipalities may impose additional restrictions on ADU partition and sale. Before embarking on building ADUs with the intention of selling, it is strongly advised to consult an attorney familiar with the specific laws in your city or county.