Legislators in California have added a new wrinkle to the growing trend of accessory dwelling units (ADUs). In an effort to rein in the ongoing housing crisis, the newly passed California Assembly Bill 1033 will open the door for homeowners with a qualifying ADU on their property to sell the unit independent of their own home.
What Is AB 1033?
In October 2023, the California legislature passed Assembly Bill 1033. This new bill allows homeowners to subdivide (Subdivision Map Act) existing or newly built ADUs as condominiums, paving the way for sale independently of the primary residence.
Beginning January 1, 2024, this new bill will ease restrictions on the sale of ADUs. Essentially, AB 1033 allows owners of ADUs to convert them into condominiums, thus permitting the sale to a third party. It is the latest step taken by the state of California to ease restrictions on ADUs and increase the supply of available housing in the state.
Under current laws, the individual sale of ADUs separately from the primary housing have been heavily restricted. Restrictions have included regulating the sale of ADUs only to buyers of low to moderate income, as well as requiring that the ADU has been built by a non-profit organization.
With the passing of AB 1033, owners who wish to sell their ADU to a 3rd party will need to subdivide the unit as a condominium. Doing so will invoke the Davis-Stirling Common Interest Development Act, which governs separate interests, within a common interest development.
There are of course some caveats to this:
Local Regulation
While the state of California has passed this legislation, AB 1033 only sets a minimum of standards. It is up to each individual city or municipality to enact their own policies towards the individual sale of ADUs, which can add further restrictions beyond what is outlined in AB 1033. Your local jurisdiction will need to option in, meaning they will have specifically create an ordinance to allow for subdivision aka condo of an ADU.
Here is the catch: Many cities such as Oakland, Berkeley, and San Francisco have existing Condo Conversion Ordinances that severely restrict converting existing buildings into condos. The public policy is that tenant activists complained that turning rental property into for-sale housing through a condo process is a loss rental housing. I highly doubt that these cities will change their laws to make it easier to subdivide an ADU away from the primary residence. We believe ADUs add to the housing stock and think being able to condo your ADU will give incentive to build more ADUs. More housing is a good thing.
Adherence to the Davis-Stirling Common Interest Development Act
Under this act, formation of a homeowners association is required to facilitate management of common areas for condominiums. The same rules will be required for ADUs being sold independently of the primary residence.
Compliance with The Subdivision Map Act
This act requires that any subdivision of land be approved by the local municipality. Building an ADU without approval can jeopardize any future sale of the unit. 2-4 unit conversions are handled at the municipal level, and 5 units or more conversions are a dual process through the local jurisdiction and the California Department of Real Estate.
Utility Management
Utility providers, including gas, electric, and water, must be notified of the creation of an ADU, and that the utilities will be maintained separately from the primary residence.
Property Taxes
Similar to how multiple condominiums on the same property are treated, ADUs and primary residences will be subject to different property taxes.
Parking Requirements
Parking requirements may not exceed one space per unit, and may be reduced or even eliminated for the ADU being sold.
Who Does AB 1033 Benefit?
The impact of the new bill will be felt by a number of parties; property owners, first time homebuyers, and investors.
Property Owners
Homeowners with ADUs currently on their property looking to divest their interest in these units will be some of the primary beneficiaries. Easing restrictions on the sale of ADUs will allow homeowners who wish to turn a profit or earn a supplemental income do so by selling their ADUs, while keeping their primary residence.
First Time Homebuyers
In a crowded and competitive real estate market, it can be extremely difficult for young families or other first-time homebuyers to find a suitable property they can afford. Easing restrictions on ADU sales increases the available inventory for prospective buyers, while also being more affordable than traditional primary residences.
Investors
Those in the business of building ADUs can expect to see even more new development opportunities thanks to AB 1033. Homeowners may now be incentivized even more to build an ADU on their property, and contractors can cash in on the increasing demand.
Conclusion
When demand for housing far outpaces supply, new innovations are needed to ease the burden on those looking for a place of their own. AB 1033 will have a significant impact on the availability of units in cities across the state of California. The benefits for both homebuyers and existing homeowners is clear.
Are you a homeowner or investor interested in building an ADU? Adapt Dwellings are ADU experts in the Bay Area, with experience navigating the complex legalities of California real estate. We can help you through making sure your ADU is financially feasible through our feasibility reports, design your ADU and help you receive approval plans through your local jurisdiction and help with ADU construction, as well as advise in all other aspects of ADU building cost, and finally we can help you subdivide your ADU from the primary dwelling or get a rent control certificate of exemption.
Adapt Dwellings is ready to be your partner throughout your ADU journey.
