January 2024, a new opportunity arises: the ability to sell one or more ADUs separately from the primary residence! AB 1033 amends Government Code section 65852.2 to allow property owners with ADUs to sever and convey the real property interests by creating condominiums. Currently, the separate sale of an ADU is only permitted under very limited circumstances involving an ADU constructed by a qualified non-profit corporation, a low or moderate-income buyer, and a recorded tenancy in common agreement. Further, the sale must be accompanied by significant deed restrictions, namely, both the primary residence and ADU must be preserved for low-income housing for 45 years. Thus, the current state of the law does not present significant investment opportunities.
Beginning January 1, 2024, private owners, investors, and developers may be able to take advantage of the new law and sell separate interests in ADUs without the burdensome deed and buyer restrictions concerning low-income housing. At the outset, it is important to note that while existing law requires local agencies to allow a separate sale or conveyance of an ADU under the limited circumstances referenced above, the amendment is permissive as to whether a local agency can adopt an ordinance allowing for the private party separate sale of ADUs and only provides for the minimum requirements for such regulations, meaning that this opportunity may vary greatly from city to city. However, if a municipality adopts such an ordinance, there are mandatory minimum prerequisites that an owner must tackle.
First, the separate property interests must be created as condominiums pursuant to the Davis-Stirling Common Interest Development Act and in conformity with the Subdivision Map Act.
Southern California, and in particular the Los Angeles Metro area, continues to lead the pack with regard to total ADUs permitted and built. Over the past five years, the LA area has consistently received over half – about 60% – of California’s ADU permit applications. During the same period, LA saw 39% more ADU permit applications per capita than the statewide average – and this trend continues in more recent years.
ADU Growth in San Diego remains strong as well. In 2017, San Diego represented only 5% of California ADU permit applications, but that number has increased to near 10% in recent years, and the San Diego Area’s ADU stats per capita now are more robust than other areas of the state, both in terms of projects submitted and projects built.
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