Legal issues surrounding Accessory Dwelling Units
Accessory Dwelling Units have been touted as a partial solution to California’s housing dearth by widening the range of housing types.
Despite their charm, these pint-sized units can create big liability, especially when there is a tenant occupying the ADU. Renting out illegal units is fraught with even more risk.
Rent and eviction controls
Tenants who reside in illegal units are still protected by local ordinances. Disgruntled renters can sue the landlord for all manner of causes including breach of contract, wrongful eviction, retaliation, and fraud.
The Certificate of Occupancy is critical
Without one, it is illegal to rent out the unit or collect rent, even if the ADU is in pristine condition. Do you want to maintain the status quo with a tenant renting an illegal unit and hope the relationship doesn’t sour, or bring the unit up to code compliance and get the city’s permission to rent?
When additional living space cannot be converted to an ADU, the owner can enter into a roommate arrangement
If converting habitable, extra living quarters into an ADU proves to be too costly or impractical, all may not be lost. If the owner of the property desires to rent out the space, they can become roommates of the tenant with a big caveat - the space cannot be segregated and, with the exception of bedrooms, it must be clearly spelled out that the person paying rent has unfettered access to common areas like the kitchen and bathroom.
Gobbling up common areas
There may be laws that prohibit common areas like laundry facilities, storage areas, and parking spaces from being converted to an ADU, or entitle tenants to petition the Rent Board for a rent reduction because “housing services” have been reduced.
In order to legalize a unit, the tenant may have to be temporarily relocated
If upgrading the unit to code compliance requires an upheaval in noise and construction, alternative living arrangements could be made. An attorney could be hired to prepare a tenant buyout agreement to transition the tenant out of the unit, whether permanently or on a temporary basis.
Local governments may march to the beat of their own drum
While California lawmakers have put away the scalpel and taken a machete to local impediments to building an ADU or legalizing a rogue unit, municipalities are adjusting to the new edicts and may have nuances and hybrid programs. In San Francisco, for example, a city program puts no limit on the number of ADUs that could be built in multi-family buildings but requires them to be subject to rent control.
Insurance may not protect you
If a fire or some other tragedy occurs in an unwarranted unit, the owner may not be protected. It is a good practice to be upfront with the insurance carrier about the illegal status of the unit to ensure it is covered and if not, find a policy that shields you from liability.
Tiny units can become big problems for buyers and sellers
With the emergence of the ADU industry, many living spaces are misrepresented on the MLS. The buyer may not understand the unit is illegal or fully appreciate the legal repercussions of renting the unwarranted out. Having collected rent for many months or years, the seller of the property can still be sued by disgruntled or displaced tenants.
Doing unauthorized work or using unlicensed contractors
We always advise clients not to be penny-wise and a pound foolish by taking shortcuts during the process. In some cases, we have to retroactively go back to pull permits for work that has been performed without the city's permission.
