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What is an ADU or accessory dwelling unit?

An ADU, also known as a guest house or granny flat, is a secondary house or apartment that shares a lot with a larger home. It could be attached to the main home, such as an apartment built above a garage. It could also be a standalone house.

The purpose of an ADU is to provide a residence for a person or family. Also, there are several types of structures or dwellings that meet the definition of an ADU. Among them, they include:

  • A freestanding structure that is not connected or attached to your house or any other structure on your property.
  • An attached addition to your house that you use as an ADU. It could connect to the interior of your house, or it could have a separate entrance.
  • A garage conversion turning all or part of your garage into an ADU. For example, a garage with a large attic could become a garage with an attached apartment.
  • An interior conversion changing an existing part of your home into an ADU, such as by turning a large porch or sunroom into a separate living space.

Can I rent out an ADU?

A homeowner might want to rent their ADU on a long-term basis, such as a garage apartment leased to a college student on a 6- or 12-month lease. They might decide instead to make their ADU available for short-term rentals through a service like Airbnb or Vrbo.

However, local laws and homeowner's association (HOA) rules, if any, may determine whether a homeowner can rent out their ADU. Some HOAs limit the use of properties for rental. And some cities and counties have enacted ordinances that restrict the use of residential properties as short-term rentals.

Where can I build an ADU and what about permits?

The exact kind of ADU you choose to build on your property may depend on local laws and HOA rules. Building a new structure often presents different legal or regulatory challenges than converting part of an existing home, but that's not to say that one is necessarily easier than the other.

Many states and local governments have worked to loosen the restrictions on building ADUs, with the goal of increasing the amount of available housing. Chances are that you will still need one or more permits to build an ADU on your property.

The exact kind of permit(s) depend on factors like whether it will be a freestanding structure, an addition to your house, or a renovation of a basement, attic, or other room. You may have to deal with both local or state laws and HOA regulations.

Learn the local ordinances and state laws.

City or county building codes set construction standards for houses and attached structures. A building code may require, for example, that any house or structure on a residential lot be set back a certain distance from the property line, essentially in order to maintain a polite distance between houses. Building codes typically also address utility connections and infrastructure, such as electrical, water, and sewer lines.

Obtain any required building permits.

The city or county will probably require that you obtain at least a few permits before you can build an ADU. One permit might cover the entire construction, but some jurisdictions could require separate permits for specialized parts of the structure like its electrical wiring.

The process typically begins by submitting a permit application to the city or county, along with blueprints or other descriptions of the planned construction. Contractors with experience in a particular area often know how to navigate the permitting system. Your Construction Contract could include provisions about assistance with obtaining the necessary permits.

Once construction is complete, an inspector from the city or county may visit to conduct a final review. They could give final approval or identify problem areas that need to be corrected.

Understand any HOA regulations.

HOAs may establish rules that restrict members' use of their properties. These rules may regulate where on your property you are allowed to build or how tall the structure may be. More and more states and local governments are enacting laws that prohibit HOAs from outright banning ADUs, or from restricting them to the point that they become financially infeasible.

Many HOAs require homeowners to submit plans for any new additions or other construction for review by a committee. This committee may have the power to reject a plan altogether, depending on the laws of the city, county, or state. They could also give conditional approval, subject to certain changes.

Can I build an ADU in the backyard of an occupied rental property?

Renovating an occupied rental property to add an ADU can be complicated. When you sign a Lease Agreement with a tenant, you are giving them the right to use your property as their residence in exchange for rent payments. Depending on the terms of the Lease Agreement, you may be reducing the amenities, space, or use of the property by adding an ADU that will not be used by the current tenant. Suppose you want to add a backyard unit to rent out separately on the property of a home that you are renting to a family. If exclusive use of the backyard is part of the agreement, then you may need to negotiate a Lease Amendment to change the terms if you plan to rent the ADU to someone else. You may need to discount the rent to reflect the loss of use or space to the current tenant. On the other hand, if you allow the current tenant to use the newly built ADU, you may be able to use it to justify an increase in rent.

Additionally, during the renovation or build process, you may want to consider that most Lease Agreements include a "covenant of quiet enjoyment," which allows a tenant to live on the property with reasonable peace and quiet. Renovating an occupied property often requires tip-toeing around a tenant's tolerance for the noises and disruptions that come along with major construction projects.

What do I need to know about rental laws when building an ADU for rental purposes?

Depending on the number of rental units on your property, adding an ADU may create additional legal responsibilities as a landlord. If you are adding an ADU to rent out on your own home's property, you may want to familiarize yourself with state and local landlord-tenant laws for your area. There may be specific code requirements for a rental unit.

Additionally, zoning laws regulate how property owners may use their land. For example, a landowner might not be able to build an office building or warehouse on land that is zoned for residential use. Even areas zoned for residential use, however, may have restrictions on building an ADU or multifamily properties. If allowed, and you intend to use your ADU for long-term leases, you may not have any zoning problems.

Some cities and counties, however, limit the use of residential-zoned properties for short-term rentals through companies like Airbnb. In these areas, restrictions may vary from simple registration requirements to outright bans or limits on the number of days you may rent per year or month.

Does adding an ADU increase property taxes?

The answer is likely yes. An ADU typically increases the value of a property. If you are building an addition or a freestanding ADU, it may also increase the usable square footage of your home. In either scenario, you can expect your property taxes to go up.

Much of the local and state legislation that has removed regulatory barriers to ADUs has also addressed property taxes. Many state and city laws now set a limit on how much an ADU can add to your property tax bill. In California, for example, property tax increases are limited to 1% of the value of the ADU. If you build an ADU valued at $75,000, your tax bill would go up by $750, or $62.50 per month. Also, if you rent out the ADU, you may owe taxes on the rental income you receive.

To learn more about ADUs, and your rights and obligations as a landlord, reach out to a Rocket Lawyer network attorney for affordable legal advice.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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