8 Legal Implications of Adding an ADU to Your Property

In a housing market where prices are skyrocketing and inventory is tight, building a little cottage in the back of your lot can seem like a dream come true. Not only does it add new units to a market where people are routinely moving across the country in search of affordable housing, but it’s a golden opportunity for the homeowner to bring in a little passive income, in the form of short-term Airbnb guests or conventional long-term renters.

But adding an accessory dwelling unit, or ADU, to your property is rarely as simple as drawing up some plans and calling in a contractor. Local zoning laws often make it difficult or impossible to add a separate dwelling on an existing lot — and even cities that encourage ADUs impose a long list of rules and regulations on builders. And if your ADU project runs afoul of local laws, you may be hit with huge fines, or even be forced to demolish your unauthorized ADU.

Let’s go over some basic definitions, and then touch on some of the main legal issues affecting ADUs.

What is an ADU?

ADU stands for “accessory dwelling unit,” and is a smaller, secondary dwelling that shares the lot of a larger, primary home. They’re sometimes called “granny flats” or “mother-in-law suites,” since they were often built to give aging parents a place to live close by.

ADUs can be attached, detached, or interior. An attached ADU is essentially an addition or new wing on an existing house. (These are sometimes called “bump-outs.”) A detached ADU is a separate, independent structure, such as a cottage, carriage house, or an apartment above a garage. And an interior ADU is part of the primary home, usually an attic or basement, that’s been converted into a separate dwelling.

That’s a pretty simple definition. But even as the real estate industry has offered innovations like rent-to-own homes, and online brokerages that help you sell without an agent, the laws and requirements attached to ADUs have stayed rooted in the past.

ADU parking requirements

Typically, one of the biggest obstacles to adding an ADU to your lot is the off-street parking requirement. Many cities historically required you to add one off-street parking space per additional unit, or per additional bedroom. Because a single off-street parking space, plus a driveway to access it, uses approximately 300 square feet (not to mention the thousands added to the builder’s budget), this was often a dealbreaker for people trying to squeeze a new ADU into a small or moderately sized lot.

As zoning regulations have relaxed and become more amenable to ADUs, many cities have eliminated their parking space requirement — but many have not. Others have gone to a formula based on lot size, lot characteristics, or type of street the main house is on, while others may (or may not) grant a parking waiver on a project-by-project basis.

The bottom line here is that it’s vital you know how your local zoning regulations and parking requirements apply to your ADU project, so you can not only make sure you’re in legal compliance, but also put together an accurate project budget.

ADU roommate caps and limits

One of the pillars of single-family residential zoning is the “roommate cap.” This cap limits the number of non-related people who can live on a single lot. In some cities, this cap is set as low as three people — bad news for someone planning, say, a four bedroom ADU to rent out.

While the ostensible justification for roommate caps is to limit crowding, the intent of this rule is a little clearer when you consider that there are never any limits on the number of related people who can occupy one of these lots.

For instance, in a city with a roommate cap of three people, you’ll incur a fine or worse if you rent out a house to four unrelated people. But rent the same property to a family of fourteen, and you’re thoroughly within the law. It’s a regulation that’s designed to limit a certain type of renting — or, more accurately, a certain type of tenant.

The roommate cap has its genesis in a 1974 Supreme Court ruling in which the village of Belle Terre, New York, sought to use a “families only” zoning law to evict a group of four students. In the decision upholding the eviction, a justice cited “family values, youth values, and the blessings of quiet seclusion,” language that suggests the ruling was based less on concerns about residential crowding than on the mid-seventies moral panic about campus counterculture making its way to the suburbs.

Although many cities are relaxing or repealing roommate caps, they continue to be a major obstacle for the building of ADUs.

ADU owner occupancy

Another legal obstacle that potential ADU owners can run into is the owner-occupancy requirement. Many cities that allow ADUs require the owner to live in either the primary residence or the ADU, essentially locking the owner into being an on-site landlord.

These regulations rest on the assumption that owners will be better, more responsible neighbors than renters, and that mandating owner occupancy will prevent neighborhood “blight.” If this doesn’t quite ring true to you, you’re not alone. Court cases in New Jersey and North Carolina both agreed that the owner-occupancy requirement had “no foundation in reason” and that “the status of a house’s occupant as a property owner rather than as a tenant is no guarantee that he or she will be a law-abiding and considerate neighbor.”

In essence, all the owner-occupancy requirement does is “rely on owner occupancy as a shortcut to regulating maintenance,” as a Brookings Institute paper observed, outsourcing the enforcement of noise ordinance and building codes to private landlords.

The good news for potential ADU owners is that owner-occupancy requirements are usually struck down when challenged in court. The bad news, of course, is that challenging them in court is expensive and time-consuming. Make sure you’re up to date on your local owner-occupancy requirements before you break ground on your ADU.

ADU impact fees

Any new development is going to be subject to various government fees, but ADUs are subject to a specific class of charges called “impact fees.”

These fees are assessed by the local government to offset the anticipated impact of the new ADU on local infrastructure like parks, roads, and schools. Since these fees are levied by local governments, they vary widely from city to city. This example from Napa showing the fees for an ADU of 750 to 1200 square feet, includes a “park impact fee” of $2,293, and an “affordable housing impact fee” of $5,700.

The size of these fees is often tied to the size of the ADU. State law says that ADUs in California under 750 square feet are exempt from impact fees, though another law says that school districts can collect impact fees from ADUs greater than 500 square feet. At any rate, if your ADU is small enough, you might be exempt from your local impact fees.

If you plan ahead, there could be ways to use these size minimums to avoid impact fees entirely — for example, by building an ADU of 749 square feet, with an attached or interior “junior accessory dwelling unit” (essentially an ADU within an ADU).

ADU size and height requirements

Your ADU will be subject to strict size limits, and those limits will be defined by your state local laws.

In California, for example, an ADU has to be a minimum of 150 square feet and a maximum of 1,200 square feet. On top of that, the city of Los Angeles has an additional rule stating that the living room or bedroom in an ADU can’t be less than 70 square feet.

For an attached ADU, the size cap is 50% of the main structure’s floor space, or 1,200 square feet, whichever is smaller. So for a primary home of 1,600 square feet, an attached addition must be under 800 feet. On top of that, each room other than the kitchen must have a minimum horizontal dimension of seven feet in any direction.

Other states and cities will have their own ADU size requirements, most of them equally complicated. A quick review of ADU size requirements for different cities and states show size requirements that are all over the spectrum — from Boise, Idaho, (ADUs must be less than 10% of the total lot, and less than 600 square feet) to Corvallis, Oregon, (less than 900 square feet and less than 40% of the primary unit) to Seattle (only on lots 3,200 square feet or larger, detached ADU must be less than 1,000 square feet).

Bottom line: There are no universal size requirements for ADUs, so research your local zoning laws before you start building.

ADU placement

Typically, there are going to be pretty strict regulations about where your ADU can go, relative to your property line and existing structure. These rules are generally for fire safety as well as making sure there’s enough room for, say, moving a refrigerator in and out.

In Los Angeles, for example, the ADU has to be 5 feet from your side and rear property lines. It also has to be at least 10 feet from the primary structure, if it’s detached. In New York, the required setback is 4 feet from the property lines. These requirements will vary, but generally you can’t place your ADU right on the edge of your property — it must be set back a little.

There can be other complications as well. To go back to Los Angeles, it’s very common for LA homes to have utility lines in their backyard. The Los Angeles Department of Water and Power holds Public Utility Easements for these power lines, which basically means they have a legal right to share the lot. If your ADU is within 10 feet of one of these easements, you’ll have to apply for an encroachment permit from the utility company (not from the zoning authorities), which can be a lengthy process.

Wherever you’re building an ADU, you’ll have to deal with regulations on setbacks, spacing, placement, and other potential issues.

ADU property tax increases

Adding an ADU will definitely affect your property taxes — but not as dramatically as many people think.

Like any big home improvement project, an ADU will certainly increase the value of your property, since you’re adding a new, independent living space to your lot. But in many cities and states, ADU regulations prevent your property from being reappraised, post-ADU, in a way that would send your property tax bill skyrocketing.

In California, where Prop. 13 keeps property taxes from rising with property values, an ADU will be assessed for tax purposes as a standalone unit, rather than an addition to the primary structure. Basically, that means the value of the new ADU is multiplied by the tax rate, and then that value is added to your existing property tax bill. So if you build a detached ADU at the back of your lot that’s valued at $180,000, and your property tax rate is 1%, you’ll only see an $1,800 increase to your property tax bill. You could likely recoup that by renting out your new ADU for a month or less.

Of course, other states may use different methods to assess property taxes on a new ADU, so it’s best to consult with a tax professional to learn about the tax implications in your area.

ADU depreciation

Yes, you can claim depreciation on your ADU — if you set up a Limited Liability Company (LLC) for your primary home and the ADU.

For those who don’t know, depreciation is an extremely potent tax deduction that allows you to deduct the value of a property over the course of 27.5 years. So for an ADU, you’d divide its value by 27.5, and then deduct that amount from your taxes each year for 27.5 years. You can start claiming depreciation as soon as you enter your ADU onto the rental market, and can claim it even when it’s vacant, as long as it’s available for rent.

The legal implications around ADUs are often vague and inconsistent

As we’ve touched on above, existing laws were often meant to preserve single-family zoning, and to keep housing density low. Since ADUs challenge both of those principles, they often face an uphill regulatory battle — even in places that are supposed to be friendly to ADUs.

For example, although California recently passed a law to make building ADUs simpler, many cities are dragging their feet on permits or simply refusing to authorize ADU projects. A San Marino woman sued when her garage apartment ADU was denied approval, even though it was legal under California state law. And even though the court agreed with her in part, it deferred to the city’s zoning decision, and left the denial in place.

In a similar case elsewhere in California, zoning officials in Coronado refused to issue permits for an ADU until the primary structure was complete. This decision dramatically increased costs, since it drew out the project timeline, and was likely intended to discourage construction of the ADU. The owner sued, pointing out that state law specifically allows simultaneous construction as a way to reduce construction costs.

The upshot of all this is that while the local laws governing ADU construction are often complicated, the law isn’t always the final word. In city after city, zoning officials hostile to ADUs have found ways to discourage or prevent their construction. Before you break ground on your project, do your legal homework — but also figure out how your local authorities really feel about ADUs.