New ADU Law Sparks Concerns and Opportunities

A new law is poised to reshape the realm of Accessory Dwelling Units (ADUs), affectionately known as “granny flats.” The signing of Assembly Bill 1033 (AB 1033) into law marks a groundbreaking shift, granting property owners in participating cities the ability to construct ADUs on their land and sell them to third parties as condominiums.

In theory this creates the opportunity for more people to own their own property. The legislation introduces a condominium-like framework, necessitating local governments to opt in for ADUs to be available for separate sale within their jurisdictions. Those venturing into ADU construction must notify local utilities and institute homeowners associations to oversee shared spaces.

However, the recent passage of AB 1033 has stirred conversations and raised concerns within the real estate arena. Despite its potential for new opportunities, the broad strokes and absence of specific guidelines have sparked a myriad of apprehensions that could impact homeowners, neighborhoods, and communities.  From a title insurance standpoint, there are real concerns about how these subdivisions of single-family homes into condominiums are going to be accomplished. How these are going to be insured for hazards like fire, earthquake and flood is also an issue as condominiums are insured differently than single family residences. The viability of obtaining financing is also unclear, as conventional, residential financing is not designed to be used for alternative developments.

These issues can be worked through, for sure, but it will take time. In the meantime, homeowners considering this ADU development model will have more questions than answers. In navigating this evolving landscape, the discussions surrounding AB 1033 underscore the need for continued scrutiny, potential refinements, and a collaborative effort to strike a balance that aligns with the diverse needs of homeowners and communities.