Applies to ADUs Constructed by Qualified Nonprofits
In nearly every legislative session over the past few years, the California Legislature has enacted bills that further reduce local control over the development of accessory dwelling units (ADUs). Recent examples include legislation that requires ministerial approval of ADU applications within 60 days, authorizes ADUs on lots with multifamily dwellings and prohibits local agencies from imposing height and setback standards beyond state-set limits. (For more information on recent changes in state ADU law, see here and here).
Assembly Bill 345 is the latest development in this area. Effective Jan. 1, 2022, local agencies will be required to allow the separate sale or conveyance of ADUs in limited circumstances.
Separate Sale or Conveyance Before AB 345
State law generally prohibits local ADU ordinances from allowing ADUs to be sold or otherwise conveyed separately from the primary dwelling. This landscape was first altered with AB 587, which created a limited exception by allowing (but not requiring) local agencies to adopt ordinances authorizing ADUs to be conveyed separately from the primary dwelling if certain conditions are met. These conditions include, among others, that the property: (1) was built by a qualified nonprofit; (2) sold to and occupied by a low-income buyer; and (3) held in a tenancy in common agreement that met specified requirements.
AB 587 went into effect Jan. 1, 2020. The rationale behind this bill was, in part, to provide low-income families with an opportunity to build wealth and equity through home ownership. Unlike many other facets of state ADU law, however, the provisions of AB 587 are not mandatory or self-executing. Rather, local ordinances must specifically allow for ADUs to be sold separately from the primary dwelling.
AB 345 builds off of AB 587 by adding new requirements and making its provisions mandatory. Beginning Jan. 1, 2022, local agencies will be required to allow ADUs to be sold or conveyed separately from the primary residence under certain circumstances, which include satisfying all of the conditions set forth in Government Code Section 65852.26 (a)(1)-(5). Among other things, these conditions require that:
- The ADU or primary dwelling was built or developed by a qualified nonprofit
- The ADU is sold to a qualified low-income buyer
- There is an enforceable restriction on the use of the property between the low-income buyer and nonprofit that satisfies the requirements of Section 402.1 of the Revenue and Taxation Code
- The property is held in a recorded tenancy in common agreement that includes all of the following:
- Gives each low-income buyer an undivided, unequal interest in the property based on the size of the dwelling that each qualified buyer occupies
- Gives the nonprofit a right of first refusal to buy back the ADU or primary dwelling if the buyer wishes to sell
- Requires the buyer to occupy the ADU or primary dwelling as his or her principal residence
- Contains affordability restrictions on the sale or conveyance of the ADU or primary dwelling that ensure the ADU and primary dwelling will remain low-income housing for at least 45 years
- Identifies areas of the property that are for the exclusive use of a cotenant
- Sets forth each cotenant’s responsibilities for the costs of taxes, insurance, utilities, general maintenance and repair, improvements, and any other costs, obligations, or liabilities associated with the property
- Contains procedures for dispute resolution (among the cotenants) before resorting to legal action
Next Steps and Takeaways
Going into effect on Jan. 1, 2022, local agencies should note these next steps and takeaways from AB 345:
- Mandatory Requirement: Starting Jan. 1, 2022, local agencies must allow ADUs to be sold or conveyed separately from the primary dwelling if the conditions provided in Government Code Section 65852.26 are satisfied.
- Limited Applicability: The impact of AB 345 may be fairly limited as it only applies to properties built by qualified nonprofits that are then purchased and occupied by qualified low-income buyers.
- Not Applicable to JADUs: AB 345 does not apply to or permit the separate sale or conveyance of junior accessory dwelling units (also known as JADUs). In accordance with Government Code Section 65852.22, a local agency’s ordinance must prohibit JADUs from being sold or conveyed separately from the primary dwelling.
- ADU Ordinance Update: ADU ordinances generally include language providing that the separate sale or conveyance of an ADU is not allowed. As a nod to AB 345’s changes to this landscape, local agencies should consider qualifying this portion of their ADU ordinance to include something to the effect of: “Except as otherwise provided in Government Code Section 65852.26, no ADU may be sold or otherwise conveyed separately from the lot and the primary dwelling.”
- Develop an AB 345 Checklist: The provisions of AB 345 only apply when numerous detailed conditions are satisfied. Thus, to assist staff (and the public) with implementing this new law, local agencies may want to consider coordinating with legal counsel to create a checklist that tracks AB 345’s requirements. Done right, such a checklist would provide staff and the public with a digestible and straightforward method for determining whether the property in question satisfies the requirements of AB 345.