In late July, the Board of Supervisors expanded authorization for in-law units known as Accessory Dwelling Units ("ADU's"), allowing ADU's to be built on all lots in the City that allow residential use. Buildings that have four or fewer legal dwelling units today may add one ADU; buildings with more than four existing dwelling units may add any number of ADU’s. ADU's will not be allowed in any building in which a tenant has been evicted pursuant to Administrative Code Section 37.9(a)(9)-(a)(14) within ten years or, under Administrative Code Section 37.9(8), within five years.

Prior to this new law, only buildings in District 3, District 8 and buildings undergoing seismic retrofitting were allowed to create ADU’s. The ordinance expands the areas of the City that may benefit from ADU’s to all zoning districts. Some districts have more strict requirements, for example, RH-1 (D) districts. Most Neighborhood Commercial Districts, and other non-residential districts such as the Chinatown Business Development and Chinatown Visitor Retail District will now allow ADU’s, as long as they are not placed in a location that would reduce or eliminate ground floor retail or commercial uses.

Under the new law, ADU’s can only be built within the building envelope of the existing building (or an authorized auxiliary structure on the same lot), and either of these two kinds of structures must have existed three years prior to the date that a building permit is filed to construct the ADU. The built envelope is generously defined to include certain decks, open areas under a cantilevered room and light well infills, with certain restrictions. There is a requirement of neighborhood notice under Planning Code Section 311 or 312 for ADU's in these types of spaces, meaning those in opposition will have a chance to request a Discretionary Review hearing at the Planning Commission.

Building an ADU comes with certain restrictions:

• Subject to Rent Control and not subject to Costa-Hawkins (meaning the initial and subsequent rent levels can be limited by the City);
• No short term rentals such as Airbnb are permitted;
• Cannot go through condo conversion (exceptions for: (1) a building that already has condominiums and where there have been no evictions for 10 years; and (2) if the ADU was created under the seismic retrofit program);
• No merger of ADU’s with existing dwellings;
• Cannot reduce the size of an existing unit to create an ADU.

Many of the ADU’s can only be built if the City waives Planning Code requirements, such as parking or minimum open space. In most cases, the City will have to do so and the waiver process may be simpler than the typical waiver process, a Variance. But if the City waives such Code requirements, provides financial assistance or grants a density bonus through the State Housing Density Bonus law (Gov. Code Section 65915 et seq.), the property owner must execute a Regulatory Agreement drafted and signed by the City. This Agreement will make the rent restrictions enforceable and must be recorded to bind future owners of the same property. The City Attorney must approve the Agreement and once recorded, the City may sue for a breach of its terms.

The City should now be able to boost housing inventory by allowing ADU's in locations never before allowed. However, this is a program that will require careful consideration by property owners before proceeding due to the numerous restrictions imposed.