In 2023, California enacted AB 1033, which presents new opportunities to partition a property in kind by allowing ADUs (Accessory Dwelling Units) to be sold separately from the main residence. As the LA Times reports, this is a huge change in zoning laws that will create greater density. This new law comes on the heels of SB 9, which allows for lot splits. Unfortunately, SB 9 has suffered from a lack of popularity due to the restrictions, lack of uniformity between cities, and high cost.
AB 1033 may allow ways to resolve partitions. Specifically, the concept of a partition in-kind allows for the property to be physically divided as a resolution of a partition action. AB 1033 means that this new law no longer requires expensive lot line splits, city or county approval, or large parcels of land. Instead, the ordinary single-family homes that consume most partitions can be the subject of an in-kind distribution.
Ideal ADU to Partition In-Kind
Not every partition is going to be a great candidate to have an ADU sold separately and ultimately provide for an appropriate resolution.
First, there are restrictions on which properties can be the subject to an ADU sold separately from the main house. There are numerous resources online that can provide extensive expertise on this topic.
Second, as it relates to a partitions, the ADU often represents only about 15 to 30% of the value of the entire parcel. Accordingly, the appropriate partition case will be where one party is owed only a portion of the total equity.
Indeed, the mortgage on the property will affect the feasibility of a partition in kind. When the property is unencumbered, meaning it has no mortgage, the ideal case will be where one of the owners is only owed about 15 to 30% of the equity. When the property does have a mortgage, often times a 50% owner may only be owed about 15 to 30% of the total value of the property, depending on the mortgage balance in relation to the value of the entire property.
In either scenario, the sale of an ADU separately from the main unit may provide enough money to satisfy the co-owner who wishes to cash out from the co-ownership.
