What is an accessory dwelling unit?
The idea behind an accessory dwelling unit is simple - it is an accessory (ie additional) dwelling (ie housing) to a main house that can be used by another family member or rented out for additional rental income. It could be attached to the main house or detached but located on the same property.
The accessory dwelling unit is considered part of the regular family house, no matter its form. An accessory dwelling unit can be an apartment over the garage, a tiny house in your backyard (if your lot is large enough), or a basement apartment. In terms of ownership, the owner of the regular family house is the owner of the accessory dwelling unit, and these units cannot be sold separately from the main house.
Some of the uses these accessory dwelling units serve are:
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housing an elderly or extended family member
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renting out for additional income (eg to a lodger)
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used or rented out as office space
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used as a guest house
Alan Parkes, Owner of Denver Roofing & Colorado Springs Roofing, said, ‘Accessory dwelling units are not new ideas; they have been around for quite a while, and the skyrocketing housing market has shed new light on ADUs and their viability for a more affordable housing option for many families.’
Pros and cons of an accessory dwelling unit
If you are considering building an ADU for rental, you may need to consider the following pros and cons:
Pros
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affordable housing options - landlords who offer ADUs for rent can help alleviate the pressure of the housing crisis by offering affordable housing options like ADUs for individuals or families, either at short-term or long-term leases, especially with the increasing levels of debt burdens, including housing mortgages
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an additional source of income - as ADUs are additional structures that can be rented out for a fee, landlords can recoup construction costs and gain additional regular income from renting out ADUs
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increase home property value - as an investment property, an ADU can help increase your home’s value to be more than that of homes without ADUs: it’s suggested that an ADU can increase a property’s value by approximately 20% to 30%
Cons
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privacy issues - before renting out an ADU, it is very important to consider that you will be exposing your property to a third party. This will give you less privacy in your living space and may cause inconvenience to daily life
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the costs of building and maintenance - the costs of an ADU go beyond just construction and permits. It also means additional property to maintain regularly and more costs to incur
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tax implications - adding an ADU can result in complicated tax implications, including additional qualified tax deductions and increased property taxes - especially with the abolition of Multiple Dwelling Relief (MDR) for Stamp Duty Land Tax (SDLT) from 1 June 2024
According to Jerry Han, CMO at PrizeRebel, ‘The pros and cons of accessory dwelling units may outweigh each other, depending on the situation and the landowner's needs. If a landowner is seeking to make additional income from an ADU on their property, an ADU may be a good thing to consider despite its additional costs.’
When are you allowed to add an ADU?
Adding an accessory dwelling unit is subject to local laws, building regulations, and relevant permits, especially if you are building a separate structure as an ADU - even on your own property. Because ADUs are usually habitable extension houses like granny annexes, they usually require planning permission from local authorities. These ADUs are often restricted to a limited height or percentage of the property, depending on local authority rules.
When building an ADU connected or close to a party wall (ie a wall that separates 2 adjacent properties), you may need to issue a Party wall notice to your neighbours, even if the wall is contained within your property. If your neighbour responds with written consent, your construction can go ahead.
These party wall notices should generally be given at least 2 months before construction begins so neighbours can raise any particular issues they have with regard to the proposed works.
Jonathan Feniak, General Counsel at LLC Attorney, says, ‘A party wall notice is a legal requirement under the Party Wall Act and must be observed by anyone doing any major renovations that involves a common or shared wall or structure by you and your neighbours. Failure to do so will give your neighbours the right to seek redress by injunction.’
Why are accessory dwelling units popular?
The popularity of ADUs has been accelerated by the housing crisis in the UK. The UK housing crisis has affected job seekers looking for better work opportunities in larger cities, who are continuously pushed out due to very expensive housing. At the same time, employers in larger cities are also having difficulty filling vacancies because job seekers can barely afford rentals and homes.
ADUs provide more available housing and affordable housing options for those in the low- to middle-income brackets, especially in crowded cities and for those with smaller families.
For landlords, ADUs can be built on your existing property, eliminating the costs of buying a new piece of land or another property for property investment ventures. In addition, it also increases the overall value of your entire property, shooting 2 birds with one stone when it comes to property valuation and passive income.
Accessory dwelling units also boost multigenerational living. One generation - whether the younger or older - might move out and live in an accessible smaller dwelling whilst also being at the same property as family members, while other members of the family can live in the larger main family home.
Mark Pierce, CEO at Wyoming Trust, says, ‘The affordability of accessory dwelling units makes them a popular rental income option for many landowners. However, ADUs are still subject to planning permission requirements, and landowners should still seek guidance from local authorities on how to build an ADU on their property.’
Undertaking any renovation or building work on your property, and renting out any part of it, will be subject to various laws and regulations. You can use Rocket Lawyer’s property law guidance and documents to help you comply each step of the way.
