ADU insurance for how the unit is used.

When an ADU can be sold separately

By default, an ADU may be rented separately but not sold or conveyed apart from the main home (Government Code 66314(d)(1)). There are two exceptions.

Nonprofit-built units (66341). A city or county must allow an ADU to be sold separately to a qualified buyer when the ADU or main home was built or developed by a qualified nonprofit and the other conditions are met. Those include a recorded tenancy-in-common agreement, a buyer who lives in the unit as a principal residence, and affordability limits for low-income housing. Agreements recorded after December 31, 2021 must spell out each owner's share of costs, including insurance.

Condominium ordinance (66342). A city or county may choose to adopt an ordinance letting the main home and ADU be sold as separate condominiums. The ordinance has to require:

1. Creation under the Davis-Stirling Common Interest Development Act and compliance with the Subdivision Map Act.
2. A safety inspection of the ADU before the condominium plan is recorded, shown by a local certificate of occupancy or a housing quality standards report from a HUD-certified building inspector.
3. Consent from each lienholder before the map or plan is recorded. The agency must give owners a notice that lender consent may require paying off the current loan through a refinance or new loan.
4. Notice from the homeowner to the water, sewer, gas and electric providers.
5. Express written authorization from the association if the property is in a planned development with an existing association.

For insurance, one parcel becomes two owners, and each owner's coverage has to fit their own unit. Send me the cotenancy agreement or the condominium documents before closing so the policies on both sides line up with who is responsible for what.

Building it yourself: when you become the employer

If you pull the ADU permit as owner-builder, the Contractors State License Board is plain about what that means: when you sign the permit application as owner-builder, you assume full responsibility for all phases of the project. CSLB says that includes ordering materials, making sure suppliers are paid, and supervising, scheduling and paying subcontractors.

The insurance problem comes from who does the work. CSLB warns that if you use anyone other than a licensed subcontractor, you may be considered an employer. Employers must register with the state and federal governments and handle income tax withholding, Social Security taxes, workers' compensation insurance, disability insurance costs and unemployment compensation contributions.

Before the first day on site, I'll ask:

• Who holds the permit: you or a licensed general contractor.
• Who works on site: licensed subcontractors, or people you pay directly.
• What's being built: a new detached structure, an addition, or a garage conversion. Under Government Code 66314(e), a demolition permit for a detached garage being replaced with an ADU is reviewed with the ADU application and issued at the same time, so tell me if a garage is coming down. The structures listed on your policy should match what is actually standing.

Depending on the answers, the project may call for builder's risk for the structure and materials and workers' compensation if anyone on site is your employee. Ask each licensed sub for a certificate of insurance before they start, and send me your current homeowners declarations page so we can review the main house during construction.