ADUs and Small Lots on January 1, 2027: File Now or Wait?
AB 956, SB 1117 and SB 1116 take effect January 1, 2027. What changes for LA ADUs, JADUs, impact fees and starter home lot splits, and whether to file now.
October 24, 2026
Updated October 24, 2026. These rules take effect January 1, 2027.
On September 29 the Governor signed three bills that change what an LA owner can build behind a house and how a small developer can split a lot. All three take effect January 1, 2027. The question I keep getting: file now or wait? It depends on what you plan to build.
AB 956: two detached ADUs, but watch the JADU
AB 956 (Chapter 791, Statutes of 2026) raises the number of new detached ADUs a city must approve by right on a lot with a single-family home from one to two. On this state path the city can cap each unit at 800 square feet and hold height to 16 feet (18 feet within a half mile of major transit). The catch: if you build two detached units this way, the city no longer has to approve a junior ADU (JADU) on the same lot. AB 956 also extends the existing ban on HOA and CC&R rules that block ADUs to lots zoned to allow single-family homes, not only lots zoned for them.
SB 1117: impact fees only on the space above 750 square feet
Today an ADU of 750 square feet or less pays no impact fees, and a larger one pays a share of the fee scaled to the size of the main house. SB 1117 (Chapter 809) keeps that formula but applies it only to the square footage above 750, for up to two ADUs on a lot. An 800 square foot unit pays on 50 square feet instead of 800. Lots with more than two ADUs stay on the old math, JADUs of 500 square feet or less stay exempt, and utility connection and capacity charges are not impact fees under this section.
SB 1116: the starter home split gets more usable
SB 1116 (Chapter 808) rewrites the small lot subdivision rules behind SB 684 and SB 1123, for applications received on or after January 1, 2027. Height limits count feet, not floors. Cities cannot require a front setback over 10 feet or setbacks between the new parcels beyond what the building code requires. On multifamily zoned land, new parcels can go as small as 480 or 960 square feet when conditions are met. For owners, one line matters most: on single-family zoned land, "vacant" now means no permanent structure unless it is abandoned or untenantable. A lot with a lived-in house does not qualify.
A worked example
Take an existing 1,600 square foot house on a deep R1 lot. The numbers are round and illustrative, not a quote: $350,000 per 800 square foot detached unit, $75,000 to carve a 400 square foot JADU out of the house, rents of $2,800 and $1,500 a month, and a city impact fee that would charge $16,000 on the house itself.
| File now: ADU + JADU | January: ADU + JADU | January: two ADUs | |
|---|---|---|---|
| New rent per month | $4,300 | $4,300 | $5,600 |
| Build cost | $425,000 | $425,000 | $700,000 |
| Impact fees | $8,000 | $500 | $1,000 |
| Gross rent on all-in cost | 11.9% | 12.1% | 9.6% |
Two things jump out. The fee on the 800 square foot unit drops from $8,000 (800 over 1,600 of the house fee) to $500. And the second backyard unit adds $1,300 a month for about $275,000 more cost. That is under 6% gross before expenses, which is thin against 6.5% money. The JADU uses space you already own.
File now or wait
- ADU of 750 square feet or less, with or without a JADU: January changes nothing for you. File now.
- One detached ADU over 750 square feet: waiting cuts the fee to the area above 750. Ask the city when fees are calculated and which rules apply to an application still in review on January 1.
- Two detached ADUs on a single-family lot: wait for AB 956, and plan without a guaranteed JADU.
- Small lot split: SB 1116 applies by application date, so a January filing gets the new rules. A lot with an occupied house still does not qualify.
Two more notes. You cannot sell an ADU separately as a condo in the City of Los Angeles yet: the Council told Planning to draft an AB 1033 ordinance in September 2025 (Council File 25-0753), and none has been adopted as of this writing. Underwrite these units as rentals. Apartment owners have a separate path to as many as eight detached ADUs; that gets its own issue. Near transit, check historic status before paying for an SB 79 envelope: AB 2576 (Chapter 214, signed September 14) excludes parcels individually listed on the State Historic Resources Inventory, and contributing sites in listed historic districts, designated before 2025.
This is not legal advice. Confirm your plan with your architect or land use attorney before you file.
How I'd finance it
For an owner adding units, it is either a construction or renovation loan for the build, or a cash out refinance sized on the new rent once the units lease. Our ADU financing guide walks through both, and this LA ADU construction and payoff case study shows one closed. For a small developer, it is a construction loan up to 75% of cost, usually sized by the income approach at 1.20x DSCR at 6.5% on a 30 year amortization, then a perm loan sized the same way takes it out. If a January lot split is your play, start with the SB 1123 small lot play from Issue 6 and our LA developer financing page, then send me the address.
Trevor Damyan, President, Commercial Lending Solutions
Sources
- leginfo.legislature.ca.gov: chaptered text and status of AB 956, SB 1117, SB 1116 and AB 2576.
- Government Code Sections 66321 and 66333.
- Los Angeles City Clerk, Council File 25-0753 (AB 1033 ADU separate sale).
Not legal, tax or investment advice. Example figures are illustrative. Local rules and fee schedules vary by city.
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