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Council staff proposes ordinance to close 'sham transaction' loophole for ADUs and rental licenses
Summary
City staff presented a text amendment that aims to make transfers into trusts or LLCs subject to closer scrutiny for owner-occupancy requirements related to accessory dwelling units and rental licenses; staff suggested adding clearer rebuttable presumptions and stronger disclosure language.
Provo planning staff presented a proposed text amendment on Jan. 14 to close a perceived loophole that allows “sham property transactions” — ownership changes into trusts or LLCs intended to evade owner-occupancy rules for accessory dwelling units (ADUs) and rental dwelling licenses.
Jessica Danique Donachy (presenting as Jessica Danique Donachy in the transcript) said the amendment would make clear that transfers into an LLC or trust where members or trustees change within the first year after a rental license is issued, or change repeatedly during the rental period, could be treated as a sham transaction subject to enforcement. “A sham property transaction is if you're changing ownership of a property to avoid owner occupancy requirement,” Donachy said.
Councilors and staff discussed strengthening the standard by creating a rebuttable presumption: if a property is owned by an LLC or trust, it would be presumed ineligible for an ADU unless the members/trustors can demonstrate primary residence. Staff said recent code updates already require proof of owner occupancy “to the satisfaction of development services” and that development services typically requests documentation (trust instruments, LLC membership lists) at the time of rental-license review.
Staff proposed operational clarifications: add a notice to the rental-license disclosure form informing owners in an LLC or trust that changes in ownership or membership can affect ADU eligibility, and consider adding clearer language in the rental-dwelling/ADU licensing section to require documentary proof that members/trustors occupy the property as a primary residence.
Councilors raised practical concerns: the need to educate legitimate owners (trusts created for estate planning, families with temporary caregiving arrangements) and avoid unintentionally denying ADUs to households with bona fide owner occupancy changes. Staff said they will re-check recent code changes to determine how much is already covered and can bring refined language back to the council. No ordinance was adopted at the Jan. 14 work meeting.
