Invitation Homes files $5M lawsuit against ADU startup

Dallas-based Invitation Homes has filed a $5 million lawsuit against startup United Dwelling, alleging that the Culver City-based company “misappropriated” funds in relation to a Los Angeles real estate project. 

United Dwelling, led by former venture capital executive Steven Dietz, specializes in converting garages into homes called accessory dwelling units, or ADUs. On its website, the firm declares itself as the “leading provider of ADUs in the City of Los Angeles.”

The dispute relates to an ADU project for 54 houses that Invitation owns in the Los Angeles market. According to the court records, Invitation, through a subsidiary called THR Property Management, hired United to conduct a feasibility study on the development of ADUs at the properties in October 2022. 

In its complaint, which was filed in California’s Central District Court on Aug. 15, Invitation claims that United Dwelling has yet to return a total $2.5 million in advance payments for the project. That includes a $1.5 million construction advance to fund the installation of the ADUs, plus a later payment in January, when the two sides supposedly expanded their relationship with Invitation hiring United to obtain construction permits for the properties. At that time, Invitation provided United a $1 million advance, court records show. 

In March, Invitation terminated its contracts with United. In its complaint, Invitation claims that United had yet to perform any work and demanded the return of the funds. Invitation also accuses United of inappropriately redirecting the money. 

“United Dwelling and United Dwelling Construction — at the direction of Mr. Dietz — have taken the funds advanced by THR and used them to pay their own internal operating expenses … rather than using them for the benefit of plaintiffs,” the complaint reads. 

Invitation claims that its contracts with United include provisions that allow the company to terminate the contract and get its money back without any penalties. The company seeks the return of its $2.5 million advances, plus another $2.5 million in damages and reimbursement for attorneys’ fees.

United Dwelling did not respond to requests for comment. A summons was issued on Aug. 16, court records show. 

California saw a surge in ADU construction last year. According to a previous report from the Washington Post, more than 23,000 ADU permits were issued in the state in 2022. The figure is much higher than the total of 5,000 from 2017. ADU construction was concentrated in Los Angeles, with the city accounting for one-third of the permits with a total of 7,160.