The City has a tip sheet #606 specifically on illegal dwelling units.
New guidance on ADUs does not address attached ADUs, only detached and backyard cottages.
Could the owner could apply for a variance? This may be difficult to get approved, although City Council is really focused on affordable housing right now. This might be worth a call to city council.
To be a legal ADU, the owner must live in the house for six months of every year. If it is converted back to a single dwelling unit, then it could be rented by the room for no more than eight unrelated persons.
But the City currently considers the physical configuration of this house as two units. The owner will be receiving a notice of code violation probably by the end of this month.
This would give the owner 30 days notice to make progress towards correcting the violation. Progress could mean due diligence in getting permits, doing an intake appointment, gathering documents, engaging a professional to draw up plans for permitting. Also, given that the 30 days will end around Christmas/New Year's, it is very likely that the owner or the affected tenants could request a 30-day extension.
Dislocated tenants would be entitled to relocation assistance, if above 50% median income - two months rent; if below, $2000 or two months rent. Contact the Property Owner and Tenant Assistance group of the City at 206-386-4249 for more information on this.
I would suggest the following as the owner's least expensive options right now:
Give notice to one set of tenants that the owner will be moving into one of the units on February 1, 2016; and that they will have to move out. They are entitled to two months rent through relocation assistance.Then the other tenants could remain through the end of their lease. The owner would need to begin the process of completing the permitting towards a legal ADU within that 30-day window.
The owner could also sell the property with the current code violation as is, and the City would give the new owner 30 days to make progress toward correcting it. I am not sure if the new tenants would have to be notified and move out under this option. I will review a copy of the City tip sheet once I receive it, as it will likely have more details on various options towards addressing this code violation.
Interesting that these opportunities that make more housing available in the city of Seattle are being pursued in a climate of rising rents, and concern from City officials on how to make housing more affordable. Seattle Landlords, take note!