Instead of debates and personal opinion, look for proof https://www.ladbs.org/docs/default-source/forms/plan-check-2017/single-family-dwelling-duplex-plan-review-list.pdf under G (Interior Env) which defines the minimum requirement of a habitable room (aka bedroom or bathroom).

Also check into bylaws to see if you are allows a second freestanding dwelling on your property.

Dwelling, Multi-Family - A building containing three (3) or more dwelling units.

If you are unable or unwilling to do so we may elect to terminate the lease and request a return of our deposit--which we offered in a good faith agreement that we would be presented with a habitable dwelling--and our prorated rent.

Just a builders risk policy if you are doing an extensive rehab on the property and then a landlord dwelling policy when the property is rented.

For instance, properties with an accessory dwelling unit (ADU) on the lot that can be implemented as a long-term or short-term rental can perform exceptionally well.

I am confident in my depreciation numbers on the dwelling but I make an assumption that my other tax deductions will all occur in the year that I have the expense when I know my CPA depreciates some of them as capital expenses over time. 

If the health department felt that there was an adequate field to support septic for a larger dwelling, they would have said so from the very beginning. 

Are you sure that's not a 1-4 unit dwelling policy?  

You protect your assets by buying a landlord insurance policy, which comes with dwelling plus liability coverage.