Prop C – SF’s Early Care and Education Ordinance

Proposition C

Despite voter passage of Proposition C in 2018, and San Francisco’s resulting Early Care and Education Commercial Rents Tax Ordinance (the “Ordinance”) becoming operative January 1, 2019, questions still abound with respect to what is excepted/exempted from the Ordinance and what its impact is on a commercial landlord’s ability to pass-through certain operating costs. The following addresses these two areas of interest concerning the Ordinance, which is codified at Article 21 of the San Francisco Business and Tax Regulations Code (the “Tax Code”).

New Gross Receipts Tax Rates

The Ordinance creates a new gross receipts tax on rents collected from leases (including subleases) of 3.5% for most commercial spaces and 1.0% for rents from most warehouse spaces. These new taxes are in addition to all other taxes imposed by the City of San Francisco (the “City”), including the gross receipts tax presently imposed by Article 12-A-1 of the Tax Code.

Exemptions, Exclusions, and Credits

The following are either exempted or excluded from the additional gross receipts taxes imposed under the Ordinance:

  1. Certain nonprofits;
  2. Receipts from the leasing of commercial space to certain nonprofits, and to federal, state or local governments;
  3. Commercial landlords with less than $1,000,000 in gross receipts for the preceding year;
  4. Rents paid from Arts Activities, as defined in Section 102 of the Planning Code;
  5. Industrial Uses as defined in Section 102 of the Planning Code;
  6. Rents Paid from Retail Sales or Service Activities or Retail Sales or Service Establishments, as defined in Section 303.1(c) of the Planning Code;
  7. Any person who the City is “prohibited under the Constitution or laws of the State of California or the Constitution or laws of the United States” from imposing the gross receipts tax of under the Ordinance; and
  8. Gross receipts from the lease of most commercial space subject to the tax imposed under Articles 7 (Tax on Transient Occupancy of Hotel Rooms) or 9 (Tax on Occupancy of Parking Space in Parking Stations) of the Tax Code, or rent that is otherwise exempt from taxation under Articles 7 or  9.

Additionally, the Ordinance allows commercial landlords that lease or provide commercial space in the City for a Qualifying Child Care Facility[1] that operates for more than six months in a tax year to receive a credit against taxes under the Ordinance for that tax year. This credit expires by operation of law on December 31, 2023.

Impact on Pass-Through Expenses

A common question among commercial landlords in the City is what pass-throughs, if any, will be taxed as gross receipts under the Ordinance. The impact of the broad language in both the Ordinance and the applicable definition of “Gross Receipts” results in, with the exception of taxes, gross receipts encompassing essentially all pass-throughs, including those for ordinary operating expenses.

The Tax Code defines “Gross Receipts” as meaning, in part, the total amounts received or accrued by a taxpayer from “whatever source derived,” including, without limitation, rent. Gross receipts include all amounts constituting gross income for federal income tax purposes, as well as payment for any services that are part of the lease.  With respect to any lease or rental, gross receipts include payment for any services that are part of a lease or rental, whether received in money or otherwise, that is paid to, on behalf of, or for the benefit of, the lessor, and all receipts, cash, credits, property of any kind or character and the fair market value of services paid or rendered by the lessee.

It therefore appears that pass-throughs for operating expenses would be included in the determination of gross receipts.

Finally, Regulation 2019-1, adopted by the City in 2019 after the Ordinance became operative, resolved a conflict between the Ordinance and an earlier-proposed City regulation that would have sought to provide no exemption for local, state or federal taxes. Regulation 2019-1 resolved this discrepancy in favor of commercial owners, stating that no local, state or federal taxes would be exempt from gross receipts “to the extent the amount claimed as a reimbursement exceeds the actual amount of the tax paid or payable to the applicable local, state or federal housing authority.” In other words, actual taxes paid or payable are exempt.

It is therefore advisable to include clear language in commercial leases relating to the pass-through of gross receipts, including those for local, state and federal taxes.

References

[1] “Qualifying Child Care Facility” means a facility that is licensed by the California Department of Social Services, or any successor agency, to provide non-medical care to Infants, Toddlers, Preschool-Age Children, or any combination thereof in need of personal services, supervision, or assistance essential for sustaining the activities of daily living or for the protection of the individual on less than a 24-hour basis in a group setting. (Tax Code, § 2106.1(c)(1))

 

Authored by Reuben, Junius & Rose, LLP Attorney Michael Corbett.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

California Tells Cities to “Approve Housing and Don’t Delay”

The Housing Crisis Act will dramatically reduce the ability of cities and counties across California to obstruct or deny housing by removing the main tools used by housing opponents – unpredictability, subjectivity and delay. To deny a housing project application, cities and counties will now have to make an objective determination and make it more quickly.

The Housing Accountability Act already limits a jurisdiction’s ability to disapprove or conditionally approve a residential housing project for lower and moderate-income residents (up to 120% of the area’s median income level) if the project is consistent with the local zoning and general plan and it meets objective standards.

The Housing Crisis Act of 2019, also known as SB 330, continues to move State housing law toward objectivity and predictability. It applies to urbanized jurisdictions as will be determined by the Department of Housing and Community Development by July 2020 based on US Census data. We expect urbanized jurisdictions to include San Francisco and much of the Bay Area, Los Angeles area, San Diego area, and the Highway 99 corridor through the Central Valley. The new law went into effect on January 1, 2020 and will sunset on January 1, 2025.

An urbanized jurisdiction may not rezone or “downzone” properties where housing was allowed in 2018 in a way that would discourage residential development without “upzoning” elsewhere within the jurisdiction. This includes changes in height, density, FAR, minimum lot size, minimum frontage, and moratoriums or caps on housing approvals. Similarly, an urbanized jurisdiction no longer can adopt subjective design standards or apply those adopted after January 1, 2020 to proposed housing projects.

In an urbanized jurisdiction, residential units cannot be removed from the market. Any project that proposes to demolish protected residential units, including below market rate, rent controlled, or Section 8 units, must replace those units at similar affordability levels. A project applicant must also provide relocation assistance and an opportunity for those tenants to rent the new units.

An applicant can lock the then-current land use controls in an urbanized jurisdiction by filing a preliminary application. A full application must be made within 180 days of the preliminary application and the applicant has 30 months to begin construction. This does not limit existing fees with automatic annual adjustments.

Local planning departments are going to have to plan their hearing calendar carefully for these housing projects. Once a housing development project application is deemed complete (for an entirely residential project or a mixed-use project on land zoned to require at least 2/3 residential), a jurisdiction may only hold five hearings on the project. Workshops and continuances count toward the five-hearing limit. An appeal hearing also appears to count toward the five-hearing total. The number of hearings may not be extended by the applicant. Permit Streamlining Act timelines limit a jurisdiction’s ability to delay the five hearings.

A project applicant, a qualified potential resident, or a housing organization may bring an action to compel an urbanized jurisdiction to comply with these requirements. A court must take action within 60 days and the burden of proof is on the local jurisdiction to show that they complied.

Cities like San Francisco are already taking seriously these new changes. Other jurisdictions are likely waiting for HCD’s official determination later this year. The determination could be a pivotal moment for communities that are on the cusp of urbanization and use discretionary tools to slowly kill housing projects. We will be watching closely.

Please keep in mind that there are many subtleties to both new and existing law. Please contact Reuben, Junius & Rose, LLP for more information.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

 

SB 50 Revamp: The More HOMES Act Amended

SB 50 Housing

SB 50, The More HOMES Act introduced by San Francisco State Senator Scott Wiener in December 2018 was reintroduced with amendments earlier this week. The reintroduction comes after SB 50 was held by the Appropriations Committee last spring by State Senator Anthony Portantino.

SB 50, which we have previously reported on, seeks to address California’s housing crisis by requiring cities to allow increased density for housing projects near “high-quality” transit stops or “jobs-rich areas.” In addition, SB 50 would streamline permitting for multifamily housing developments up to 4 residential dwelling units that are code complaint per the zoning requirements in place as they existed on July 1, 2019. For such projects, the bill would establish a streamlined ministerial approval process, thereby exempting them from the California Environmental Quality Act (“CEQA”) approval process. And SB 50 would prohibit a local agency from adopting any requirement that applies to a project solely or partially on the basis that the project receives ministerial or streamlined approval.  Not surprisingly, opponents of SB 50 continue to express concerns regarding its incentive program taking away local control and the likely displacement of locals through gentrification.

There is an estimated shortfall of 3.5 million units of housing in California that is the result of a decade of low housing production. SB 50 enables the production of more housing and requires larger projects to set aside 15% to 25% of homes to low-income residents. SB 50 aims to increase density in residential areas by making it legal to construct small apartments complexes, such as triplexes and fourplexes, in single-family neighborhoods and up to six-story buildings adjacent to “high-quality” transit.

In order to address the local push back, the following amendments have been added:

  • Gives local governments flexibility – local flexibility plans – for how they implement SB 50’s requirements;
  • A priority preference program for local low-income residents; and
  • Continues to provide a two-year implementation delay for “potentially sensitive communities” and five-year implementation delay for “sensitive communities.” These are generally defined as communities that are vulnerable to gentrification.

Local Flexibility Plans

In lieu of being subject to SB 50, local governments may submit a “local flexibility plan” that crafts their own housing plans. The local flexibility plan must create at least the same number of new units as would be allowed under SB 50.

By July 2, 2021, the Governor’s Office of Planning and Research shall publish rules, regulations, or guidelines for the submission and approval of a local flexibility plan. Local governments will have to submit their local flexibility plans to the Department of Housing and Community Development for review and approval. If the local flexibility plan is certified by the Department of Housing and Community Development, the local government would not be required to grant the incentives provided under SB 50.

To prevent a local government from concentrating new housing in certain areas, a local flexibility plan cannot result in increased vehicle miles traveled and must distribute new housing equally among both lower-income and more affluent areas. The goal being to add housing near jobs to reduce residents’ commutes, and in turn help the state reach its greenhouse gas reduction goals.

Priority Preference Program

In an effort to prevent displacement of low-income residents from their neighborhoods, individuals living within one-half mile of the housing development will receive priority for some of the project’s homes. Forty percent of a housing development’s affordable housing units are to be reserved for low income, very low income, and extremely low-income households living within one-half mile. Note, SB 50 does not include a provision for the creation of guidelines on implementation of the priority preference program.

Sensitive Communities

By July 1, 2023, “sensitive communities” in each county shall be identified by a working group comprised of residents of potentially sensitive communities within the county. The working group will develop a map of sensitive communities within the county to be adopted by the board of supervisors or council of governments, as applicable. And implementation of SB 50 would be delayed until January 1, 2026, for the identified “sensitive communities.” For “potentially sensitive communities,” implementation of SB 50 would be delayed until July 1, 2023.

Senator Wiener has indicated that housing is his top legislative priority this year. And he is likely to have a receptive ally from Governor Gavin Newsom who has pledged to have 3.5 million new homes built by 2025.

SB 50 has until January 31, 2020, to pass the State Senate otherwise the proposal officially dies in the legislature.

 

Authored by Reuben, Junius & Rose, LLP Attorney Justin A. Zucker

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full-service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Prop F – More Restrictions on Campaign Contributions and Advertisements

Prop F

In June 2019, District 4 Supervisor Gordon Mar introduced Proposition F, also known as the “sunlight on dark money” ballot initiative. The goal, according to Supervisor Mar, was to restrict “pay-to-play” donations and increase transparency in terms of who is contributing to candidates and their committees. However, what resulted was a ballot initiative—which was ultimately approved by approximately 77% of voters in the November election—that appears to only single out donations from the development community.

Campaign Contributions

Proposition F amended the San Francisco Campaign and Governmental Conduct Code by adding limited liability companies and limited liability partnerships, whether for-profit or nonprofit, to the business entities that are prohibited from directly contributing to candidate committees.

In addition, individuals, and any entities the individual controls or majority owns, are prohibited from contributing to the campaigns of candidates for mayor, Board of Supervisors, or city attorney if they have a pending land use matter before the City or a land use matter that was ruled on within the previous 12 months. The following would be prohibited from making these land use-related donations:

  • People who have an ownership interest of at least $5,000,000 in a land use project or property;
  • Individuals who hold a director or principal officer position in an entity with an ownership interest of at least $5,000,000 in a land use project or property; and
  • Developers of projects with an estimated construction cost of at least $5,000,000.

Note that the prohibition on land use contributions is not applicable to matters concerning an individual’s primary residence.

Finally, Proposition F prohibits current members, prospective candidates, or their election committees from accepting or soliciting prohibited contributions. However, the law interestingly includes a “safe harbor provision,” which states that if the political committee or candidate accepted a prohibited contribution after doing “due diligence,” they will not be penalized other than having to forfeit the contribution to the City’s General Fund.

One of the ways to satisfy the “due diligence” requirement of the safe harbor provision is if the person or entity making the contribution states under penalty of perjury that the contribution is not prohibited. In that case, even if the candidate or committee knows or has reason to know that the contribution is illegal, the donor’s statement that it is not prohibited will constitute a complete defense from enforcement against the candidate and/or their committee. The wording of this safe harbor provision is certainly strange – but this is what the current law says. And although provisions of the Campaign and Governmental Conduct Code can typically be amended or repealed by the Board of Supervisors, the section that prohibits land use-related contributions (including the safe harbor protection for candidates and committees) can only be amended or repealed by the voters.

Campaign Advertisements

Proposition F also made a number of changes to campaign advertising laws, including:

  • Lowering the threshold for qualifying as a top donor to political advertisements, which must be disclosed, from $10,000 to $5,000. If any of the top three major contributors is a committee, the disclaimer must also disclose both the name and the dollar amount contributed by each of the top two major contributors of $5,000 or more to that committee.
  • Increasing the minimum Political Reform Act disclaimer size from 12 point to 14 point bold font.
  • Requiring disclaimers in audio and video advertisements to be spoken at the beginning, rather than the end.
  • Requiring committees that file late independent expenditure reports and associated advertisements to also file  an itemized disclosure statement with the Ethics Commission for that advertisement(s)
  • Requiring committees making independent expenditures to pay for mass mailings to file a copy of the mailing and an itemized disclosure statement with the Ethics Commission within five days. However, if the mass mailing occurs within the final 16 days before an election, the copy of the mailing and itemized disclosure statement must be filed within 48 hours.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tiffany Kats

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

 

 

New California ADU Laws Aim to Remove Barriers and Boost Development

While campaigning for Governor, Gavin Newsom pledged to build 3.5 million new units by 2025 to combat California’s housing crisis. One way to meet this ambitious goal is through the construction of accessory dwelling units (“ADUs”). Since 2017, California lawmakers have passed several bills to streamline the ADU approval process. However, exorbitant fees and strict local requirements in some cities have continued to hinder the development of new ADUs. In response, Governor Newsom recently signed into law five bills that aim to further remove local barriers to ADU development, as well as to incentivize owners of both single-family and multi-family homes to add much-needed additional units to their properties.

AB 68 & AB 881 – Streamlining ADU Approvals

AB 68 and AB 881, introduced by Assemblymembers Philip Ting and Richard Bloom, were consolidated and enacted as one bill because the fundamental goal of the two bills was essentially the same—to streamline and improve the ADU process in order to facilitate the development and construction of ADUs. Effective January 1, 2020 these bills will:

  • Require permits for ADUs and junior ADUs added to existing single-family and multi-family homes to be ministerially approved or denied within 60 days, rather than the 120 days allotted by existing law;
  • Allow the approval of ADUs in proposed housing to be delayed until the new construction is approved, but the ADU permit must still be issued ministerially;
  • Allow cities and counties to establish minimum and maximum ADU size requirements, provided that the maximum floor area is not less than 850 square feet or 1,000 square feet if the ADU has more than one bedroom;
  • Prohibit any lot coverage, floor area ratio, open space, and minimum lot size requirements that would impact or deny ADU production; and
  • Prohibit municipalities from requiring that existing nonconforming zoning conditions be corrected as a condition for ADU permit approval.

Perhaps most importantly, subject to certain requirements, the consolidated bill will require ministerial approval for projects in residential and mixed-use zoning districts that propose to create the following:

  • One ADU (attached or detached) and one junior ADU on a lot with either an existing or proposed single-family home;
  • Multiple ADUs within an existing multi-family building; or
  • Up to two detached ADUs on a lot with an existing multi-family building.

Note that if a garage is converted or demolished to construct a new ADU, the off-street parking spaces do not have to be replaced. Furthermore municipalities will be prohibited from enforcing parking standards for ADUs located within ½ mile of public transit.

SB 13 – Owner Occupancy and Fees

Similar to the consolidated bill made up of AB 68 and AB 881, SB 13 prohibits the enforcement of parking standards for ADUs within ½ mile of public transit, requires ministerial approval of ADU permits within 60 days, and allows the construction of ADUs in garages and detached accessory structures. However, SB 13, introduced by Senator Bob Wieckowski, goes a step further by tackling two key issues: (1) the owner-occupancy requirement and (2) expensive fees.

First, as a condition of approval, local agencies can currently require that an applicant for an ADU permit occupy either the primary residence or the proposed ADU. Until January 1, 2025, SB 13 will exempt all ADUs from such owner-occupancy requirements.

Second, one of the biggest barriers to constructing ADUs in California are the fees associated with getting them approved and developed. To further incentivize owners to construct ADUs, SB 13 will implement a tiered fee structure based on the ADU’s size and location. Specifically, no impact fees can be imposed on ADUs smaller than 750 square feet, and any impact fees assessed for larger ADUs must be proportional to the square footage of the primary residence.

AB 670 & AB 671 – HOA and General Plans

Finally, AB 670 prevents homeowners’ associations from banning or unreasonably restricting the construction of ADUs on single-family residential lots. Meanwhile, AB 671 will require local General Plan housing elements to incentivize and promote the construction of affordable ADUs that can be rented to very low, low, and moderate-income households. The California Department of Housing and Community Development must also draft a list of “existing state grants and financial incentives” for ADU owners and developers by December 31, 2020.

Together, this package of ADU laws hope to ease local restrictions in order to incentivize the development of “affordable by design” ADUs. In the midst of California’s housing shortage, it remains to be seen what impacts these bills will have on ADU construction when they take effect next year.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tiffany Kats

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Citywide Jobs Housing Linkage Fee Increase on Office and Lab

On Tuesday, the San Francisco Board of Supervisors passed legislation increasing the Jobs Housing Linkage Fee (“JHLF”) for office and laboratory projects.   While some grandfathering applies to pipeline projects, as of January 2021 new large office projects will be assessed the JHLF at a rate of $69.60 per gross square foot (“gsf”); smaller office developments at a rate of $62.64; and laboratory projects at a rate of $38.37/gsf.

The JHLF was created in the 1980s and applies to projects citywide that increase by 25,000 gross square feet (“gsf”) or more any combination of office, retail, hotel, integrated PDR, laboratory or small enterprise workspaces uses.  The Fee is intended to account for the increased housing demand created by new commercial construction.

Until now, the JHLF program allowed developers to choose between paying an in lieu fee or dedicating land of equivalent value to a housing developer for construction of affordable housing (although the land dedication option was rarely used).  Projects within the Central SoMa Special Use District also have the alternative of dedicating land to the City for affordable housing production.  The JHLF is currently assessed at a rate of $28.57/gsf for office use, and $19.04/gsf for laboratory.

Last May, District 6 Supervisor Matt Haney introduced legislation to raise the JHLF on office to $38.00/gsf – about $10 over the current rate.   Then in September he introduced modified legislation with much steeper rates:  $69.60 /gsf for office and $46.43/gsf for laboratory, with no grandfathering for pipeline projects.  The legislation did not increase the JHLF for retail, hotel, or small enterprise workspace development.

On October 21st, amended legislation was introduced at the Board’s Land Use Committee, providing some grandfathering for pipeline projects by phasing-in rate increases between now and January 1, 2021.   On October 29th, additional amendments were introduced at the full Board, differentiating fee rates for large-cap (> 50,000 gsf) versus small-cap (49,999 gsf or less) office projects.   The final JHLF legislation fee rates are summarized below.

Large-Cap Office (50,000 gsf or more):

Small Cap Office (49,999 gsf or less):

Laboratory:

In addition, Tuesday’s legislation makes the following modifications to the JHLF:

  • Requiring the fee to be indexed annually according to the Annual Infrastructure Construction Cost Inflation Estimate, consistent with most other City development impact fees;
  • Eliminating application of JHLF to “Integrated PDR,” a defunct use category;
  • Allowing projects citywide to comply with the JHLF through land dedication to the City, but removing the formerly-available option of compliance through payment of a fee or land dedication to another housing developer;
  • Requiring sponsors of large-cap office projects approved by the Planning Commission before 9/10/19, which contain approval language stating that the project will be subject to JHLF increases adopted before the project received a Certificate of Occupancy [essentially “key sites” in the Central SoMa Plan area], to pay the difference in JHLF assessed at the time of site permit issuance and the rate due under the legislation ($52.20) prior to issuance of a Certificate of Occupancy; and.
  • Requiring the JHLF Nexus study to be updated every five years.

The JHLF legislation was approved by Board on Tuesday, and will become final unless disapproved by the Mayor within 10 days.  Pending Mayoral action, it is anticipated to take effect in December 2019.

 

Authored by Reuben, Junius & Rose, LLP Attorney Melinda Sarjapur

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

New Legislation Aims to Limit “Intermediate Length” Rentals

Following recent controversy over furnished rental properties that skirt the short term rental regulations by requiring tenants to stay for at least 30 days, Supervisor Peskin introduced legislation last week aimed at reigning in such projects.

The ordinance would create a new “Intermediate Length Occupancy” under the Planning Code and would provide corresponding amendments to the Rent Ordinance. The legislation is available here.

Planning Code Changes – Intermediate Length Occupancy Units:

Under the Planning Code, Peskin’s legislation would define a new Intermediate Length Occupancy residential use “characteristic.” The classification covers dwelling units offered for an initial occupancy of more than 30 days but less than one year. Such units would be subject to a new Planning Code section, which would create a framework for permitting (and limiting) the units.

Projects that have not received a first building or site permit (as of the effective date of the new law), that would create at least 10 new dwelling units (i.e. those projects subject to the Inclusionary Affordable Housing requirements) would be eligible to establish Intermediate Length Occupancy units under the new rules—which would not apply to student housing, residential hotel units (subject to Admin. Code Chapter 41), or to projects with nine or fewer units. Units that are designated as affordable under the Inclusionary Affordable Housing Program, subject to the Rent Ordinance, or otherwise designated as below market rate units under state or federal law, are not eligible to be Intermediate Length Occupancy units.

For qualified projects, the Intermediate Length Occupancy units would be permitted with conditional use authorization in any district that otherwise allows residential use. Such approval would limit the Intermediate Length Occupancy units to no more than 20% of the project, and the units would need to be specifically identified as Intermediate Length Occupancy units. While the units are defined as having an initial tenancy of no more than one year, a designated Intermediate Length Occupancy unit could be offered for a term of more than one year without losing its Intermediate Length Occupancy status.

Like with Residential Hotels, owners of Intermediate Length Occupancy units would be required to file annual reports detailing the following:

  1. The location of the Intermediate Length Occupancy unit;
  2. The number of times the unit was occupied by a natural person for an initial stay for a duration of greater than 30 consecutive days but less than one year, including the duration of each of those stays;
  3. The average duration of each stay;
  4. The average vacancy between each stay; and
  5. The nature of the services, if any, that are provided to occupants.

Notably, the ordinance states that no more than 500 Intermediate Length Occupancy units may be permitted throughout the City.

 

Rent Ordinance Amendments:

Peskin’s related changes to the Rent Ordinance aim to strengthen tenant protections, prohibit fixed-term tenancies, and increase tenant awareness of Rent Ordinance protections.

For starters, the legislation provides that any lease provision that requires a tenant to vacate a rental unit at the end of a stated term, “shall be void as contrary to public policy.” Such that a landlord may not recover possession of a unit without just cause, except in the limited circumstances where the Rent Ordinance expressly authorizes a fixed lease term or eviction without just cause.

Additionally, the legislation prohibits the lease of rental units to corporate entities and use of a unit for a corporate entity’s own employees or licensees (i.e. a “Non-Tenant Use”). As of February 1, 2020, and subject to limited exceptions, rental units that are subject to the Rent Ordinance may not be used for a Non-Tenant Use. Agreements providing for such Non-Tenant Use would be considered void—and the occupants would be deemed tenants protected by the Rent Ordinance.

Further, beginning February 1, 2020, online listings for units subject to the Rent Ordinance must disclose that the unit is subject to the Rent Ordinance. The legislation gives the Rent Board the authority to monitor online listings and assess penalties of up to $100 a day for non-compliant listings (but no more than $1,000 total for a single listing).

The legislation also includes a civil suit provision—expressly granting authority to the City Attorney’s Office and to nonprofit tenants’ rights organizations to bring a civil action for any violation of these new Rent Ordinance regulations.

Authored by Reuben, Junius & Rose, LLP Attorney Chloe Angelis

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

California Adds Incentives for Developers and Homeowners

California Incentives

Governor Gavin Newsom announced this month that he has signed 18 bills into law that will boost housing production in California. Many of these bills fall into two categories: first, bills that reduce barriers for developers to build large-scale housing (more than four units), and second, bills that reduce barriers for homeowners to build accessory dwelling units (“ADUs”) in single-family homes. Of the bills the Governor signed, we find the following to be the most promising and impactful to larger-scale housing development at a statewide level.

AB 1763 – Chiu (San Francisco)

AB 1763 expands the state’s Density Bonus Law for 100% affordable housing projects. As the law exists currently, a local jurisdiction must allow an increase in density and provide up to three incentives or concessions to a development with certain levels of affordable units. Two new features this bill adds to existing Density Bonus Law include:

  • If a developer provides 80% or more units to lower income households and up to 20% of units to moderate-income households, the development may increase its otherwise allowed height by three stories or 33 feet and the jurisdiction must grant the developer four incentives or concessions. In addition,
    • if the development is more than ½ mile from a major transit stop, the density may be increased by 80% of the number of units dedicated to lower income households, or
    • if the development is within ½ mile of a major transit stop, unlimited density is allowed within the building envelope.
  • For a special needs housing or supportive housing project that is 100% lower income housing, no parking is required. Such a development can increase its density to 180% of the number of units otherwise allowed, will receive four incentives or concessions, and can increase its height by three stories or 33 feet. Special needs relates to mental health needs, physical disabilities, developmental disabilities, person at risk of homelessness, and veterans.

This is a promising change in state law because many projects we see in urban infill locations take advantage of the Density Bonus Law, but the bonus is not always enough. Now, these projects can further increase their height and density, eliminate parking, and apply four incentives to make the development more affordable. These bonuses will help increase unit count, increase affordability, and reduce the per-unit cost of development. Another promising aspect of this legislation is that it incentivizes housing for middle class. Moderate income families have been an overlooked segment of the California population.

For a state that wants to encourage mass transit, this legislation should be a strong incentive. A “major transit stop” means a rail station, a ferry terminal with bus or rail service, the intersection of two or more major bus routes with service every 15 minutes during commute periods, or a high-quality transit corridor included in a regional transportation plan. To put it differently, these incentivized development locations will include sites near Caltrain stations, SMART train stations, AMTRAK stations, BART stops, bus stops, ferry terminals, and more. According to Metropolitan Transportation Commission data, there are more than 6,000 major transit stops in the San Francisco Bay Area. According to the Southern California Association of Governments, there are thousands more major transit stops in the greater Los Angeles area.

AB 1485 – Wicks (Oakland)

AB 1485 is another new law focused on increasing density and increasing moderate-income housing production at urban infill locations. The Density Bonus Law currently allows jurisdictions to include underground space, such as basements and underground parking garages, toward the square footage of a development. In other words, this underground space, sometimes required by a jurisdiction to meet parking requirements, is included in floor area calculations and puts a limit on the intensity of development. This new law eliminates underground space as part of the floor area calculation and, as a result, gives a boost to developable space on a site.

This bill also enhances the streamlining process for infill developments created by SB 35 in 2017 because it adds permit streamlining for moderate-income development projects within the San Francisco Bay Area. Assembly staff analysis points to Cupertino, Berkeley, and San Francisco as cities where the streamlining of affordable housing development is set to make an impact.

Finally, this bill eliminates California Environmental Quality Act (“CEQA”) review for certain projects located on Bay Area Rapid Transit (“BART”) owned property. It also eliminates CEQA review for the sale of BART-owned property. This will impact sites where BART itself is planning projects, including possible projects in Berkeley, Concord, Oakland, and San Francisco, for example. It will also impact land BART may sell. According to BART, the agency is considering the sale of agency-owned land in El Cerrito, Hayward, Oakland, Walnut Creek, Richmond, San Leandro, San Lorenzo, and Union City. This law has the potential to streamline housing development on significant amounts of Bay Area land.

ADUs

This year, a package of new ADU laws will encourage housing development at an individual scale. In particular, AB 68, AB 881, and SB 13 will encourage the development of ADUs and junior ADUs. These new laws address the ways local governments indirectly discourage the development of ADUs. Features of the new laws include capping setback requirements, prohibiting lot coverage and floor area ratio calculations for ADUs, prohibiting replacement parking requirements when a garage is converted to an ADU, and restricting owner-occupancy requirements. These new ADU laws will encourage smaller increases in density in residential neighborhoods, outside of the types of large developments discussed above, but will nonetheless increase the affordable housing stock in California.

Please keep in mind that there are many subtleties to both new and existing law. Please contact Reuben, Junius & Rose, LLP for more information.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Statewide Rent Control & Eviction Protections Signed into Law

Rent protections

For over 20 years, Costa Hawkins has set the parameters for rent control in California by limiting a city’s ability to enact rent control regulations that apply to units built after 1995. Many local rent control ordinances provide a much earlier cutoff than what is permitted under State law. For example, San Francisco’s rent control ordinance applies to housing built before June 1979. And although cities are allowed to enact rent control ordinances within the limits set forth under Costa Hawkins, many have not.

AB 1482, which was authored by Assemblymember David Chiu and signed into law by Governor Gavin Newson last week, upends the current system by mandating a statewide rent cap for housing built more than 15 years ago, which will apply on a rolling basis. The legislation will also provide statewide eviction protections in cities that do not already provide their own just cause eviction ordinance. According to the California State Assembly’s analysis, AB 1482 will affect nearly three million households across California.

Rent Cap

Beginning on January 1, 2020, AB 1482 will apply a cap on annual rent increases of 5% plus the percentage change in the Consumer Price Index or 10%, whichever is lower. The legislation does not affect vacancy decontrol, meaning owners are able to set initial rents for new tenancies. After the initial rent is set, the cap will apply to any subsequent increases.

This legislation applies to all units that have been issued a certificate of occupancy more than 15 years ago. This 15-year exemption applies on a rolling basis. That means starting in 2020, units built in 2005 will be subject to the rent cap. In 2021, units built in 2006 will be subject to the rent cap, and so on until 2030 when the legislation expires.

AB 1482 will not apply to units in cities that are already subject to lower rent caps. Therefore, it will not preempt San Francisco’s existing rent control provisions for housing constructed prior to June 1979. However, housing units built after June 1979 that have received a certificate of occupancy more than 15 years ago will be subject to the rent cap.

Aside from exempting units built within the last 15 years, AB 1482 also exempts:

  • Duplexes if one of the units is owner-occupied;
  • Dorms;
  • Affordable housing units; and
  • Single-family homes or condos that are not owned by a real estate investment trust, a corporation, or an LLC where one member is a corporation, if the tenants were provided notice of the exemption.

Just Cause Eviction

The just cause eviction protections set forth under AB 1482 only apply to cities that have not enacted their own just cause eviction ordinance prior to September 2019, so the legislation will not apply in San Francisco. AB 1482’s eviction protections will apply in all other cities unless new local ordinances enacted after September 2019 are more protective than AB 1482.

In cities where AB 1482’s eviction protections apply, tenants that have legally occupied a unit for more than 12 months cannot be evicted without just cause. The legislation provides two categories for just cause evictions—at-fault and no-fault. An at-fault eviction applies in the following circumstances:

  • Nonpayment of rent;
  • Breach of a material term of the lease;
  • Nuisance, waste, criminal activity, use of the unit for an unlawful purpose;
  • Failure to sign a written extension or renewal of the lease;
  • Assigning or subletting in violation of the lease;
  • Refusal to allow the owner to enter the unit; or
  • Failure to vacate after terminating the lease.

A no-fault just cause eviction applies when the owner withdraws the unit from the rental market, intends to demolish or substantially renovate the unit, moves into the unit (also applies to the owner’s family members), or when the unit is required to be vacated under a local ordinance or due to a court order. For no-fault evictions, the owner must either provide relocation assistance in the amount of one month’s rent or waive the final month’s rent.

Written notice of these protections must be provided for all new tenancies and to all existing tenants by August 2020. Like the rent cap provisions, the eviction protections are set to expire on January 1, 2030.

The just cause eviction protections do not apply to housing that was issued a certificate of occupancy within the last 15 years, owner-occupied units, ADUs in owner-occupied single family homes, duplexes if the owner occupies one of the units, affordable housing units, dorms, hotels, and certain residential care facilities. The legislation also exempts single-family homes and condos that are not owned by a real estate investment trust, a corporation, or an LLC where one member is a corporation, if the tenants were provided notice of the exemption.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

 

COPA is Here – Now What?

COPA

The Community Opportunity to Purchase Act (COPA) was approved unanimously earlier this year.  COPA legislation became effective on June 3, 2019, however, the COPA program rules were not published until September 3, 2019 by the Mayor’s Office of Housing and Community Development (MOHCD).  The COPA program applies to the sale of all San Francisco multi-family rental housing developments with three (3) or more units, and all vacant lots that could be constructed with three (3) or more residential units by right.  COPA essentially changes the way in which multi-family rental projects (and certain vacant lots) can be sold by providing certain nonprofit organizations a right of first offer and in some instances a right of first refusal.

Before a multi-family residential building (or vacant lot) with three (3) or more units can be offered for sale, the owner is required to notify certain nonprofit organizations that are on a “Qualified Nonprofit” list maintained by the City.  The Qualified Nonprofit list at this time contains six (6) nonprofits.  The initial “Notice of Sale” must be made via email, and should be sent to all Qualified Nonprofits at the same time.  The Notice of Sale must include statements indicating: (a) seller’s intent to sell the building, (b) the number of residential rental units, (c) the address for each rental unit, and (d) the rental rate for each unit.  Qualified Nonprofits then have five (5) days to notify the owner if they are interested in making an offer.  If a Qualified Nonprofit expresses interest in buying the building, the owner must provide further disclosures to the interested nonprofit, including the name and contact info for each tenant, which triggers an additional 25-day period during which the Qualified Nonprofit may submit an actual offer.  If none of the Qualified Nonprofits expresses an interest in making an offer within the initial 5-day period, the owner may proceed in offering the building for sale and may solicit officers for purchase.

If a Qualified Nonprofit expresses interest during the initial 5-day period, and thereafter during the 25-day period makes an offer, an owner is not required to accept an offer, however, any Qualified Nonprofit that made an offer that was rejected maintains a Right of First Refusal.  Under the Right of First Refusal, the owner is required to provide notice to the Qualified Nonprofit(s) that includes the same terms and conditions that were received from the 3rd party purchase offer.

Similarly, in the event the owner fails to provide the initial 5-day Notice of Sale before offering the building for sale, the Qualified Nonprofits are entitled to receive notification of their Right of First Refusal, followed by a 30-day offer submittal period.

If a building is purchased by a Qualified Nonprofit, the existing tenants are entitled to displacement protection and the building would be restricted as rent-restricted affordable housing in perpetuity, at 80% AMI level.  A sale to a Qualified Nonprofit is also subject to a partial transfer-tax exemption.

Under COPA, all multi-family building (and vacant lot) sellers are required to provide a signed declaration to the City, under penalty of perjury, within 15 days after the sale, affirming that the seller complied with the COPA requirements.  Seller’s failure to comply with COPA could result in damages in an amount sufficient to remedy the harm to the Qualified Nonprofits and e.g. in penalties in the amount of 10% of the sales price for the first willful or knowing violation, 20% for the second willful or knowing violation, and 30% for any subsequent willful or knowing violation.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tuija Catalano.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.