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.

Trial Court Challenges to State Housing Laws

In the last few weeks, two California trial courts interpreted state housing development laws—SB35 and the Housing Accountability Act—in ways that limit their applicability to cities. While trial court opinions are not binding on other courts, these decisions may give development opponents tools to slow the creation of new housing supply. The decisions are summarized below.

Ruegg & Ellsworth et al. v. City of Berkeley et al.

When first passed in 2017, SB35 (authored by Senator Wiener) sought to streamline the approval process for affordable housing. For two years it has done that. Some of its provisions have also been expanded.

Notably, SB35 faced mixed support in the Senate. It was supported by the cities of San Francisco, Sacramento, Oakland, San Jose and Los Angeles. It was also supported by private companies, chambers of commerce, and housing advocates. At the same time, it was opposed by nearly 90 cities across the state, including the City of Berkeley.

The City of Berkeley lawsuit is rooted in a mixed-use project (multi-family over retail) at the parking lot next to well-known Spenger’s Restaurant on 4th Street. The City of Berkeley denied the streamlined ministerial approval allowed under SB35 (i.e., without discretionary review) based on an argument that the project would require demolition of an “historic structure,” specifically an historic shell mound buried under the site.  Projects that require demolition of “historic structures” are exempt from the SB35 process.

The Alameda County Superior Court applied a very deferential standard when reviewing the City’s decision, concluding that the City’s decision could only be overturned if it was “entirely lacking in evidentiary support.”  While the project sponsor provided relevant studies showing that no intact remnants of the shell mound still existed, the City had relied on a study of the site from 2000 that concluded one boring sample “probably represents a remnant” of the shell mound.  This lone statement in a twenty-year-old study was enough for the Court to uphold the City’s determination that the project would require demolition of an historic structure.

While the Court’s determination on this point was enough to uphold the City’s decision, the Court didn’t stop there.  The Court also limited the application of SB35 to mixed-use projects in general.  Taking a very narrow reading of SB35, the Court concluded that SB35 only applies to mixed use projects when the zoning requires at least two thirds of a mixed-use project be designated for residential use.  This reading of the statute would eliminate its application to most if not all mixed use projects.

For both reasons, the Court held that Berkeley’s denial of the Spenger’s project was appropriate.

SFBARF et al. City of San Mateo et al.

The Housing Accountability Act (“HAA”) was passed in 1982 and has been modified several times since.  The HAA generally forbids a city or county from reducing the density of, or denying approval of, a housing project that complies with objective general plan, zoning, and subdivision standards and criteria unless the project will have a specific adverse impact to public health and safety that cannot be mitigated in any other way.

In the City of San Mateo lawsuit, a developer applied for a 10-unit condominium project. The City denied the project based on an alleged failure to comply with the City’s Multi-Family Design Guidelines, specifically to set back upper floors of a project that exceeds the height of neighboring buildings. Housing advocacy groups then sued the City.

The San Mateo County Superior Court upheld the City’s decision to deny the project based on its conclusion that the City’s Multi-Family Design Guidelines were objective criteria.  The Court rejected the plaintiffs’ arguments that design guidelines were fundamentally subjective.  Instead, it endorsed the City’s argument that there was a way to apply the guidelines objectively.

Here again, while this determination was sufficient to decide the case, the Court did not stop there.  The Court also concluded that the HAA is inapplicable to a charter city (like San Mateo) because it would violate the “home rule” doctrine that allows charter cities to legislate without state interference in areas that are “municipal affairs.”  This remarkable interpretation of the HAA would eliminate its application—and potentially the application of other state housing laws—in 121 charter cities in California, including San Francisco, Oakland, San Jose, Sacramento, and many others.

Conclusion

If upheld, the Berkeley and San Mateo decisions could hamper housing production statewide.  The Berkeley decision provides an arrow in the quiver of project opponents – when an SB35 project is proposed, they will argue that exemptions (like the “historic structures” exemption) eliminate the potential for ministerial review and reject SB35 processing for many if not all mixed-use projects.  The San Mateo decision would blur the distinction between subjective and objective criteria, likely leading to additional litigation, and eliminate the application of the HAA (and potentially other state housing laws) in charter cities, which include some of the largest housing centers in the state.

These are fluid areas of law. Keep in mind these are trial court decisions and are not binding on other courts, though they will likely be used by project opponents to create delay and confusion regarding housing project approvals. These cases will likely be appealed, and the appeals court decision will carry real weight. We will be watching closely for the result of those appeals.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein & Matthew Visick

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.

 

ALERT: Jobs Housing Linkage Fee on Offices Could Increase

Jobs Housing

This Thursday, the Planning Commission will consider legislation to more than double the Jobs Housing Linkage Fee (“JHLF”) on both office and laboratory uses. The  Jobs Housing legislation is authored by Supervisor Matt Haney and co-sponsored by five other supervisors (Fewer, Ronen, Mar, Peskin, and Walton) who, together, comprise a majority of the Board of Supervisors.

The JHLF was first established in the 1980s and applies to commercial projects over 25,000 square feet. In May of this year, Supervisor Haney introduced legislation to increase the JHLF on office to $38.00 per square foot, an approximate $10 increase over the current rate. Last week, Supervisor Haney modified the legislation to propose an office rate of $69.60 per square foot and a rate of $46.43 per square foot of lab space. A comparison of current and proposed rates follows:

The legislation does not include grandfathering for pipeline projects. For most projects, the higher fee would be collected at the “first construction document” (usually a building permit or foundation addendum to a site permit) for a project. However, the higher fee could also be retroactively collected from projects with issued permits if they were approved by the Planning Commission or Department before the end of 2019 with a condition that they would be subject to a higher JHLF. Prior to receiving a Certificate of Occupancy, these projects would be required to pay the difference between any fee assessed at site permit issuance and the higher fee effective when the Certificate of Occupancy is issued.

The Planning Department has expressed its support for “the overarching aim of the Ordinance” to generate funding for affordable housing, but expressed strong concerns about the proposed rates:

“Imposing development impact fee rates above those found feasible would postpone or halt the construction of a Development Project. Any public benefit revenue or public improvements that were expected from such projects would not materialize and would necessarily be postponed or abandoned until such time as market conditions or policy changes make the rates feasible…[H]undreds of millions of dollars’ worth of public recreation and open space projects, pedestrian and bicycle safety improvements, cultural preservation, and affordable housing would not materialize with an infeasible rate.”

Planning staff recommends setting the rate for office uses no higher than $38.57 per square foot “in accordance with feasibility assessments” prepared by the city’s consultants earlier this year. Because those assessments did not include an analysis of laboratory uses, Planning staff “cannot recommend increasing rates for this use.”

In fact, the feasibility assessment prepared for the City concluded that “[n]one of the tested office prototypes appears financially feasible based on current market conditions.” A combination of construction and land costs, along with other newly imposed community benefit costs, including impact fees, special “community facilities” taxes, and Prop. C commercial rent taxes, have added to the overall cost burden. Further fee increases only became feasible when a hypothetical 25 percent reduction in land value and construction cost were factored in, along with a hypothetical 13 percent increase in rent. With those assumptions, three of six prototypes are thought to be feasible with a $5/gsf increase in the JHLF; only one of six would be feasible with a $10/gsf increase.

The Planning Commission will hear the legislation this Thursday afternoon in City Hall, Rm. 400. The agenda, including supporting documents for the JHLF legislation, is available here: https://sfplanning.org/sites/default/files/agendas/2019-09/20190919_cal.pdf.

 

Authored by Reuben, Junius & Rose, LLP Attorney’s Daniel Frattin and Justin 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.

Confirming A Defense To An Ellis Act Eviction

Ellis Act Eviction

The Ellis Act allows owners of residential real estate to take their properties off the rental market if they fulfill certain conditions, including the removal of all units at the property from the rental market.  A recent case entitled Hilaly v. Allen clarified one of the specific conditions precedent to an Ellis Act “eviction” and discussed the impact of a residential estoppel in the context of such eviction.  (2019 WL 2500495, Filed May 21, 2019).

As part of any Ellis Act eviction process: (1) the tenants must be notified of the intent to withdraw the unit, (2) the tenants must have sufficient move out time (one year in the case of an eligible or disabled tenant), and (3) during the notice period, the tenancy must continue on the same terms and conditions as existed prior to the notice of removal from the rental market.  In Hilaly, the owner of the San Francisco property (Hilalys) decided to recover possession of its property and issued an Ellis Act eviction notice to the tenants at the property, which included an elderly and disabled tenant named Allen.

Allen had an oral lease at the property with the prior owner for an apartment and use of a garage and driveway at the property.  During the Hilalys purchase of the property, a questionnaire was issued to Allen with no explanation of its significance.  The questionnaire included a question whether parking was included at the property and if so, what was the space number.  Allen stated no to the question because, although she had driveway and garage rights, she didn’t have the right to a numbered parking space.  The Hilalys thereafter closed on the property and later issued this Ellis Act eviction notice to the tenants.  During the one-year notice period (as to Allen’s lease due to age and disability), the Hilalys started using the driveway and blocked Allen’s access to use the same.

Allen set out to defeat the Ellis Act eviction on the premise that the owner changed a tenancy term when they blocked Allen’s access to the driveway and garage during the one year notice period.  The Hilalys argued that the Ellis Act confers a landlord with the unfettered right to leave the residential rental business and the requirement to maintain the tenancy on the exact same terms contradicts settled law which bars habitability defenses to an Ellis Act eviction.  As such, the removal of the driveway rights, even if it made the premises less habitable, did not negate her right to possession and was not a defense to the Ellis Act eviction.  The Court agreed with the premise that a withdrawing owner is relieved of affirmative repair obligations during the notice period, but also found that a landlord must refrain from taking affirmative steps to reduce an elderly or disabled tenant’s leasehold during the notice period.  The Court agreed with Allen and found that the owners unlawfully changed a term of Allen’s tenancy during the one-year notice period, and as such, allowed for an affirmative defense to the eviction.

The Hilalys also alleged that even if the Ellis Act supported such a defense for “change in tenancy terms”, Allen was barred from using such a defense based upon Allen’s answer to the questionnaire stating no parking or driveway rights were included in her lease.  Therefore, there was not a change in a term of tenancy since she confirmed no such rights  existed.  The Court again held for Allen stating that this questionnaire was not a contract and Allen was not bound by contract to complete the questionnaire.  Also, the questionnaire did not state that Allen’s answers would be binding on her leasehold.  The Court in Hilaly differentiated an estoppel in a commercial context stating that a commercial estoppel binds the tenant to its factual statements, in part because the parties in a commercial transaction have more equal bargaining power and share a widespread understanding that estoppel certificates are binding and relied upon.

The Hilaly case illustrates that a landlord must conform to very strict procedures to ensure an Ellis Act eviction will not be defeated, including that any term of the lease must remain the same during the required notice period.  Further, the Court in Hilaly confirmed that an informal “estoppel” in a residential context carries less weight than an estoppel in a commercial context and that a residential tenant may not be held accountable for statements made within said estoppel.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Lindsay Petrone

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.

 

Borrower’s Deficiency Protection Limited – Lenders May Pursue Claims for Sold Out Junior Loans

Sold out Junior Loans

This month, the California Supreme Court affirmed the Fourth District’s decision in Black Sky Capital, LLC v. Cobb (2017) 12 Cal.App.5th 887 (“Black Sky”), ruling that a creditor who holds two deed of trust on the same property may recover a deficiency judgment on a junior lien extinguished by a nonjudicial foreclosure sale on the senior lien.

In so holding, the California Supreme Court applied a strict construction of Code of Civil Procedure section 580d, which reads, in part, “…no deficiency shall be owed or collected, and no deficiency judgment shall be rendered for a deficiency on a note secured by a deed of trust or mortgage on real property or an estate for years therein executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.” CCP §580d(a).

Relying on the plain language of section 580d, the California Supreme Court emphasized that the statute precludes a deficiency judgement on a note secure by a deed of trust on real property when the trustee has sold the property “under power of sale contained in the … deed of trust. The court concurred with the Fourth District’s reasoning that the phrase “the … deed of trust” makes clear that section 580d applies only where the sale of the property has occurred under the deed of trust securing the note sued upon, and not some other deed of trust. In the words of the California Supreme Court, “nothing in the text of section 580d indicates that the statute applies where no sale has occurred under the trust deed securing a junior lien, even if the lien is held by a creditor who has foreclosed on a senior lien on the same property.”

The Fourth District’s ruling – and the California Supreme Court’s affirmation of the same – stray from the long followed decision in Simon v. Superior Court, (1992) 4 Cal.App.4th, 63, 66, which held that the anti-deficiency protections of California Code of Civil Procedure 580d barred a creditor in such circumstances from pursuing a deficiency on the junior note. While noting that where there is evidence of “gamesmanship” (e.g. intentional loan splitting, bid rigging, etc.) by the holder of senior and junior liens on the same property, a substantial question may arise whether the liens should be treated as a single lien within the meaning of section 580d, the California Supreme Court concluded that such circumstances were not present in the case before it, as the loans at issue were made more than two years apart. The court did not elaborate on what other factors might be considered in determining the presence of “gamesmanship” by a holder of senior and junior liens on the same property.

Practical Considerations

The California Supreme Court’s upholding of the Fourth District’s ruling is likely to be heralded as a victory for lenders, as the opinion in Simon – which unequivocally rejected a lender’s ability to recover on a junior lien after foreclosing on the senior lien – is now a dead letter. So long as the two loans are truly separate and there have been no improprieties at the foreclosure sale, a lender foreclosing on a senior note should be able to pursue a deficiency judgment on the junior note.

Unfortunately, the California Supreme Court provided virtually no guidance on what would constitute “loan splitting.” In Simon, two loans were signed four days apart with the liens recorded on the same day, while Black Sky involved loans made two years apart. The large delta between the respective timelines of senior and junior loans being made in Simon and Black Sky creates a gray area that will at some point need to be addressed by the courts. When has enough time passed so that a subsequent loan made on the same property would not constitute loan splitting? Six weeks? Six months? A year? What were the motivations behind making the second loan? For now, those questions will remain unanswered at the judicial level. In the meantime, lenders should carefully consider these circumstances when making or buying multiple loans secured by the same property.

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.

Draft Downtown Oakland Specific Plan to be Released This Summer

Later this summer, Oakland will be releasing its draft Downtown Oakland Specific Plan (the “Plan”).  A preliminary draft plan was released earlier this year (which can be accessed here).  The preliminary draft is the initial version of the draft Plan.  The Plan presents Oakland’s transformative ideas and recommendations for the future development of the downtown area.  The Plan encompasses approximately 850 acres, and is generally bounded by 27th Street to the north, I-980, Brush and Market Streets to the west, Embarcadero and Jack London estuary waterfront to the south, and Lake Merritt and Channel to the east.

Before digging into the details, a quick rundown of the Plan’s projections for development through 2040 is as follows:

Approximately 55,000 jobs

Approximately 29,000 residential units

Approximately 17.2M square feet (“sf”) total commercial

Office: Approximately 13.8M sf

Retail/Neighborhood Commercial: Approximately 2.5M sf

Flex Commercial: Approximately 0.9M sf

Approximately 0.2M sf flex industrial

Approximately 1.3M sf institutional

14,062 parking spaces

Pre-Determined Community Benefits Program

The Plan calls for creation of a carefully calibrated bonus incentive program. The program is to have clearly identified benefits provided in exchange for increase in intensity that can be applied to mixed-use projects of any size.

The pre-determined community benefits program will be developed in partnership with the community. The program will establish a finite number of consistent, pre-defined project requirements based on the Plan’s goals. The increased intensity allowed can be in the form of increased height, floor area ratio limits, or increased density provisions (to encourage micro-units and other affordable-by-design residential unit types).

The community benefits program is still being developed. However, three options for priority benefits have been preliminarily identified: (1) affordable arts and maker space; (2) parks and open space; and (3) affordable commercial (including community-serving nonprofit)/neighborhood retail.

Opportunity Sites Identified for Increased Bonus Intensity

The Plan identifies “development opportunity sites” for new development downtown. Sites that meet one or more of the following criteria are considered “opportunity sites:” (1) land/improvements ratio < 0.25 (this ratio is the value of improvements divided by the total value of the property); (2) re-developable existing uses (i.e., parking, vacant, auto-related, low-rise commercial); or (3) minimum lot size of 30,000 sf. “Opportunity sites” are eligible to participate in the pre-determined community benefits program discussed above.

Within the plan area, four “transformation opportunity areas” are identified as having clusters of “opportunity sites” and areas adjacent to large “opportunity sites.” The areas are eligible to take advantage of the pre-determined community benefits program. The four “transformation opportunity areas” identified are:

  • Victory Court/Lake Merritt Channel Park;
  • Nimitz Freeway/I-880;
  • Produce Market (adjacent to Howard Terminal); and
  • Lake Merritt Office District.

The Plan recognizes increasing floor area ratio will make it possible to develop iconic skyscrapers in key locations, such as near the 12th Street and 19th Street BART Stations.

Office Development

The Plan proposes two areas with office development priority, the Lake Merritt Office District and the Central Core District. These two office priority areas are identified for increased bonus intensity. Not surprisingly, the two office priority areas are located near the two BART stations within the plan area, 12th Street and 19th Street BART Stations (Lake Merritt Station is within the Lake Merritt Area Plan).

The proposed office development identified in the Plan totals approximately 14M sf. Assuming buildout as projected, approximately $15M in impact fees for affordable housing will be generated. A key challenge to the proposed office development in the Plan area is the limited number of prime sites for office development. Approximately half of the Plan area has historic status.

Housing and Affordability Housing Development

The Plan proposes generation of 29,077 new residential units. With the creation of approximately 55,000 new jobs, the Plan has an approximate 1.9 jobs:housing ratio. Assuming this residential development potential is reached, approximately $639.7M in impact fees for affordable housing would be generated.

Of the new residential units, approximately 4,320 – 7,250 units are projected to be affordable housing. This would be a significant increase in affordable housing provided compared to the what was produced from 2015 through 2017, which totaled 492 affordable units out of the 7,176 new units.

Creation of “Green Loop”; Transit-Oriented Development

The Plan calls for establishing a “Green Loop.” The “Green Loop” will provide an integrated system of walking and biking paths though downtown. It will link cultural districts, and connect people to the Lake Merritt and Estuary waterfronts as well as to adjacent neighborhoods and districts. The “Green Loop” is proposed to extend along 20th Street to the north, Lake Merritt and Channel to the east, Embarcadero and Jack London estuary waterfront to the south, and Martin Luther King, Jr. Way to the west.

As part of an effort to promote a transit-oriented development strategy for Downtown Oakland, the Plan includes the following strategies:

  • Concentration of employment near downtown’s BART stations, supporting transit ridership and a commute destination outside of capacity-constrained Downtown San Francisco;
  • Support for growth in a regional multimodal transportation hub that allows easy transfers to/from BART; and
  • Support for retail, arts, entertainment, and restaurants near BART stations, supporting off-peak transit ridership.

Four Cultural Districts Proposed

The Plan seeks to leverage and protect Oakland’s diverse cultures as an engine for artistic innovation and economic growth by establishing and implementing cultural districts. Four cultural districts are proposed by the Plan:

  • 14th Street Black Arts Movement and Business District;
  • Chinatown Cultural Heritage District;
  • Arts & Garage District in Koreatown Northgate (“KONO”); and
  • Jack London Maker District.

The cultural districts would have special zoning and land use regulations to preserve arts and culture, including:

  • Requiring a certain percentage of floor area for projects in key areas accommodate uses consistent with the district’s overall character and vision;
  • Allowing for additional height along 24th and 26th Streets in KONO in exchange for dedicated ground floor arts-related uses or other community benefits; and
  • Restrictions on the amount of office, bar, restaurant, and cannabis uses.

The Plan is projected to be released later this summer along with a draft environmental impact report. The Planning Department is currently targeting Plan approval and implementation by the end of 2020. Additional information about the Plan is available on the Planning Department’s website at https://www.oaklandca.gov/topics/downtown-oakland-specific-plan

 

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.

Third District Court of Appeal Finds that Lay Opinion on Aesthetics Can Support A CEQA “Fair Argument”

On December 17, 2018, California’s Third District Court of Appeal affirmed a judgment setting aside El Dorado County’s approval of a proposed Dollar General store in Georgetown with a mitigated negative declaration.  The Court held that while aesthetics are subjective, “lay opinions can provide substantial evidence to support a fair argument that a project may have a significant aesthetic impact on the environment, triggering the need to prepare an environmental impact report (EIR) pursuant to the California Environmental Quality Act (“CEQA”).”  The Court also held that a planning or zoning finding conducted outside the requirements of CEQA (here, compliance with design guidelines), did not provide a substitute for CEQA review.

The case in Georgetown Preservation Society vs. County of El Dorado et al. ((2018) 30 Cal. App.5th 358, filed Dec. 17, 2018), involved a proposed Dollar General store on the main strip of Georgetown, a state Historical Landmark known for its association with the California Gold Rush.  Described as a “quaint” town, it is characterized by older structures from the era.  The developer SimonCRE Abbie, LLC proposed a 9,100 square foot store with a 12,400 square foot parking lot to be constructed on three lots on Main Street.   From the start, the proposed project met resistance from the community, who felt that the building was too large and would not fit in visually or functionally with the surrounding context.  Throughout the approval process, numerous members of the public spoke in opposition of the project, including a licensed architect, professional engineer, and city planner.  The majority of the commenters were residents of Georgetown and felt that the project was “severely mismatched with the adjacent historic buildings.”

The project was approved by the Planning Commission and appealed to the Board of Supervisors, who found that the project complied with the County Zoning Ordinance, “substantially conformed to the El Dorado County Historic Design Guideline(s)” and that it would not substantially detract from Georgetown’s historic commercial district.  The County relied on the mitigated negative declaration, which was tiered off the County’s 2004 General Plan EIR.  The County’s CEQA analysis found that the project incorporated architectural features and styling, materials, and colors, consistent with the Historic Design Guide for the area.  As such, the “impacts would be less than significant”.

Both the trial court and District Court of appeal disagreed.  “A public agency’s own design review is not a substitute for CEQA review” – and that conformity with a general plan does not insulate a project from EIR review where it can be fairly argued that the project will generate significant environmental effects (known as the ‘fair argument’ standard).

The District Court found that the public testimony – lay opinion – was sufficient to qualify as substantial evidence to support a fair argument that there would be a significant aesthetic impact by the project.  As such, the County had to conduct an EIR to evaluate the potential impacts.  Importantly, the court found that lay commentary on nontechnical matters is admissible and probative, so that lay testimony can satisfy the fair argument test.  “Personal observation on [these] nontechnical issues can constitute substantial evidence” (citing Ocean View Estates Homeowners Assn., Inc. v. Montecito Water Dist. (2004) 116 Cal.App.4th 396, 399).  In this case, a large number of interested people believed the project would have a significant and negative effects on aesthetics.  Their comments that the project was too big or boxy to blend in so that the final building would “damage the look and feel of the historic center of Georgetown” was “enough to trigger an EIR.”  Despite the subjective nature of aesthetic concerns, it “is clear that the project may have a significant adverse environmental impact.  Whether it will or will not have such an impact is a question that an EIR is designed to answer.”

While a few stray comments may not be enough, “the evidence here goes beyond a few people expressing concern about the aesthetics of the project.”  The court also held that County’s failure to make explicit findings in the record on the credibility of the public comments precluded its “manufacturing after-the-fact findings” to justify its dismissal of the public comments on the ground that they did not constitute “substantial evidence.”

Both CEQA practitioners and project proponents have long been frustrated by the lack of definitive ‘bright line’ standards for evaluating a projects’ aesthetic impacts.  What is important is that context is important, and this case highlights how projects within designated historic areas cannot solely rely on design guidelines to satisfy CEQA review.

 

Authored by Reuben, Junius & Rose, LLP  Attorney Tara Sullivan

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.

SF Planning Commission Considers Proposed Statewide Housing Bill

Last Thursday, the City’s Planning Commission held a lengthy informational hearing on SB 50 – proposed statewide legislation intended to spur housing development in transit and job-rich areas.

SB 50 was introduced by Senator Weiner on December 3, 2018.  It is essentially a revised version of last year’s failed SB 827, reformulated to expand its area of impact and to address some critics’ concerns about the potential for tenant displacement.

The bill would apply to residential projects on sites zoned to allow housing and located within either a “jobs rich” area (which is not well-defined but would likely cover much of San Francisco) or in proximity to public transit (within ½ mile of an existing rail transit station or ferry terminal, or ¼ mile of a “high quality bus corridor”).  Qualifying projects must also designate at least 2/3 of their total area for residential development and meet a minimum on-site inclusionary housing requirement.  The inclusionary amount is not set, but Planning staff anticipates this criteria would be met through compliance with the City’s local program.

As written, SB 50 would provide the following incentives:

  • Projects located within ¼ mile of a rail transit station or ferry terminal would have a minimum height limit of 55 feet; minimum Floor Area Ratio (FAR) of 3.25; and would be exempt from minimum parking requirements and residential density limits.
  • Projects located between ¼ and ½ mile of a rail transit station or ferry terminal would have a minimum height limit of 45 feet; minimum FAR of 2.5; and would be exempt from minimum parking and residential density requirements.
  • Projects located within ¼ mile of a “high quality bus corridor” or within a “jobs-rich” area would be able to waive minimum parking requirements up to 0.5 spaces per unit and would be exempt from residential density requirements.

Qualifying projects could also request up to three “incentives or concessions,” which are identical to those under State Density Bonus Law.  This could include exceptions or reductions to local zoning standards for rear yard setback, unit exposure, open space, etc.   These requests could only be denied if they would either (1) not result in an actual cost reductions for the project; or (2) result in a specific adverse impact on public health and safety, or an historic property listed on the California Register.

SB 50 would not eliminate local design standards or approval processes, so qualifying projects would still need to obtain all applicable discretionary approvals (i.e. Conditional Use Authorizations) and undergo CEQA review.

Planning staff also interprets the language of SB 50 to allow layering of its density bonus and zoning incentives with those provided under State Density Bonus Law.  This could potentially allow qualifying projects to achieve an additional state density bonus of up to 35% on top of increased development capacity under SB 50, and to request up to a total of 6 concessions and incentives.

Although staff anticipates SB 50 could potentially result in some up-zoning throughout most of San Francisco, the bill includes some significant exemptions intended to minimize tenant displacement.  SB 50 would not apply to any property where there has been a rental tenant in the past 7 years, or where a rental unit has been removed from the market through an Ellis Act eviction in the past 15 years.  The City does not currently maintain a registry of rental properties, but that according to a 2017 American Community Survey, roughly 63% of San Francisco’s occupied housing units are occupied by renters.

The bill would also provide a temporary 5-year exemption for “sensitive communities,” which are defined as areas vulnerable to displacement pressures.  These communities have not yet been identified, but staff anticipates they would include the areas identified as part of the recent Committee to House the Bay Area (CASA) process.  In these areas, local governments would be given up to 5 years to adopt local re-zoning that encourages development of multi-family housing near transit and meets the same overall residential capacity and affordability standards provided by SB 50.  If that is not done by January 1, 2025, SB 50 would take effect in those areas.

Planning staff also noted that the practical effect of SB 50 would be lessened by the fact that many San Francisco neighborhoods that have been rezoned in connection with Area Plans already de-control density and have height limits set above the minimum thresholds in SB 50.   The properties anticipated to experience the greatest change if the bill passes as-written would be single-family and owner-occupied duplex properties in the City’s lowest-density (RH-1 and RH-2) zoning districts.

Thursday’s hearing included nearly three hours of public comment, after which Commissioners weighed-in with their initial thoughts on the legislation.  Commissioner comments varied, from support for the bill as a necessary measure to correct years of housing under-production to strongly-voiced concerns that it will undermine local zoning discretion and misses the mark on providing adequate tenant protections.

SB 50 is currently winding its way through the legislative review process, and is anticipated for vote in the Senate Transportation and Housing Committee at some point in the coming weeks.  Amendments and modifications to the current language are to be expected as part of the legislative review process.   Additional information from Planning staff on SB 50 and its potential impacts on local development is available at: http://commissions.sfplanning.org/cpcpackets/SB%2050_Memo.pdf

 

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.