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.