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.

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.

 

The Land Use Week in Review: Starts and Stops and Starts

SB 50 Advances Out of Committee

Two weeks ago, we wrote about State Sen. Scott Wiener’s SB 50, a new version of last year’s SB 827 that aims to boost housing density near public transit.  It’s one of the more ambitious initiatives to address California’s housing crisis – and one of the most controversial.  This week, the Senate Transportation and Housing Committee voted to advance the bill in a 9-1 vote.  There already is more progress than SB 827 made, which never made it out of committee.  The legislation still faces a long process, with the next step being consideration by the Senate Governance and Finance Committee in late April.

San Francisco Supervisor Gordon Mar has introduced a resolution opposing SB 50, claiming that the legislation would “entitle real estate developers to increase both residential and mixed use development with significantly less public review.”  Supervisors Mandelman, Ronen, Peskin, Walton, Fewer, and Board President Yee all support Mar’s resolution.  Mayor Breed and the Mayors of Oakland and San Jose support SB 50.

Residential Demolition/Expansion Legislation

Another measure we have reported on previously and continue to track is Supervisor Peskin’s residential demolition and expansion legislation.  Originally introduced in December 2018, the legislation proposed changes to what constitutes a demolition, thereby dramatically increasing the number of projects needing a Conditional Use approval of the demolition.  In addition, the legislation required Conditional Use approval for many more residential additions, with heightened criteria making them almost impossible to get approved.

Following its initial introduction, facing significant opposition, Supervisor Peskin has been reworking the legislation.  A new version is expected any day now, but as of now, this writing has not been released.  The Planning Commission is scheduled to consider the revised version in a joint hearing with the Building Inspection Commission on April 18.

Central Subway Possibly Delayed

The Central Subway, originally scheduled to be substantially complete by February 2018, and then pushed to December 2019, appears to be encountering new delays.  Opening is now targeted for May 2020.  Among the reasons for the delay are cost overruns, water leaks, contractor disputes, and worker shortages.  Worker shortages also troubled the opening of the Transit Center.  As of the beginning of this year, the project was 80% complete.

Transit Center Woes

The Transit Center also faces construction issues, as has been well-documented.  Unsurprisingly, the parties involved are disputing the cause of the cracked steel girders that have kept the transit hub, retail center, and rooftop park closed since last September.  Previously, an independent review board of engineers attributed the fractures to “a perfect storm” of factors, including the strength of the steel, which met industry standards; the fabrication, including the cutting of holes in the girders; and the design of the girders.  Following that review, officials of the Transbay Joint Powers Authority claimed a different cause.  They concluded that three teams of quality-control inspectors working for the center’s structural steel contractors didn’t discover a critical construction flaw, and that the Authority’s own spot inspections also missed the oversight.  The contractors dispute this, and point to the process used to cut holes in the girders.  In the meantime, work to re-open the Center continues, which is expected by mid-June.

Streamlining Construction Permits

Meeting the needs of commercial projects after entitlement can be difficult when City agencies are tasked with solving a housing crisis. The Small Business Permit Streamlining Ordinance seeks to update several areas of code that affect various agency processes and may contribute to an elegant solution for commercial property owners exploring options with tenants for shared space.

The ordinance proposes to align regulation of restaurant enclosures for outdoor food service and restroom requirements with state standards; amend the Planning Code to clarify that a Type 23 liquor license may be used in conjunction with a Bar or Restaurant use;  amend the definition of a Bar to provide for consistent treatment of Type 64 liquor licenses; to reduce the distance measured for Retail Sales and Services uses in Neighborhood Commercial zoning districts to any neighborhood commercial district; to reduce the distance measured for nonconforming uses in RH (Residential, House), RM (Residential, Mixed), and RTO (Residential, Transit-Oriented) districts to any neighborhood commercial district; and importantly, to allow Limited Restaurant use as an Accessory Use which would enable more flex use spaces in neighborhoods who want to encourage and maximize a thriving local scene. For more information on this, read the legislation here:  File No. 181211.

These are times that keep the City focused on a healthy socio-economic future requiring balance between housing and the associated commercial infrastructure needed to sustain the inhabitants, pursue cultural growth and allow neighborhood flavor to emerge in partnership with neighborhood community groups questing to influence use of their local spaces.

Commercial property owners may also be interested in following the crafting of recently proposed legislation which would amend the Building Code to require the assessment of a fee within the first 30 days of vacancy for any storefront that is not tenanted regardless of whether it is offered for rent or lease; and require annual safety inspections within sixty days of the annual registration renewal and the issuance of a Notice of Violation with a penalty of four times the registration fee for failure to register within thirty days. If passed without reform, this legislation has the potential to over-burden the property owner and require them to navigate substantively bureaucratic code enforcement issues especially if their potential tenants meet with delay working through after entitlement permitting for their tenant improvements. For more information on this, read the legislation here: File No. 181213.

The Small Business Permit Streamlining Ordinance may offer some relief, but it does not provide additional staff to assist with the increased review times for commercial projects due to ADU and housing being given priority. In a City that lacks housing, prioritizing these projects without increasing staff or allocating paid overtime for in-house review can critically impact commercial alteration projects and contribute to costly and seemingly ever moving targets for start of construction.

San Francisco entitlement and permitting processes offer unique challenges to estimating project timelines. Stakeholders need to more carefully assess what to include in the initial permit set being supplied for Planning review when construction timelines, which are dependent on the after entitlement issuance of building permits, are a factor. The Planning Department can review an architectural set – best known as a “Site” permit set for entitlement; however that same permit set does not and cannot be converted to a “Full” building permit set automatically after planning review.  Filing with a design plan as a Site permit locks the project sponsor into a two-phase review process and may contribute to a property owner realizing excessive, financial impact, if the afore-mentioned vacant storefront legislation does not include a provision giving deferral for fees, enforcement and penalties while a tenant improvement is under permit review. The Land Use Committee should be encouraged to expand the vacant storefront legislation to include alternative paths for property owners who can demonstrate that a potential tenant is in process of entitlement and subsequent permitting.

While projects requiring more than an hour of review, do not qualify for over the counter processing at the building department, in house review of a full permit can cut permitting time in half and is one way design professionals and property owners can help guide a prospective tenant toward a more rapid occupancy of their buildings.

 

Authored by Reuben, Junius & Rose, LLP  Permit Consulting Manager Gillian Allen

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.