San Francisco Now a 10% City Under SB 423 / SB 35

| Daniel Turner

On June 28, 2024, the California Department of Housing and Community Development released its annual determinations under SB 423 (formerly SB 35). Enacted in 2018 (as SB 35), SB 423 requires streamlined, ministerial approval for qualifying housing projects in jurisdictions that are not meeting their Regional Housing Needs Allocation (RHNA) goals, in exchange for providing a certain level of affordability in the project.

Each June, the Department reviews permitting data from jurisdictions across the state and determines whether a jurisdiction has made sufficient progress toward producing housing for households at various income levels (i.e. lower, moderate, above moderate, etc.). Jurisdictions that have made sufficient progress toward their goals are not subject to SB 423; however, only 47 of California’s nearly 540 local jurisdictions fall into this category.

Jurisdictions that have not approved enough above-moderate income units (i.e. market rate units) are required to ministerially approve code-compliant projects that offer 10% of their units as affordable to 50% AMI for rentals or 80% AMI for ownership units. These are commonly known as “10%-jurisdictions.” Jurisdictions that have not permitted enough very low or lower income housing units are required to approve code-compliant projects that offer 50% of their units as affordable to 80% AMI. These are commonly known as “50%-jurisdictions.” A jurisdiction that fails to produce housing in multiple income categories can be both a 10%-jurisdiction and a 50%-jurisdiction, and a project proponent may choose which affordability scheme to follow in such cases.

Under HCD’s June 28 determinations, a majority of the Bay Area’s cities and counties have been deemed 50%-jurisdictions. Notably, San Francisco has been deemed a 10%-jurisdiction for the first time, and it is now subject to the lower affordability thresholds for projects wanting to utilize SB 423.

If you would like to learn more about qualifying for SB 423’s streamlined review and approval process, please reach out to our office.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Daniel Turner.

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.

Three New Housing Bills To Keep An Eye On

| Mark Loper

This week’s client alert discusses three pro-housing bills sponsored by Bay Area legislators that are pending in Sacramento: Buffy Wicks’ AB 2011 cleanup bill; a bill adding a new streamlining option for converting commercial buildings to residential authored by Matt Haney; and Scott Wiener’s proposal to extend the performance period of certain entitled but not built housing projects by two years, and allow those projects to defer certain impact fees until their certificate of occupancy.

For background, according to UC Berkeley’s Terner Center for Housing Innovation, over 215 housing-related bills were introduced in California’s 2024 legislative session, representing almost 10% of all new bills. Topics include streamlining, tenant protections, potential solutions to construction cost issues, and addressing impediments to housing production in the Coastal Zone, among other topics. It should come as no surprise that the Bay Area caucus is at the forefront of legislation to increase housing production.

Assemblymember Wicks’ AB 2011 cleanup bill, AB 2243, would make several technical amendments that help clarify the scope and applicability of this streamlined ministerial program for housing on sites that principally permit commercial uses. It also loosens a few eligibility criteria, potentially opening up more sites for the program, and changes some AB 2011-specific zoning controls. The bill would:

  • Allow sites facing a road 50 feet or wider to use AB 2011, if the height limit at the site is 65 feet or higher (currently, the minimum street width is 75 feet).
  • Remove the prohibition on AB 2011 projects within 500 feet of a freeway and 3,200 feet of a refinery if the project provides enhanced air filtration systems.
  • Allow AB 2011 on: sites where parking is allowed with a Conditional Use permit; qualifying regional malls; office buildings converted to residential; and sites near public parks and parking lots or structures.
  • Prohibit cities from imposing higher local inclusionary requirements unless they can demonstrate that the project is economically feasible. Otherwise, the project will be subject to AB 2011’s own on-site inclusionary requirements of 8-15% for rental projects and 15-30% for condos (with a sliding scale based on AMI levels).
  • Increase minimum residential density for ground-up construction and eliminate density limits for conversion projects.
  • Clarify that the residential density limits for an AB 2011 project can be increased using the Density Bonus Law (“DBL”), and that AB 2011 projects in the Coastal Zone can use the DBL’s additional density, waivers, and concessions even though they would need to get a coastal development permit.

Assemblymember Haney’s adaptive reuse program (AB 3068) makes the approval process for converting qualifying buildings streamlined and ministerial. It borrows many concepts from AB 2011 and SB 35/423 including imposing the same processing timelines and requiring prevailing wages, apprenticeship programs, and health care expenditures for construction workers. Sites need to be in urbanized areas and surrounded by other urban uses and cannot propose the conversion of light industrial buildings. A minimum of 50% of an existing building must be converted, allowing buildings to retain non-residential uses. The project would also need to comply with either a local jurisdiction’s inclusionary housing program or the bill’s own requirements, whichever is higher.

Interestingly, the adaptive reuse program would also allow the development of new buildings on undeveloped areas and parking adjacent to the commercial building proposed to be converted, if certain criteria are met. It would also allow the new construction aspect of the project to use the Density Bonus Law.

Also, AB 3068 would allow but does not require cities and counties to offer financial incentives for up to 15 years to subsidize affordable units that are part of an adaptive reuse project. The annual payments to property owners would be equal to the amount of property tax revenue that the local government receives, less the assessed valuation when the sponsor applied for the payment program.

Finally, Senator Wiener’s bill—SB 937—would grant a two-year extension to the performance periods of certain residential projects. Projects entitled under any of the following programs would be eligible for the automatic extension: AB 2011, SB 35/423, the Density Bonus Law, Yes in God’s Backyard (SB 4), 100% affordable projects, and projects with 10 or fewer units. The project needs to have at least 2/3 residential square footage, and the entitlement needs to be issued prior to and still be in effect as of January 1, 2024.

Senator Wiener’s bill also would delay the payment of development fees used to construct public facilities or improvements until a certificate of occupancy is issued. And it would not allow a city to charge interest on deferred fees. These changes could increase the financial feasibility for housing developments by allowing project sponsors to defer payment until after construction is complete.

We will continue to track these and other notable bills as they navigate the legislative process.

 

Authored by Reuben, Junius & Rose, LLP Partner, Mark Loper.

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.

San Francisco Housing Element Rezoning Program – Status

| Thomas Tunny

As previously discussed in a February 2024 Update, the Planning Commission has been holding informational hearings concerning its state-mandated implementation actions and zoning amendments identified in the certified 2022 Housing Element. The Housing Element was adopted in January 2023.  Beginning in Spring 2023, the Department began working on four key Housing Element implementation areas:

  • Affordable Housing Funding and Strategies
  • Activating Community Priorities
  • Housing Production and Process Improvements
  • Expanding Housing Choice (Housing Element Rezoning Program)

On June 6, the Planning Department updated the Commission and public on the Expanding Housing Choice program and coordinating with the Mayor’s Executive Directive on “Housing for All”.

Expanding Housing Choice

Expanding Housing Choice will amend zoning policies in Housing Opportunity Areas (“Well-Resourced Neighborhoods”) to increase capacity for multi-family housing to satisfy the City’s Regional Housing Needs Allocation (RHNA) gap of 36,200 housing units.  Within the broad geography covered by the Housing Opportunity Areas, the rezoning program is focused on transit corridors, commercial corridors, and key opportunity sites, as these locations leverage existing infrastructure and feature the types of sites more likely to be developed and expected to yield the greatest amount of new housing.  Most rezoned areas will allow midrise housing (65’-85’ tall, or 6-8 stories), with higher height limits considered in selected locations.  In the areas surrounding these transit corridors and key sites, parcels will be permitted to build 4-plexes and 6-plexes under recently adopted legislation.  The Planning Department has set a target of building 25-50% of the City’s new permanently affordable housing units in the Housing Opportunity Areas.

Objective Design Standards

As discussed in previous Commission hearings, the Planning Department is developing Objective Design Standards (ODS) in parallel with Expanding Housing Choice that will complement the Planning Code and provide objective development standards. Under the California Housing Accountability Act (HAA), local jurisdictions cannot use subjectivity in determining whether a project can be approved or denied. They may only evaluate projects against objective standards, defined as rules which:

“…Involve no personal or subjective judgment by a public official and are uniformly verifiable by reference to an external and uniform benchmark or criterion available and knowable by both the development applicant or proponent and the public official before submittal.”

A copy of the draft ODS is available here:  SF Objective Design Guidelines

Ultimately, the Planning Department will create Objective Design Standards for every scale and typical residential project type subject to the HAA.  Subsequent updates will expand these standards to apply to other residential project types, sizes, and geographies.  As an initial step, the ODS will be primarily applicable to housing projects in the Housing Opportunity Areas. Specifically, the draft standards were created to apply to midrise housing developments (e.g., 65’ to 85’ tall, or 6-8 stories), large sites (e.g., greater than 1 acre), and sites allowing tall buildings (>85’). These standards were scoped as a companion to the rezoning and focus on the Housing Opportunity Areas and rezoned parcels.

The Planning Department is continuing to meet with community organizations to solicit feedback to refine the draft zoning proposal and will schedule additional informational hearings to provide updates and delve into additional topics related to the rezoning.  We will continue to keep readers apprised.

 

Authored by Reuben, Junius & Rose, LLP Attorney Thomas Tunny.

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 STATE LAWS AIM TO SIMPLIFY HOA GOVERNANCE

| Jay Drake

Assembly Bill 648 – HOA Meetings by Teleconference.

In an effort to enable greater access to homeowners association (“HOA”) meetings, and enhance HOA members’ ability to participate and comment on matters of interest, the Davis-Stirling Common Interest Development Act, the primary body of law governing HOAs in California, was amended to allow HOA meetings to be held by teleconference.

Assembly Bill 648 was signed into law and became effective on January 1, 2024.  AB 648 adds Civil Code Section 4926 to the Davis-Stirling Act.  Prior to passage of AB 648, Civil Code Section 4090 required meetings of an HOA board of directors (“Board”) to be held in-person at a physical location, or by teleconference only in certain situations.

Newly added Civil Code Section 4926 allows a meeting of the HOA members or meeting of the Board to be conducted entirely by teleconference (including video conference), without any physical location being held open for the attendance of any HOA member or director on the Board (“Director”) if specified conditions are satisfied. These conditions include, among others, a requirement that the notice for the meeting provide clear instructions on how to participate by teleconference, and each HOA member and Director must have the same ability to participate that would exist if the meeting were held in person.  Also, the telephone number and email address of a person who can provide technical assistance with the teleconference process, both before and during the meeting, must be provided in the meeting notice.

These teleconference provisions do not apply to an HOA meeting at which ballots are counted and tabulated pursuant to Civil Code Section 5120.

Assembly Bill 1458 – Reduced Quorum for HOA Board Elections.

In order to streamline the process for election of Directors to HOA Boards, the Davis-Stirling Act was amended to allow for reduced quorums in certain situations.

HOAs are required to periodically hold elections for the Board of Directors.  The governing documents of many HOAs include a quorum requirement for any election of Directors.  A quorum is the minimum number of HOA members that must be “present” – either in person or via mailed ballots – in order to make the election valid.  An HOA’s governing documents may require a majority (at least 51%) of HOA members to participate for the election to be valid.

A number of HOAs report having trouble meeting quorum requirements for Board elections due to lack of participation by the HOA members.  This inability to reach a quorum can prevent an HOA from electing Directors to its Board in a timely manner.  An HOA may have to hold multiple elections in an attempt to reach the required quorum of its members.

Assembly Bill 1458 was signed into law and became effective on January 1, 2024.  AB 1458 amends Civil Code Section 5115 of the Davis-Stirling Act and Section 7512 of the Government Code.

Civil Code Section 5115 as amended provides that if an HOA fails to reach a quorum required by its governing documents for an election of Directors, then unless a lower quorum is authorized by the HOA’s governing documents, the HOA may at a subsequent election reduce the required quorum to 20% of the HOA members voting in person, by proxy, or by secret ballot.  This means that only 20% of the HOA members will have to participate in an election of Directors for the election to be valid.  This reduced quorum requirement should allow Directors to be elected in a timely manner notwithstanding a lack of participation by many HOA members.  The HOA must provide specified notices to its members before reducing the quorum.  Similar amendments were made to Section 7512 of the Government Code.

Managing an HOA can be challenging given that HOA members and Directors often lead busy lives and may find it difficult to fully participate in the HOA.  These new State laws should facilitate greater participation in and efficient operation of HOAs for the benefit of all members.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.

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.

Proposed New Business Tax Structure in San Francisco

| Kevin Rose

On May 6, 2024, a new San Francisco business tax initiative was filed in order to qualify for the November 2024 ballot.  The purpose of the initiative is to remedy Covid-19’s major impact on the San Francisco economy, including remote work.  According to the San Francisco Tax Collector’s website, the initiative was proposed by  Controller Greg Wagner, former Controller Ben Rosenfield, Chief Economist Ted Egan, and San Francisco Treasurer Jose Cisneros.  San Francisco Leaders Support Business Tax Reform Proposal to Strengthen City Economy | San Francisco (sf.gov).  The San Francisco Chronicle states the proposal was filed by two “business leaders” but is supported by Mayor Breed and Board of Supervisors President Aaron Peskin. https://www.sfchronicle.com/sf/article/s-f-economy-tax-plan-19444049.php.

According to the Tax Collector, the key elements of the proposal are:

  • Exempting more than 2,500 small businesses from the tax by expanding the Small Business Exemption to $5 million dollars
  • Lowering taxes for hotels, arts, entertainment, and recreation
  • Reducing volatility by ensuring taxes are not overconcentrated
  • Reducing disincentives for bringing workers back or locating in San Francisco
  • Simplifying the overall tax structure to be more predictable

According to the San Francisco Chronicle, post-pandemic, the five largest taxpayers in the City accounted for 24% of all business taxes, and remote work reduced the City’s business tax revenue by $484 million in 2021. https://www.sfchronicle.com/sf/article/remote-work-reduced-s-f-s-taxes-484-million-18193946.php   The loss of tourists and workers in the City has devastated the retail, restaurant and hotel industries. For some businesses, the proposed tax initiative would be a welcome shift from the ever increasing taxes and fees imposed by the City.  However, the decreased income would be made up by increase on other types of commercial activities.

The measure keys on some of the businesses most impacted by the loss of workers in San Francisco, including retail, restaurants, and hospitality.  Unfortunately for the owners of empty office buildings, there would be no reduction in the commercial rents tax. If passed by the voters, the 2024 tax ordinance would result in a significant change in the business tax structure, including revised gross receipts tax rates, short term decreases in the Homelessness Gross Receipts Tax and Overpaid Executive Tax, and a temporary reduction in business registration fees.  The measure would also provide key incentives for small businesses, certain new office building occupants, and grocery stores. Finally, the new tax plan would shift the calculation of business taxes away from the partial reliance on San Francisco based payroll (i.e., lower because of remote work), and focus more on gross receipts, in an effort to more evenly allocate the tax burden and lure workers back to San Francisco.

The proposal is quite detailed and technical in nature.  The Tax Collector’s office has issued a summary of the key changes and expected impacts of the ordinance, and a link to that summary is attached here.  PowerPoint Presentation (sf.gov)

The following are a few additional components of the proposal (some of which are from the Tax Collector’s analysis):

  • Enacts a new small business exemption from the Gross Receipts Tax for businesses that make less than $5 million per year (with annual CPI adjustments). Importantly, residential landlords do not qualify for this exemption.
  • Tax credits of up to $1M for those that open a new business in the City (that person or combined group cannot have operated in the City for the past three years) in certain “Designated Areas”
  • Tax credits for companies that lease all or a portion of a “Qualified Building” for office purposes (“Qualified Building” means that construction must have started between Nov. 4, 2024 and Nov. 4, 2029 and be at least 450,000 square feet, among other requirements), and house at least 100 employees in such building.
  • Gross Receipts tax rates would be reduced for certain industries, including retail, recreation, food service, and hotels.
  • Gross Receipts tax rates would increase significantly (almost double for firms making over $5M per year) for financial and legal services (i.e., attorneys and accountants), and these businesses would lose the ability to reduce the tax due to non-San Francisco employees.
  • The construction industry would be hit with increased tax rates for income above $2.5 million.
  • No significant change in gross receipts tax rates for real estate leasing activities.
  • Tax credits for supermarkets and other grocery retailers (excluding convenience stores) of 0.5% of these company’s taxable gross receipts, up to a maximum credit of $4 million.
  • Reduces the tax rate on Administrative offices based on payroll expenses in San Francisco from 1.54% in 2024 to 1.47% in 2025 and 2026.
  • Reduce the Overpaid Executive Tax by 80%.
  • The Homelessness Gross Receipts Tax, previously charged only to companies making $50 million annually, would be modified to reduce the income threshold to $25 million starting in 2025 (except for the real estate category, where the threshold remains at $50 million).

If the proposed tax plan qualifies for the ballot and passes, it would be a strong signal that San Francisco has turned away from the theory that higher taxes do not impact San Francisco businesses, and recognition that a reasonable tax structure is necessary to attract at least certain types of companies.  However, some industries would still be subject to the more aggressive tax structure, and taxes would still increase in later years. It will be interesting to see if this plan is enough to attract more business to San Francisco.

 

Authored by Reuben, Junius & Rose, LLP Partner Kevin Rose.

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.

HCD Letter Could Complicate Builder’s Remedy Approvals

| Chloe Angelis

On March 28, 2024, the Department of Housing and Community Development (“HCD”) issued a Letter of Technical Assistance[1] to the City of Compton that potentially creates a new complication to the approval of Builder’s Remedy projects.

The Builder’s Remedy allows developments that meet certain affordability thresholds to bypass local zoning when a city or county is out of compliance with housing element requirements. As Reuben, Junius, and Rose partners Melinda Sarjapur and Matthew Visick explained in their April 24 update (State Law Could Overhaul “Builder’s Remedy”), some cities have pushed back on the validity of the Builder’s Remedy as a tool to overcome burdensome zoning controls, and there are numerous Builder’s Remedy cases making their way through the courts.

The Builder’s Remedy is part of the Housing Accountability Act (“HAA”)—which provides that cities and counties must make one of five findings in order to deny a project that would create very low, low, or moderate income housing. One such finding states that a project’s inconsistency with a city or county’s zoning ordinance or general plan can only be used to reject the project if the city or county has adopted a compliant Housing Element.

HCD’s March letter to the City of Compton confirms that when a city or county does not have a compliant Housing Element, it cannot deny a project that meets the requisite affordability thresholds because of the project’s inconsistency with the applicable zoning or general plan land use designation. However, HCD’s letter explains that the Builder’s Remedy does not prohibit a city or county from requiring Builder’s Remedy projects to obtain discretionary permits or zoning or general plan amendments that would be required for similar non-Builder’s Remedy projects.

The letter notes that in this case, the City of Compton intended only for the required general plan amendment and zoning change “to remedy the inconsistencies between the project and applicable regulatory documents that will result when the project is approved.” Even so, the guidance cuts directly against the benefit that the Builder’s Remedy is arguably meant to provide—an open door for projects with sufficient affordability in jurisdictions that have failed to adopt a valid housing element.

Significantly, the HCD letter goes on to explain that if a city or county’s insistence on a general plan amendment or zoning change makes a project infeasible, then that jurisdiction would be in violation of the HAA. The letter specifically notes that “if insisting on a GPA or Zoning Change delays project approval or increases the cost of the approval process, a violation of the HAA would result.”

It is almost impossible to imagine how a requirement to pursue a zoning or general plan amendment wouldn’t delay a project or increase costs. Zoning and general plan amendments are legislative actions requiring approval by a city council or board of supervisors. Adding a legislative component to Builder’s Remedy projects automatically politicizes these approvals.

The March letter to the City of Compton is a bit contradictory:  on the one hand, the HAA does not prohibit cities from requiring discretionary permits or legislative actions as part of Builder’s Remedy entitlements; but on the other hand, anything that delays project approval or increases costs would amount to an HAA violation.

With numerous Builder’s Remedy cases making their way through the courts, and pending state legislation to revise the Builder’s Remedy, this HCD letter potentially muddies the water for Builder’s Remedy projects in the meantime.

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.

[1] HCD RE: 1601 W. El Segundo Blvd., Compton – Letter of Technical Assistance (March 28, 2024).

Superior Court Invalidates SB9 in Charter Cities

| Tara Sullivan

On April 22, 2024, the Superior Court issued a decision in City of Redondo Beach et. all, vs. Rob Bonta, et. all.  This case centered on the legality of SB 9, which the state legislature passed in 2021.  The court held that the legislation was “not reasonably related to ensuring access to affordable housing nor narrowly tailored to avoid unnecessary interference with local government,” thus was in violation of the “home rule” doctrine prohibiting interference with municipal affairs [of charter cities]. At the crux of the argument was whether the legislature’s stated intent of SB 9 – “ensuring access to affordable housing” – was effectuated in the legislation.  The court held that it was not.

As a reminder, SB 9 requires that a proposed housing development containing no more than 2 units in a Single-Family residential zoning district be approved ministerially, and that an associated lot split be approved ministerially as well.  This legislation was one of many that the state legislature has passed in the last several years to require local municipalities to approve new housing projects.

A key issue in the case was whether SB 9 violated charter cities’ authority to manage “municipal affairs.” The Court noted that under California jurisprudence a state law may overcome the home rule doctrine if it is reasonably related to the resolution of a matter of statewide concern. The Court then applied the four-part test from California Fed. Savings & Loan Assn. v. City of Los Angeles to resolve the issue of whether SB 9 superseded local land use authority.  At the end of this test, if “the court is persuaded that the subject of the statute is reasonably related to its resolution [and not unduly board in its sweep] then the conflicting charter city law is no longer a municipal affair and the state law applies.

The Court found, and the parties conceded, that land use and zoning regulations are traditionally local affairs and that SB 9 did indeed interfere with those powers.  On the third prong, whether SB 9 dealt with a matter of statewide concern, the parties sought to define what exactly the statewide concern at issue was. Petitioners sought to define the statewide concern as ensuring affordable housing, whereas respondents argued that the matter of statewide concern was addressing the state’s overall housing shortage.

Here, the Court looked at the plain language of the law – SB 9’s legislative intent and purpose was simply “ensuring access to affordable housing is a matter of statewide concern and not a municipal affair” – and adopted a narrow reading of the Legislature’s intention.  It held that SB 9 was just about ensuring access to affordable housing, not about the shortfall of housing generally. When respondents argued that specific identification of affordable housing did not necessarily preclude a shortfall in housing from being a matter of statewide concern, the Court was unpersuaded.

On the fourth prong of the inquiry (i.e. whether SB 9 is reasonably related to ensuring access to affordable housing and narrowly tailored to avoid unnecessary interference), the Court first turned to the definition of “affordable” within the context of SB 9.  The Court held that the legislatures’ use of “affordable” in SB 9 was in the context of below market-rate housing.  It did not agree with the respondents that it meant housing affordability at all levels.

The Court then held that the “broad requirement of ministerial approval of duplexes and urban lot splits does not contain any connection to affordable housing” (as defined as below market-rate units).  Therefore, since SB 9 does not contain any below market-rate requirements, there was no evidence that SB 9 would result in the creation of “affordable housing,” basically dashing the argument that SB 9 could satisfy the reasonably related/narrowly tailored prong.

It is important to note that the Court went out of its way to distinguish SB 9 from SB 35 and SB 423, which have specific requirements for below-market rate housing units, and therefore were not subject to this ruling.

Where does this leave SB 9?  There are 121 charter cities in California, many of them opposing not only SB 9 but other laws that force ministerial approval of housing projects.  However, many jurisdictions have approved SB 9 projects, including San Francisco.  Whether the Attorney General’s Office will appeal the ruling is not yet known, however, it is doubtful that this is the last we will hear about SB 9.

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.

State Law Could Overhaul “Builder’s Remedy”

| Matthew Visick and Melinda Sarjapur

Assemblymember Buffy Wicks has introduced Assembly Bill 1893 (“AB 1893”) to “modernize” the so-called “Builder’s Remedy” that allows projects with enough affordable units to bypass local zoning requirements when a city or county is out of compliance with Housing Element Law.   This month, California Attorney General Rob Bonta announced his sponsorship of the bill.

The Builder’s Remedy is part of the state’s Housing Accountability Act (“HAA”) that has been in effect for over 30 years. It prohibits local governments that haven’t met Housing Element deadlines from denying an application to build a housing project based on inconsistency with local zoning controls or a general plan designations so long as the project meets certain affordability requirements.

The Builder’s Remedy has laid idle for decades, but gained visibility and application over the past couple years as the Legislature has continued to strengthen state housing laws and numerous cities dropped the ball on meeting Housing Element deadlines.  It is no longer idle.  Housing advocacy groups have aggressively promoted the Builder’s Remedy, characterizing it as a “zoning holiday.”  Recent news coverage estimates that there are 93 Builder’s Remedy projects across the state that could deliver as many as 17,000 new housing units.[1]

Some cities have attempted to push back against the Builder’s Remedy as an unacceptable intrusion of state law into local land use permitting decisions.  These attempts have been met forcefully by the State Department of Housing and Community Development which has issued numerous advisory letters explaining that failure to process Builder’s Remedy projects could expose a city or county to liability under the HAA.  The Attorney General’s office has also intervened in litigation to enforce the Builder’s Remedy.  Just last month Los Angeles County saw the first court case victory for developers on a Builder’s Remedy project in La Caňada Flintridge, and a fleury of other cases are pending.  News coverage suggests that cities and counties have refused to process nearly half of the Builder’s Remedy applications filed based on arguments that it doesn’t actually apply, has been misinterpreted, or is itself unconstitutional.[2]

Developers have also pointed out the difficulty in meeting the affordability requirements of the Builder’s Remedy.  Projects must either provide 20% of the units at prices affordable to low-income households or 100% of the units at prices affordable to moderate income households.  Given current financial constraints, these affordability levels are often infeasible to meet.

AB 1893 would overhaul the Builder’s Remedy in a number of ways:

  • Revised Affordability Requirements. AB 1893 would replace the 20% low-income threshold with a 10% very-low-income threshold.  The 100% threshold for moderate-income projects would remain. Projects with 10 units or fewer would be exempt from affordability requirements.
  • Limiting Where Builder’s Remedy Can Apply. Currently, there is no restriction on what sites can apply the Builder’s Remedy. AB 1893 would only allow such projects on sites that permit housing, retail, office, or parking, or agricultural use if 75% of the site perimeter adjoins a site developed with urban uses.  Builder’s Remedy would not apply on a site or adjoined to any site where more than 1/3rd of the existing square footage is dedicated to industrial uses.
  • Capping Density. AB 1893 would generally cap the residential density of Builder’s Remedy projects to two- to three-times that otherwise permitted by local zoning, depending on whether the site is located in a high-resource area. Additional density (in an amount not yet specified) could be permitted for sites within ½ mile of a major transit stop.
  • Imposing Objective Development Standards. AB-1893 would require Builder’s Remedy projects to comply with objective zoning standards for the closest zone that allows multifamily residential use at specified density minimums, or if no such district exists, the zone that allows the greatest density in the locality.
  • Integrating the Builder’s Remedy with Other State Housing Laws. Among other items, this legislation prohibits local agencies from applying objective standards to Builder’s Remedy projects that would physically preclude their construction at the allowed densities or increase “actual costs.” It further clarifies that Builder’s Remedy projects can utilize State Density Bonus Law; that projects meeting residential density standards of AB 1893 will be deemed to satisfy objective density standards for streamlined ministerial development under AB 2011; and that projects meeting residential density and objective criteria of AB 1893 can qualify for qualify for streamlined, ministerial processing under SB 35.

As currently written, AB 1893 would not apply to Builder’s Remedy projects with applications deemed complete on or before April 1, 2024.

The Attorney General argues that AB 1893 is needed to “clarify and modernize” the Builder’s Remedy by “providing clear, objective standards for builder’s remedy projects, including density standards and project location requirements.”  It argues that these revisions will make the Builder’s Remedy into “a more effective enforcement tool because local governments will face greater certainty of swift consequences when they do not adopt a timely and substantially compliant housing element.”  Finally, the Attorney General argues that AB 1893 will yield better projects by incentivizing “development in urban infill and near transit centers, and promoting higher density housing that is more affordable than single-family homes.”

Opponents argue that AB 1893 will reduce the amount of affordable housing generated and reduce local control over land use permitting decisions.

We understand that some parties (including the Housing Action Coalition and YIMBY Action) are advocating for including the provisions of AB 1893 as an alternative to the existing Builder’s Remedy, but leaving the existing Builder’s Remedy in place for projects that are able to meet the increased affordability requirements and do not wish to be constrained by AB 1893’s limitations on location, density, and design.

AB 1893 passed from the Assembly Committee on Housing and Community Development and Local Government on April 17, 2024.  It will next be considered by the Assembly Committee on Local Government.  If it is signed into law this year, it would take effect in January 2025.

[1] California’s most controversial housing law, the ‘builder’s remedy,’ could get a makeover – Local News Matters

[2] Id.

Authored by Reuben, Junius & Rose, LLP Attorney’s Matthew Visick and 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.

Board of Supervisors Downzones Historic Districts Over Mayor’s Veto

| Sabrina Eshaghi

Last week, the Board of Supervisors voted to override Mayor London Breed’s veto and passed legislation that will effectively downzone certain historic districts in the C-2 zoning district. According to the San Francisco Chronicle, this is the first time the Board has overturned Mayor London Breed’s veto. It also marks a reversal of the trend towards increasing density and eliminating numerical density limits in the City.

In the C-2 zoning district, formed-based zoning currently applies east of or fronting Franklin Street/13th Street and north of Townsend Street, meaning that instead of numerical caps on the number of units, the density is controlled by other development standards like height, bulk, setbacks, open space requirements, etc. The switch to form-based zoning in portions of the C-2 zoning district was just enacted in July 2023 as part of the Downtown Economic Revitalization legislation, which was unanimously approved.

Now, the Board of Supervisors passed legislation to revert back to numerical density limits in the C-2 district for properties within the Northeast Waterfront Historic District, the Jackson Square Historic District, and the Jackson Square Historic District Extension. This will limit density based on the density ratio permitted in the nearest residential zoning district, but no less than one unit per 800 square feet of lot area. The legislation exempts projects utilizing the Commercial to Residential Adaptive Reuse Program from the numerical density limits.

President Aaron Peskin, who sponsored the legislation, stated that it is a reaction to the “unintended consequence” of projects taking advantage of the form-based density in the C-2 zoning district in conjunction with the State Density Bonus Law to propose towers in these historic districts. Public comments specifically referred to State Density Bonus Projects at 1088 Sansome and 955 Sansome, which were proposing a total of 264 housing units.

The Mayor vetoed the legislation, calling it “anti-housing policy in the guise of historic protection.” Supervisors Melgar and Dorsey expressed concerns that as the City moves towards maximizing housing, this legislation would create a problematic precedent that individual supervisors can carve out exceptions to density decontrols. But ultimately, the Board voted 8-3 to override the Mayor’s veto, with Supervisors Melgar, Dorsey, and Engardio voting with the Mayor and against the legislation.

It remains to be seen whether these types of piecemeal exceptions to form-based density will continue to be enacted in response to specific projects. But either way, the Planning Department’s staff report aptly noted that a portion of the area affected by this legislation is currently included in the Planning Department’s rezoning effort in accordance with the Housing Element. If that rezoning scenario is pursued, the staff report states that the Department will likely recommend reinstating form-based density, and approximately 23 parcels that will be subject to numerical density controls under this legislation will revert to form-based zoning within the next year. This begs the question how many other areas will be subject to this type of legislative whiplash as the City grapples with balancing the need for additional housing and preserving neighborhood character.

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.

Voters Approve Mayor’s Transfer Tax Exemption

| Kaitlin Sheber

The Mayor’s proposal to waive San Francisco’s Transfer Tax for certain converted residential space (“Measure C”) was approved by voters on March 5, according to the City of San Francisco’s official preliminary election results. We previously provided an overview of this measure that is aimed at encouraging conversion of office to residential use in the City on October 25, 2023.

Generally, under the new law, up to the first 5,000,000 square feet of “Converted Residential Property” can be exempted from the City’s Transfer Tax. Conversions that involve demolition of nonresidential property to construct new residential property may also be considered Converted Residential Property subject to the tax exemption.

However, the measure caps the amount of new square footage that can be considered Converted Residential Property. For projects where a building is demolished to construct new residential property at the same site, the amount of Converted Residential Property only includes residential square feet in the new building that exceeds the square feet of any residential space in the demolished building, up to a maximum of the total gross floor area of the non-residential space in the demolished building, plus 10%.

According to SPUR, the approval of Measure C comes with the following benefits:

  • Acceleration of office to residential conversion projects can speed downtown recovery through reducing the cost of development;
  • Activating obsolete office buildings with housing can increase foot traffic and economic activity;
  • The Board of Supervisors can make future changes to the transfer tax as needed legislatively, allowing flexibility for the City to make adjustments based on economic conditions

The tax exemption under Measure C applies to the First Transfer of Converted Residential Property—meaning the first transfer after a certificate of final completion and occupancy or temporary certificate of occupancy is issued for the property, whichever is earlier. So, projects will generally see the benefits of Measure C once construction is complete.

The passage of Measure C alone is not expected to close the feasibility gap for most office to residential conversion projects, and additional incentives will be needed to make such projects financially viable.

Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber.

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.