Housing Production Legislation to Watch

Housing Production

The start of another legislative session is upon us. Last week at the outset of the 2021-2022 legislative session, several bills impacting housing production were introduced. Some are similar to bills that weren’t passed last year. Below are four bills to watch as they wind through the Legislature.

SB9 (Atkins, Caballero, Rubio, Wiener)

SB9 is a refresh of SB1120 from last session that would allow duplexes on most lots. SB9 requires cities to ministerially permit, i.e., without CEQA review or other discretionary reviews or hearings, two-unit development projects in single-family zoning districts. It would also allow single-family parcels to be subdivided into two lots if the parcel is located within an urbanized area or urbanized cluster and is: (i) not located within a historic district, (ii) not included in the State Historic Resources Inventory, or (iii) not within a site that is designated or listed as a city or county landmark/historic property/district.

SB1120 cleared the Assembly with only minutes left in the session, leaving too little time for it to return to the Senate for passage, which makes this year’s SB9 a bill to closely watch.

SB10 (Wiener)

Senator Wiener’s SB10 is a refresh of SB902 from last session that would allow—but not require—local governments to upzone qualified parcels for up to ten-unit apartment buildings. The allowance for streamlined upzoning would only apply in urbanized locations close to job-rich areas, which are defined as areas rich with jobs or would enable shorter commute distances, and/or transit rich areas, which are defined as areas within half a mile of a major transit stop. While SB10 creates a shortcut for upzoning, it does not provide for streamlined project approvals, i.e., projects within upzoned areas would remain subject to CEQA and other local approval processes. SB10 requires the Department of Housing and Community Development, in consultation with the Office of Planning and Research, to determine jobs-rich areas and publish a map of those areas by January 1, 2022.

SB30 (Cortese)

Senator Cortese’s SB30 would prohibit after January 1, 2022, the construction of a state building connected to the natural gas grid and prohibit state funding or other support for construction of residential and nonresidential buildings that are connected to the natural gas grid.

SB6 (Caballero, Eggman, Rubio)

SB6 is a second attempt to pass the Neighborhoods Homes Act that would override local prohibitions on residential uses on properties (no size limit) within any commercial zone, except where office uses and retail uses are not permitted or only permitted as an accessory use, that is not adjacent to an industrial use. Densities allowed fall into the range from 15 dwelling units/acre in rural areas to 30 dwelling units/acre in highly urbanized areas, with suburban areas allowing at least 20 dwelling units/acre. Housing development projects would still be subject to local zoning and parking controls, objective design review and permitting processes, and CEQA would be applicable. Projects taking advantage of the Neighborhoods Homes Act would be required to pay prevailing wages or use skilled and trained labor.

 

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.

Reduce Exposure to Mechanics’ Liens

Notice of Completion

While contractors typically enjoy a 90-day period to file a Mechanic’s Lien once a project is completed, project owners in California can take steps to significantly shorten this deadline by recording a Notice of Completion (“Notice”).  The Notice gives written notice that an entire project is completed.  A Notice that is properly recorded and served benefits project owners in two main ways:

  1. Reduced project risk because contractors and subcontractors have less time to record a Mechanic’s Lien – which can result in filing of a mechanic’s lien foreclosure action; and
  2. Project owners can clear title more quickly, smoothing the way for post-construction loans and sales.

Mechanic’s Liens Can be Recorded as late as 90 Days After Project Completion:

Unless an owner records a Notice, contractors and subcontractors have 90 days to record a Mechanic’s Lien.  But, if a Notice is properly recorded, that 90-day period is shortened to 60 or 30 days.  The time period depends on whether a direct contractor performed the work:

  • A direct contractor has 60 days to file a Mechanic’s Lien after a project owner records a Notice of Completion.
  • Persons that are not direct contractors have 30 days to file a Mechanic’s Lien after a project owner records a Notice of Completion.

It is critical that a recorded Notice be served on each direct contractor, subcontractor, and material supplier who may have the right to record a mechanic’s lien against the project.  The Notice will only be effective if timely and validly served, so we recommend service via certified mail with a proof of notice declaration to establish service in the event of any dispute.

When is a Project Completed?

The date a project is completed is the moment the clock begins to run to record a Mechanic’s Lien or Notice.  Under the California Civil Code, a project is considered complete when any of the following occur:

  1. Actual completion;
  2. Labor stops and occupation or use by the owner occurs;
  3. Labor stops for a continuous period of 60 days; or
  4. Labor stops for a continuous period of 30 days, after which a notice of cessation is recorded.

Additionally, a project is considered completed at the time a public entity accepts the project.

In practice, the definition of actual completion has proved difficult to nail down.  Ordinarily, “completion” means that the entire project has been completed.  But this meaning does not give clear direction for the date a court would find a project legally completed.

Courts may also determine completion by looking at the substantiality of work performed after a project is presumed completed.  Where a contractor performs additional work under the construction contract, courts will tend to find the project was not previously completed.  Conversely, the project may be actually completed even if the contractor later corrects defects.  Factors like an issuance of a Final Certificate of Occupancy can serve as evidence of completion, but are not definitive proof.  Unfortunately, as the California Civil Code currently stands, the important definition of completion remains ambiguous.

Notice of Completion Timing

A Notice must be recorded and served within 15 days from the date a project is completed.  Though the definition of completion is nebulous (as discussed above), a Notice is considered valid if recorded and served within 15 days of the true project completion, even if it includes an erroneous completion date.

 

Authored by Reuben, Junius & Rose, LLP Law Clerk 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.

Proposition H and New Processing for ADUs

Save Our Small Businesses Initiative

Proposition H Adopted by Voters

Proposition H was adopted by the voters at this November’s election.  Titled, “Save Our Small Businesses Initiative”, the initiative ordinance gives existing businesses more flexibility in their operations and speeds approvals for new businesses in the City’s Neighborhood Commercial (“NC”) Zoning Districts.  The initiative reduces the approval requirement for many uses from a conditional use authorization from the Planning Commission to an over-the-counter administrative approval.  Restrictions on office uses are relaxed.  The initiative eliminates neighborhood notification for changes to a principally permitted use and provides existing businesses with greater flexibility to adapt their operations in response to the COVID-19 pandemic and shifting retail landscape.  The initiative calls upon the City to streamline the approval for small businesses to 30 days.

In particular, the initiative provides as follows:

Neighborhood Notification

  • Eliminates neighborhood notification for new principally permitted uses in Neighborhood Commercial Districts, for Limited Commercial Uses, and for Limited Corner Commercial Uses. These change of use permits can now be approved over-the-counter.

Permitted Uses

  • In all NC Districts except for the Mission Street NC, 24th Street-Mission NC, and SOMA NC, more principally permitted and conditionally permitted uses are now allowed:
    • Non-Retail Sales and Services (e.g., office uses) are principally permitted on upper floors and permitted with a conditional use authorization on the ground floor.
    • General Entertainment, Movie Theaters, Community Facilities, Restaurants, Limited Restaurants, Animal Hospitals, and Retail Professional Services (e.g., realtors, accountants, insurance agents) are now principally permitted where currently permitted with a conditional use authorization, and conditionally permitted where currently not permitted. Restaurant controls were not changed in the North Beach Special Use District, where a conditional use authorization is required and any new restaurant may only occupy a space where the last use was a restaurant.
    • Arts Activities and Social Service or Philanthropic Facilities are now principally permitted on all floors.
    • Formula retail controls (conditional use authorization required) were not changed by the initiative.

Approval Process

  • Requires the creation of a streamlined review and inspection process for principally permitted storefront uses in NC Districts with a target approval in 30 days or less. The City is in the process of implementing these new procedures;
  • Requires that in cases of City error, permits to remedy that error be prioritized and have fees waived;
  • Establishes policy to allow restaurant table service within parklets in addition to the existing use of parklets by any member of the public; and
  • Locks-in the initiative’s provisions for 3 years from passage, except to further relax restrictions.

Processing ADU Applications Moves to Planning

In an effort to ease the administrative burden on DBI and hasten the approval of ADUs, the City has shifted the intake and processing of ADU applications from DBI to the Planning Department.  This includes new applications for ADUs and work related to ADU construction, such as expansions required for an ADU, excavations required for an ADU, new construction for a detached ADU, and interior remodel work to create independent access to the ADU.

Applications consist of the standard Planning Department Project Application, the ADU checklist form, the ADU screening form, a fixture count form for the PUC, and a pdf of the project plans.  Applications are submitted online at a new, easy-to-use website just for ADUs.  The application can be a full building permit or a site permit with addenda.

Once the application is submitted, Planning will send the applicant a confirmation email with the planning application number.  Planning’s Property Information Map (PIM) will provide updates about the application.  It will take one day for the record to appear in the PIM.  A planner will email the applicant about next steps within 14 business days.  The application still will be routed as before to other City agencies having jurisdiction over the proposed work for review, including DBI.

Once the permit is approved, Planning will coordinate with the applicant to verify their licensed contractor information and pay the fees.  Planning will email the job card to start construction.

For questions or assistance, email the Planning Department.

 

 

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

California Increases Density Bonus to 50%

density bonus

Starting in 2021, residential projects in California with on-site affordable housing can get a density bonus of up to 50%.  Currently, under Government Code Section 65915—commonly known as the Density Bonus Law—the maximum bonus is 35%.  It is available for projects that include 11% very low income below market rate (“BMR”) units, 20% low income BMRs, or 40% moderate income BMRs.  Under a new law that flew somewhat under the radar during the last legislative session in Sacramento, a 50% bonus is available with increased affordability.  Specifically, 15% very low income, 24% low income, or 44% moderate income allow the full 50% bonus.

The new state law, AB 2345, requires cities and counties to comply even if they have not yet updated local implementing ordinances.  This means starting January 1, 2021, all jurisdictions in California are required to process projects proposing up to 50% additional density as long as those projects provide the additional BMRs in the “base” portion of the project, unless the locality already allows a bonus above 35%.

AB 2345 also lowered the BMR thresholds for concessions and incentives for projects with low income BMRs.  For background, in addition to waivers from development controls that preclude a project from achieving the density bonus it is guaranteed (with some narrow exceptions) in exchange for on-site BMRs, the Density Bonus Law allows sponsors to ask for “concessions and incentives” from zoning and development regulations that would make the project more expensive to construct.  Starting in 2021, projects with 17% low income BMRs can qualify for two concessions or incentives, and projects with 24% low income BMRs can qualify for three.

Finally, density bonus projects within one-half mile of a major transit stop and with direct access to the stop may be able to avoid minimum parking requirements.

All-Electric New Construction in San Francisco Starting in June 2021

On Tuesday, the San Francisco Board of Supervisors passed a law mandating new construction projects be all-electric.  The building or project will need to use a permanent supply of electricity as the source of energy for all space conditioning including heating and cooling, water heating, pools and spas, cooking appliances, and clothes drying appliances.  Gas or propane piping systems are not permitted from the point of delivery at the gas meter.

The all-electric requirement takes effect on June 1, 2021.  Starting then, all new building or site permit applications will need to comply.  Sponsors should keep in mind there is currently a multi-month delay to file permits at the Department of Building Inspection (“DBI”), and should not wait until the last minute to get their building or site permits on file.

There are two minor exceptions.  If it would be physically or technically infeasible to construct an all-electric building, DBI can grant modifications, but only to those portions of the building where infeasibility can be demonstrated, and the alternative design provides equivalent health, safety, and fire protection.  Importantly, financial considerations cannot be used to show infeasibility.

Also, a restaurant is allowed to have gas facilities used exclusively for cooking equipment.  For permits filed through December 31, 2021, permits identifying a restaurant use will be allowed to have gas facilities.  After 2021, the exception is narrowed and DBI has to determine that the gas system is necessary for the specific restaurant using the space.  Identifying a specific restaurant tenant that early in the process will likely be a challenge for many new construction projects.

 

Authored by Reuben, Junius & Rose, LLP Attorney 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.

Central SoMa Clean Up Legislation Moves Forward

SoMa

Last week, the San Francisco Planning Commission unanimously recommended approval of legislation that would “clean up” parts of the Administrative and Planning Code that were previously amended in connection with the Central SoMa Area Plan.

The Central SoMa Area Plan was the result of a multi-year planning effort which rezoned much of a 230-acre area adjacent to downtown and surrounding the future Central Subway extension along 4th Street, which is scheduled to begin operating in 2021.  The Plan is anticipated to generate nearly 16 million square feet of new housing and commercial space, and over $2 billion dollars in public benefits.

As described in the Planning Department’s staff report, this “clean up” legislation would correct “grammatical and syntactical errors, un-intentional cross-references and accidental additions and deletions,” associated with the original Plan legislation adopted in 2018.  However, there are also a few substantive amendments proposed, along with clean-up items that have the potential to affect pending and future development throughout the Plan area.

Among other things, the legislation would:

  • Require an operations and maintenance strategy for all required Privately Owned Public Open Spaces (POPOS) in the Plan area. This strategy would need to be approved by the Director of Planning prior to approval of a site or building permit for the associated project;
  • Provide that the Central SoMa PDR requirement applies to projects that increase a building’s square footage by 20% and result in 50,000 gsf of office space along with new construction projects that result in 50,000 gsf of office space;
  • Revise lot coverage requirements for residential uses in the Central SoMa SUD to reflect that all floor levels with residential space (including accessory residential spaces such as common rooms) would be limited to 80% lot coverage, except for floors whose only “residential” space is common lobbies and circulation. 100% lot coverage would be permitted at floors where residential units are located within 40 feet of a street-facing property line.  Further, projects with applications submitted on or prior to July 1, 2020 would be grandfathered from the proposed lot coverage amendments;
  • Clarify and correct which sides of narrow streets in Central SoMa are subject to solar plane setback and bulk reduction sky plane requirements;
  • Provide that buildings that are taller than would otherwise be allowed in a given height district are to follow the sky plane bulk reduction requirements of the height district that is most aligned with the height of the building;
  • Require that funds collected through the BMR in-lieu fee from Central SoMa projects be spent in the greater SoMa area;
  • Clarify that payment of an in-lieu fee for modifications or exceptions from open space requirements is only applicable where the exception or modification is granted to reduce the amount of open space provided, but not in cases where the exception is only related to design standards of the open space;
  • Provide that funds collected through the Central SoMa Community Facilities fee can be spent in the greater SoMa area, and not limited to the Central SoMa Special Use District;
  • Expand the types of infrastructure projects that can be funded through the Central SoMa Infrastructure Fee;
  • Allow project sponsors to meet part of their usable open space requirements off-site at a greater distance from the principal projects than initially proposed, particularly by enabling projects to build open space under and around the I-80 freeway within the Central SoMa Special Use District; and
  • Provide an exception allowing for certain retail to be provided in lieu of a portion of the PDR requirement in connection with development of a Key Site at the northeast corner of 5th and Brannan Streets.

An additional amendment was initially proposed that would have expanded application of certain development impact fees in Central SoMa.  However, that amendment was removed from the legislation at the request of the Commission.

This Central SoMa legislation will be introduced to the Board of Supervisors within the next few weeks.  It will then be held for 30 days before assignment to the Board’s Land Use and Transportation Committee for review and possible amendments, before it’s presented to the full Board for approval.

 

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.

A Handful of San Francisco Planning Updates

Planning

Final Passage of UMU Office Legislation

Back in February, we covered Supervisor Ronen’s proposal to substantially limit office uses within Urban Mixed Use (“UMU”) districts. You can revisit our prior update here. As originally introduced, the legislation would have prohibited office use on the upper floors throughout the UMU district (where currently permitted), and would have maintained exceptions for qualifying landmark buildings. The first version of the legislation also proposed allowing limited professional service, financial service, and medical service uses that serve the general public at the ground floor, but only with approval of a Conditional Use Authorization from the Planning Commission.

The Board of Supervisors finally passed that legislation on August 11, 2020 with a major substantive change—limiting the prohibition of general office use to the Mission Area Plan portion of the UMU district.

As approved, the legislation provides that in the Mission Area Plan portion of the UMU district, general office uses not in a landmark building are prohibited outright. Professional service, financial service, and medical service uses are prohibited above the ground floor, but are permitted on the ground floor with a conditional use authorization if primarily open to the general public on a client-oriented basis.

Office uses within the UMU district that are not within the Mission Area Plan remain subject to the vertical controls that apply currently. And outside the Mission Area Plan, professional service, financial service, and medical service uses are permitted on the ground floor if primarily open to the general public on a client-oriented basis, and are permitted on upper floors subject to vertical controls.

The final legislation can be reviewed here.

Conditional Use Streamlining Ordinance

In other San Francisco legislative news, the Board of Supervisors passed an ordinance on Tuesday in an effort to streamline the Conditional Use process for certain types of commercial uses. At that hearing, Supervisor Peskin also requested that the file be duplicated and sent back to committee to allow an opportunity for community groups to weigh in on the changes.

Under the new ordinance, applications that are eligible for streamlining are entitled to a Planning Commission hearing within 90 days from the date the Planning Department deems the application complete and such projects would be calendared for approval via the Planning Commission’s consent calendar. Projects eligible for the program would also be eligible for a reduced application fee—at a rate of 50% of the otherwise applicable fee.

The Planning Commission is entitled to a one-time extension of the 90-day hearing deadline. An extension cannot be for more than 60 days and can only be issued for one of the following three reasons:

  1. The Planning Director or the Director’s designee requests in writing that the item be removed from the Commission’s consent calendar;
  2. Any member of the Planning Commission requests that the item be removed from the Commission’s consent calendar; or
  3. Any neighborhood organization (included on a Planning Department neighborhood organizations list) submits a letter of opposition or written request that the item be removed from the Commission’s consent calendar.

In order to qualify for the streamlining program, a project must comply with the following criteria: 1) propose non-residential use only; 2) be limited to interior or store-front work; 3) not involve a formula retail use; 4) not involve the removal of any dwelling units; 5) not propose the consolidation of multiple storefronts; 6) not seek additional off-street parking, or the expansion or intensification of hours of use, beyond those principally permitted; 7) not involve the sale of alcoholic beverages except for beer or wine sold in conjunction with a Bona Fide Eating Place; and 8) not seek to establish or expand an adult entertainment use, bar, drive-up facility, fringe financial service, medical cannabis dispensary, nighttime entertainment, non-retail sales and service closed to the public, a tobacco paraphernalia establishment, or a wireless communication facility. Projects within the Calle 24 Special Use District would also not be eligible for the streamlining program.

New Application Fee Schedule

On August 31, the Planning Department’s application fee schedule for 2020-2021 will go into effect. Application fees are adjusted annually based on the consumer price index. The 2020-2021 fee schedule preview is available here.

 

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.

Pending State Bills Seek To Boost Housing

House

This week’s update focuses on five pending bills in the State Legislature, all of which are intended to encourage housing development. These bills, if passed into law, could have a significant impact on housing production and real estate development in San Francisco. A typical mechanism in these bills for expediting housing production is to make the particular approvals ministerial, and therefore not subject to CEQA review.

Lawmakers were expected to return from summer recess on July 13th. Due to at least one Assembly member testing positive for coronavirus, the resumption of the summer session has been delayed until the end of this month. This year’s legislative session is slated to end on August 31, 2020.

AB 2580: Conversion of Motels and Hotels: Streamlining

California Assembly Bill 2580 would allow a ministerial, streamlined conversion of non-residential hotels and motels into multifamily housing. Among its provisions, this bill would establish a process for use by cities and counties, including charter cities and counties, for the complete conversion of a non-residential hotel or motel into multifamily housing units that is streamlined, ministerial and not subject to a conditional use authorization. Because conversion of non-residential hotels and motels into multifamily housing would be a ministerial approval, such conversions would not require CEQA review.

San Francisco has approximately 34,000 hotel rooms in more than 200 hotels. In the short-term, the conversion of hotel rooms to residential could bolster the stock of smaller, affordable units. However, as the economy recovers, the loss of hotel space could dilute or erode convention/tourist facilities in key locations near regional transit. Tenant protections may limit the ability to covert back to hotel to meet future needs.

AB 2345 (Gonzales and Chiu): Density Bonus Expansion

California Assembly Bill 2345 would amend the State Density Bonus Law to provide additional options to qualify for State Density Bonus. Currently, a project may receive one, two or three incentives or concessions, depending on the amount and levels of on-site affordable housing. Projects providing 100% affordable housing may receive four incentives or concessions, but are not eligible for waivers given that density limits are waived. This bill would provide an option to receive four or five incentives and concessions for projects in which greater percentages of the total units are provided for lower income households, very low income households, or for persons and families of moderate income in a common interest development. In addition, when providing the additional affordability specified above, the project is entitled up to a 50% bonus. The bill would also authorize an applicant to receive six incentives or concessions for projects in which 100% of the total units are for lower income units, as specified. The bill would also provide one incentive for Student Housing Projects that are 20% affordable.

Due to San Francisco’s high inclusionary requirements, projects that provide onsite inclusionary housing may qualify for a larger bonus than 35%. A typical rental project would qualify for a 37.5% bonus and if located in a carve out area (North of Market Residential Special Use District, the Mission Area Plan, or the SOMA Neighborhood Commercial Transit District) may receive a 50% bonus.

AB 3040 (Chiu): Allow Cities to Permit up to Four Units on Single-Family Home Parcels

California Assembly Bill 3040 would allow jurisdictions to rezone parcels currently occupied by single-family homes for ministerial approval of up to four housing units, and to count these sites toward up to 25% of the housing units the jurisdiction must accommodate for its share of the Regional Housing Needs Assessment (RHNA). Because projects on these parcels would be designated for ministerial approval, CEQA review would not be required. The projects would still be subject to design review; however, local development standards applicable to the site cannot impede the development of four dwelling units. Covenants or other private provisions that prohibit or restrict the number of units would also be void. Single-family home sites counted toward the RHNA site inventory as potential four-unit sites must have been certified for occupancy at least 15 years ago.

In San Francisco, over 40% of the city’s residential land is zoned for single-family homes (RH-1 zoning) and single-family homes occupy lots in additional areas of the city. Under this bill, San Francisco would choose where to allow four-unit buildings on single-family home parcels and likely would consider factors like access to transportation, neighborhood services, parks, and schools as well as historic status.

SB 1120 (Atkins, Caballero, Rubio, and Wiener): Subdivisions

California Senate Bill 1120 would authorize ministerial approvals of either or both (i) a housing development of two units and/or (ii) subdivision of a parcel into two equal parcels. To use this bill, the subject parcel would need to be zoned for residential uses and in a single-family zoning district. Certain hazardous, protected parcels or currently occupied parcels could not take advantage of this bill. Projects could not result in the demolition of 25% or more of existing exterior walls, a parcel smaller than 1,200 square feet, nor provide short-term rentals. CEQA would not be required. Objective requirements may be applied, provided the requirements do not prohibit the project.

In San Francisco, approval processes for subdivisions and for new housing are discretionary and as such, require CEQA review. By making these projects ministerial, CEQA would not be required and the projects would be approved upon meeting the objective requirements. This would speed the entitlement process and limit the Department’s ability to apply design guidelines.

SB 902 (Wiener, Atkins): Allow Cities to Permit up to 10 Units on Infill Sites in Transit-Rich or Job-Rich Areas

We have previously updated readers on Senator Weiner’s Senate Bill 902, or ‘SB 50 Lite’. This bill would facilitate the passage of local ordinances to allow multifamily buildings with up to 10 units on qualifying parcels. The bill would not require any changes to existing zoning but could allow for faster passage of ordinances by removing the need for potentially time-consuming and costly CEQA review. A large portion of the city’s parcels would likely qualify for rezonings under this bill should the city’s elected officials choose to pass them. SB 902 was passed out of the Senate in late June, and is now being considered in the Assembly.

We will continue to monitor these bills, and will update readers accordingly.

 

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

Delay to San Francisco’s New Vacant Storefront Tax

Storefront Tax

We all have experienced this: a favorite store or local restaurant closes down after decades in business, citing the difficult climate to do business in San Francisco.  The rent is too high, costs to operate are too much, people shop and order food online instead of in person.  The numbers of closures have proliferated over the past five years, hitting every sector of the market and every neighborhood in the City. The result is a vacancy rate between 2 and 24 percent in the neighborhood commercial corridors.[1]

On March 3, 2020, just 13 days before the City’s mandated stay-safe-at-home Order took effect, San Francisco voters approved the Prop D: Vacancy Tax Ordinance, which imposed an annual excise tax on landlords who had vacant ground floor commercial space.  Sponsored by Supervisor Peskin, the law was intended as one tool in a larger toolbox, including streamlined permit processes, that would address San Francisco’s rising number of vacant storefronts in the neighborhood commercial corridors.

The tax, passed by 70.09% of the electorate (above the 66 2/3rds required to pass), was to begin in January 2021.  It imposes a scaled tax on owners who keep their storefronts vacant for 6 months or longer, with the money going into the Small Business Assistance Fund to support the maintenance and operation of small businesses in San Francisco.  The tax is calculated based upon the following:

1) the number of feet facing the street or ground level commercial space; and

2) how long the space has remained vacant.

The vacancy tax has tiered tax levels, which vary depending on how long the storefront was vacant.  It would apply as follows:

  • In 2021, owners or tenants would be taxed $250 per street-facing foot;
  • In 2022, owners or tenants would be taxed either $250 or $500 per street-facing foot if the space was kept vacant in the immediately preceding year; and
  • In 2023 and later, owners or tenants would be taxed either $250, $500 or $1,000 per street-facing foot depending on the number of immediately preceding years in a row the space was kept vacant.

For example, a storefront with 15 feet of frontage that was vacant on January 2021 and remained vacant for three years, would be taxed $3,750 in 2021, $7,500 in 2022, and then $15,000 in the years after.  The law does take into account permit processing and contains exceptions for certain nonprofits.

While on paper it seems inconceivable that a storefront could remain vacant for a three-year period, certain San Francisco neighborhoods such as North Beach, consistently have vacancies for multi-year periods.[2]  There has been many articles and studies done about the origin of the vacancies in San Francisco –  the changing face of brick-and-mortar retail to online purchasing, the high costs of running a small business (from minimum wage to mandatory health insurance), zoning restrictions regulating large chain stores, and the onerous permit process which can take anywhere from 6 to 18 months.[3] However, proponents of the Vacancy Tax argued that one main reason for the high number of vacancies is the prohibitively high rents that landlords charge, hoping to draw higher-scale and larger businesses.  Few small business owners, even the most profitable ones, can make the numbers work with high rents.  Prop D was promoted as an antidote to that issue, with the thought that high tax rates would incentivize owners to lower rents, resulting in these spaces to be leased and occupied.

When Prop D passed in March of this year, few predicted that the City and nation would be impacted by Covid-19 and the subsequent economic fallout related to it.  Between March 3rd (the day Prop D was passed) and March 6th, the City and State declared state of emergency, with a stay safe at home order imposed on March 16th.  All non-essential business were forced to close, which impacted every neighborhood in San Francisco.  Most stores were boarded up, with many unsure when or even if they can reopen.  While San Francisco is currently operating under a phased reopening plan, it is too early to know the true vacancy rate in San Francisco resulting from Covid-19.  Most expect it to be higher than before Prop D was passed on March 3rd.  Even formerly “healthy” retail corridors such as Hayes Valley will see an increase in ground floor vacancies.

On June 9th, the Board of Supervisors unanimously passed an Ordinance on first read calling for the suspension of Prop D for the 2021 tax year (BOS File No. 20-0420).  Recognizing that “one week after [the] election, our way of life was fundamentally flipped on its head,”[4] Supervisor Peskin called for the delay in its implementation so that studies could be done once the City fully reopens.  It is likely that the high vacancy rate for ground floor spaces will continue well into 2021, with no real “normal” returning for retail and eating and drinking businesses in the near future.  It is too early to tell whether the Vacancy Tax will be implemented in its current form, or if it will be delayed further due to a continued economic downturn.[5]  Either way, this new tax, while well intentioned, conflicts with current conditions on the ground today. Owners of commercial spaces can point to one piece of good news – they won’t be penalized for vacant spaces until 2022.

 

[1] Mission Street Corridor Economic Analysis, August 30 2017, prepared for SF OEWD by Strategic Economics: https://oewd.org/sites/default/files/Invest%20In%20Neighborhoods/MissionStreetReport_Final_08-30-2017_0.pdf

[2] Shwanika Naryan, Ronald Li, Shuttered Stores: North Beach’s Crisis, SF Chronicle, June 13, 2019. https://www.sfchronicle.com/business/article/San-Francisco-s-North-Beach-is-littered-with-13972898.php

[3] See Shwanika Naryan, Ronald Li, Bayview Sees Loss and Change, SF Chronicle, December 13, 2019: https://www.sfchronicle.com/business/article/Bayview-retailers-haven-t-seen-San-14899446.php; Shwanika Naryan, Ronald Li, West Portal Worries, SF Chronicle, September 27, 2019: https://www.sfchronicle.com/business/article/Wealthy-worried-watching-In-West-Portal-14470344.php#photo-18342062

[4] https://www.sfchronicle.com/business/article/SF-supervisor-wants-to-delay-vacancy-tax-as-15232781.php#photo-19289895

[5] The Board of Supervisors is empowered to amend the measure to lower the rate with a two-thirds majority vote.  State law requires that amendments to increase or extend local taxes be approved by the voters. However, amendments to lower a local tax may be passed legislatively (California Constitution, Article XII C).

 

See also:

State of the Retail Sector: Challenges and Opportunities for San Francisco’s Neighborhood Commercial Districts, February 15, 2018, prepared for SFOEWD by Strategic Economics:  https://oewd.org/sites/default/files/Invest%20In%20Neighborhoods/State%20of%20the%20Retail%20Sector%20-%20Final%20Report.pdf;

Mission Street Corridor Economic Analysis, August 30 2017, prepared for SF OEWD by Strategic Economics: https://oewd.org/sites/default/files/Invest%20In%20Neighborhoods/MissionStreetReport_Final_08-30-2017_0.pdf;

SF Budget and Legislative Analysist, Policy Analysis Report: Preventing and Filling Commercial Vacancies in San Francisco, January 16, 2018:  https://sfbos.org/sites/default/files/BLA_Report_Commercial_Vacancies-011618.pdf

 

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.

California Considers Stringent Restrictions on Commercial Evictions

As COVID-19 continues to shape our economic future, elected officials are weighing how to intervene in commercial evictions. Some municipalities have imposed temporary moratoria on evictions. Senate Bill 939 (“SB 939”), introduced on February 6, 2020 by Senators Scott Wiener and Lena Gonzalez, would go much further. The legislation would impose significant Statewide restrictions on commercial evictions of broadly defined “small businesses” for months after the COVID-19 state of emergency declared on March 4, 2020 is lifted.

SB 939 would prohibit a commercial landlord from serving a notice of eviction on a tenant until 90 days after the Governor lifts the state of emergency order. Eviction protection would apply to an eating or drinking establishment, place of entertainment, or performance venue that operates primarily in California and has experienced a specific decline in revenue due to COVID-19. Any eviction actions commenced after the date of the emergency COVID-19 order, but before the adoption of SB 939, would be void and unenforceable.

The Legislation would further provide tenants with additional time to pay unpaid rent accrued during the state of emergency. The balance of any unpaid rent accrued during the state of emergency would be due 12 months after it ends, unless otherwise negotiated with the landlord, and no interest or late fees would be due if paid within that 12 months.

Perhaps of most concern to commercial landlords, the legislation would provide qualifying tenants with the right to conduct negotiations with the landlord in order to modify any rent or economic requirements, and if unsuccessful, to terminate their lease. No additional rent would accrue, and the tenant would be required to pay only any rent accrued outside of the state of emergency plus three months’ worth of the past due rent incurred during the state of emergency. The right to lease termination would remain in effect until the earlier of two months after the state of emergency or December 31, 2021. Currently, this provision would be limited to businesses with fewer than 500 employees.

Not surprisingly, the Bill is generally supported by tenant groups and restaurant trade associations and opposed by landlords and business associations. Among other concerns, opponents point out that most commercial properties are owned by families or small landlords. In addition to questions about the fairness of the bill, there is concern that the law could cause ripple effects throughout the economy, including widespread mortgage default by owners of commercial property. Proponents argue that there are no Statewide protections for small businesses, and that many restaurants simply cannot keep paying the rent due, either now or in the uncertain future of social distancing and a battered economy.

As urgency legislation, SB 939 would take effect immediately if passed by a 2/3 vote in each house of the Legislature and signed by the Governor. The bill has been amended several times since introduction. Additional amendments are anticipated, but have not yet been released. The Legislation was passed by the Senate Judiciary Committee on May 22. It was then considered by the Senate Appropriations Committee on June 9 and will be heard by Appropriations again on June 18.

If the bill is not passed out of the Appropriations Committee by June 19, it will not move forward in this legislative session. If the bill does pass, litigation is almost certain. We will continue to follow this legislation and the debate over commercial evictions during the COVID-19 era.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jody Knight.

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.

City Expands Demolition Controls to High-Value Homes

San Francisco

For years, San Francisco has required a conditional use permit as a prerequisite to demolishing a residential building. In addition, the building could not be demolished until a building permit for the replacement structure was approved. The theory behind the prohibition is that existing housing is the City’s most affordable housing and should be preserved.

However, until recently there was an exception that exempted  the demolition of a residential building in RH-1 and RH-1(D) single-family zones from the conditional use requirement if the residence was demonstrably unaffordable. A house that is demonstrably unaffordable is one that has a value greater than 80% of the value of single-family homes in the City. The value includes both structure and land value. Under the exception, an applicant had to provide an appraisal made within the last six months. Critics saw the demonstrably unaffordable exception as a loophole serving the wealthy, and one that could be manipulated.

In February, Supervisor Rafael Mandelman introduced legislation amending the Planning Code to require conditional use authorization for applications to demolish single-family homes that are demonstrably unaffordable (“Mandelman Ordinance”). The Mandelman Ordinance grandfathers applications made before the legislation was introduced on February 11, 2020. Supervisors Peskin, Fewer, and Yee joined as co-sponsors.

The Board of Supervisors unanimously approved the Mandelman Ordinance. It is now on the Mayor’s desk and will go into effect 30 days after the Mayor’s approval. The unanimous Board of Supervisors’ approval would be enough to override a Mayoral veto.

The Mandelman Ordinace removes the demonstrably unaffordable exception in Section 317 of the Planning Code that generally prohibits demolition of existing housing without a public hearing and a conditional use permit.

Before the Mandelman Ordinance left the Board’s Land Use and Transportation Committee, Supervisor Peskin proposed amendments to further tighten demolition regulations. As the amendments may require a re-hearing by the Planning Commission, the Committee carved out these amendments into a second ordinance (“Peskin Ordinance”) to be reviewed on a separate track.

The Peskin Ordinance would subject a broader range of projects to conditional use requirements for demolition by  lowering the threshold of work required before a renovation, remodel, or alteration is considered a demolition.

The Peskin Ordinance lowers the threshold for two types of changes to a building that require conditional use approval. First, an alteration that removes more than 50% of the front and rear façade or the removal of more than 65% of all the exterior walls would be considered a Residential Demolition. Currently, an alteration that does both is considered a Residential Demolition. One or the other alone is not enough to trigger the restriction. Second, an alteration that would remove more than 50% of the vertical envelope elements or an alteration of more than 50% of the horizontal elements would be considered a Residential Demolition. Currently, an alteration is a Residential Demolition if it does both, but not one or the other.

Like the Mandelman Ordinance, the Peskin Ordinance grandfathers applications made before the legislation was introduced on February 11, 2020. However, the Peskin Ordinance is subject to change. It will be considered by the Land Use and Transportation Committee and may need to be re-considered by the Planning Commission before it can be enacted by the Board of Supervisors.

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.