Key Tax Appeal and Exclusion Request Deadlines

| Kaitlin Sheber
Appeal

Property owners in San Francisco have a right to appeal the assessed value of their properties within a certain window of time and may request tax exclusions when performing certain work.  Typically, the Assessor determines the increased base year value for the portion of any taxable real property that is newly constructed.  The value of the land would remain unchanged when there is new construction.  However, the cost of some types of improvements, including seismic safety improvements and accessibility improvements, may be excluded from reassessment if a timely request is submitted.

Below is an overview of key deadlines and time frames to keep in mind, especially as the Regular Assessment Appeal Period is open now through September 16, 2024.

Key Appeal Deadlines for San Francisco:

Regular Assessment Appeal Period Opened July 2

The open filing period for appealing 2024/2025 assessed property values began on July 2, 2024 and expires on September 16, 2024.  No appeals may be filed after September 16, 2024.  Note that the Assessment Appeals Board has 2 years from the date of a timely filed application to schedule, hear, and render a decision.

Supplemental and Escape Assessment Roll

Supplemental and Roll Correction assessment appeals are only accepted within 60 days after the date of the supplemental notice issued by the Assessor, and Escape assessment appeals are only accepted within 60 days of the issuance of the tax bill.

Exclusion Deadlines:

Seismic Safety Improvements

Under the Revenue and Taxation Code Section 74.5, a new construction exclusion may be requested for (1) seismic retrofitting improvements and (2) improvements utilizing earthquake mitigation technologies that are constructed or installed in existing buildings.  To obtain the exclusion, the property owner must submit a completed BOE-64 form to the Assessor before or within 30 days after completion of the project.

Additionally, all documents necessary to support the exclusion must be filed by the property owner within 6 months after completion of the project.  Failure to timely file the form and all necessary documents constitutes a waiver of the exclusion for that year.  The exclusion expires upon a change in ownership of the property.

Accessibility Improvements

Section 74.6 of the Revenue and Taxation Code generally allows an exclusion for construction, installation, removal, or modification of a portion or structural component of an existing building or structure to the extent that it is done for the purpose of making the building more accessible to, or more usable by, a disabled person.  To receive the exclusion, the property owner must notify the Assessor of its intent to use the exclusion before or within 30 days after completion of the project.  All documents necessary to support the exclusion must be filed with the Assessor within 6 months after completion of the project.

 

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.

Proposed Legislation Could Slash Transfer Tax Rates – For Some

| Michael Corbett
rates

Looking to kick-start housing production in San Francisco, Supervisor Ahsha Safaí recently introduced legislation that would significantly reduce the city’s transfer tax rate – a fee imposed by the city on real estate transactions – for certain residential projects that satisfy a detailed set of preconditions.

Specifically, the proposed tax cuts would apply to rental residential projects (including those subject to a recorded condominium map) that meet the following criteria:

  • Include no less than 12% affordable on-site units, calculated by excluding any permitted density bonus units.
  • Receive a Certificate of Final Completion and Occupancy (“CFCO”) on or after June 3, 2014.
  • Used/Use 100% union labor.
  • At least one year before and through the date of the transfer, collectively have a minimum of $25 million in investment from union pension fund(s).

If passed, the legislation would lower transfer taxes from 5.5% to 3% for qualifying properties valued between $10 million and $25 million, and from 6% to 3% for properties worth more than $25 million. For qualifying properties that received a CFCO prior to the ordinance’s passage, the reduced transfer tax rate would expire on June 30, 2029. Applicable projects that are issued a CFCO after the passage of the ordinance would be able to capitalize on the reduced rate through December 31, 2033.

The value brackets that the ordinance targets likely mean the tax cuts will primarily apply to mid- to large-scale residential projects. Projects such as 100 Van Ness Avenue, 99 Ocean Avenue and 101 Polk Street would appear to be within the qualifying group of projects that could avail themselves of the tax benefit if the ordinance were to pass and those properties brought to market.

Notably, Supervisor Safaí’s proposed legislation is only made possible through the passage in March of Prop. C. In addition to allowing a one-time transfer tax exemption for owners of properties converted from commercial to residential use the first time they are sold following conversion, that tax measure also authorized the Board of Supervisors to amend, reduce, suspend or repeal (but not increase) the transfer tax without voter approval.

Supervisor Safaí, who is running for mayor, looks to capitalize on this authority, saying that reducing the tax rate could create an incentive for owners that have been on the sideline, waiting for a more favorable economic environment before bringing their properties to market.

San Francisco’s transfer tax rates shifted mightily at the turn of the decade and has since been a hot-button issue for owners and investors alike.  In 2020, San Francisco voters approved Prop. I, which doubled the transfer tax from 3% to 6% on the sale of properties over $25 million, and from 2.75% to 5.5% on deals worth between $10 million and $25 million. The city’s Controller’s Office at the time projected that the measure could increase city revenue by $196 million per year on average. While the tax generated $520 million in fiscal year 2021-22, transfer tax revenue plummeted in fiscal year 2022-23 to $186 million. With historically high vacancy rates for commercial properties, dramatically higher interest rates, and a general decline in deal volume and aggregate sales prices across all property types in the city since 2021, the gross revenue from transfer taxes for fiscal year 2023-24 may yet fall further.

It is unclear if the proposed legislation would materially swing the tide in increasing transfer tax revenues for the city. On balance, the ordinance would be a step in the right direction towards promoting new residential deals and investment to help generate much-needed housing production. It will certainly make it easier to finance qualifying projects. Yet, with tens of thousands of residential units currently approved but not financeable, it can be argued that the ordinance – with its narrow scope and 5- to 10-year sunset provisions – does not go far enough to provide the spark that will begin the thaw of an otherwise frozen housing pipeline.

If you have any questions or would like to discuss this proposed legislation or existing transfer tax rates, please contact Michael Corbett from Reuben, Junius & Rose, LLP, at (415) 567-9000 or mcorbett@reubenlaw.com.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Michael Corbett.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

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.

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.

Legal Victories for CEQA Streamlining

| Tuija Catalano and Mark Loper

Earlier this month, the California Court of Appeal ruled that a qualifying development project in San Diego County could use the County’s General Plan Environmental Impact Report (“EIR”) to streamline the project’s environmental review, over the objections of neighbors and the County’s Board of Supervisors. A similar result was recently achieved in San Francisco.  RJR partner Tuija Catalano secured a victory at the Board of Supervisors for a housing project, with the Board determining that the project properly used San Francisco’s recently certified Housing Element EIR to streamline CEQA processing for the project. The Court of Appeal’s opinion further strengthens the use of CEQA streamlining and exemption provisions and validates San Francisco’s established process of “tiering” project specific CEQA review off its General Plan and Area Plan EIRs.

In San Diego, County planning staff determined that a recycling plant project that was consistent with the County’s most-recent General Plan could be evaluated for a CEQA evaluation pursuant to CEQA Guidelines Section 15183, which generally limits the CEQA evaluation for a project consistent with a General Plan (including a Housing Element) or an Area Plan to potential unique (“peculiar”) impacts. After several technical studies confirmed the recycling center project did not result in significant or peculiar impacts not already evaluated in the General Plan EIR, County staff prepared a 15183 evaluation with mitigation measures from the General Plan EIR’s Mitigation Monitoring and Reporting Program.

If that fact pattern sounds simple enough, the administrative CEQA review process was actually more complicated and unfavorable for the developer: the developer originally pursued an initial study to prepare either an EIR or Negative Declaration before pivoting to a 15183 evaluation only after all of the background technical studies were completed.  The Board of Supervisors sided with neighbors and upheld an administrative appeal over the recommendation of the staff to deny the appeal. The trial court also sided with the Board of Supervisors. The Court of Appeal reversed the trial court’s decision with a surprisingly straightforward opinion.

Importantly, the Court held that the project could pivot to a 15183 evaluation and confirmed the eligibility of this streamlining evaluation for projects using a General Plan or Area Plan. The Court next found that the Supervisors failed to base their conclusions on any substantial evidence in the record. It also explicitly rejected layperson testimony from neighbors at the Board of Supervisors appeals hearing (related, it also confirmed that the substantial evidence standard—which is less deferential—applied even when a court reviews a city or county’s determination an exemption is not applicable). The crux of the Court’s argument:

the Board of Supervisors failed to identify the specific nature of the … project’s ‘peculiar’ impacts that required environmental review, except to point to broad environmental categories. Nor did the Board of Supervisors address, with specificity, the effect of uniform policies and procedures on their purported impacts.

Hilltop Group, Inc., et al v. County of San Diego, et al. (2024) ___ Cal.App.5th ___.

The Court’s opinion confirms the use of 15183 can be appropriate, even for a large-scale project like a recycling plant, and should make cities and counties more comfortable using their General Plan or Area Plan EIRs on larger-scale projects. The opinion also emphasizes that politics only goes so far when an administrative record is lacking: a city or county cannot simply decree that a certain environmental topic addressed in a 15183 exemption— for example, preservation—is not adequately analyzed. The local agency needs to provide specifics with adequate factual and legal backing (as mentioned above, “lay opinion and personal observations” by neighbors was not substantial evidence). And that determination needs to address why mitigation measures or otherwise-applicable laws could not further reduce or eliminate the peculiar impacts.

Closer to home, San Francisco has a 15-year history of using CEQA Guidelines Section 15183 in the context of Plan Area EIRs (such as Eastern Neighborhoods Plan Area EIR and Central SoMa Plan Area EIR) to issue Community Plan Evaluations for projects within the applicable Plan Areas. With the certification of San Francisco’s Housing Element (2022 Update) EIR in November 2022, many projects outside Area Plans became eligible for similar streamlined CEQA review based on the General Plan (i.e. Housing Element) EIR that applies Citywide.

On February 6, 2024, the Board of Supervisors heard the first CEQA General Plan Evaluation appeal, and with a 10-1 vote the Board found that the use of Section 15183 streamlining provision based on the Housing Element EIR was proper.  The recent Board of Supervisors appeal decision, as well as the San Diego Court of Appeal opinion are important.  Cities and counties can look to these decisions to support streamlined process based on General Plan EIRs on projects that are consistent with the development density within the General Plan policies. The Board decision and the Court of Appeal opinion are especially good news for projects that are located outside Area Plans that until now were required to complete a negative declaration or an EIR if they were not eligible for any of the categorical CEQA exemptions.

 

uthored by Reuben, Junius & Rose, LLP Attorneys Tuija Catalano and 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.

Leases V. Licenses and Eviction Rights

| Lindsay Petrone
court cases

The question has been previously raised – is a lease the same as a license – in that does the underlying occupant/user acquire tenancy rights by such occupation regardless of whether you define an agreement as a license or a lease.  A recent case – Castaic Studios, LLC vs. Wonderland Studios (97 Cal.App.5th 209) – discusses an important aspect of this issue.  In Castaic, Wonderland, as licensee, defaulted under a license agreement and the licensor, Castaic, elected to seek an unlawful detainer action to remove the licensee, only to be told by the lower court that it was not an available remedy under the license.  Here, Castaic granted Wonderland the “exclusive” but “non-possessory” right for the use of the property.  The license stated it was “not a lease or any other interest in real property but a contractual arrangement that creates a revocable license”.  The licensor waived the right to an unlawful detainer under the license agreement and the license provided it would be governed by “contract laws and not by the landlord tenant laws”.  It further stated, that upon a default, the licensee agrees that licensor may cease to provide access to the licensee’s area of use without notice or the need to initiate legal process.

The Courts of Appeal analyzed the contract to determine if the remedy of unlawful detainer applied here.  They stated that the fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time they entered into the contract.  Further, in interpreting the contract, the court gives the words their ordinary and popular meaning, unless the parties have given the words a specialized or technical meaning.  Here, the Court stated that even if the license contains some elements of a lease, its express terms show the parties’ intent to waive any rights afforded by the landlord tenant laws, including a landlord’s remedy of unlawful detainer.

Castaic argued that the waiver should not be enforced.  The Court disagreed based on two principles: (1) the parties have the power to determine the terms of their contractual relationships and (2) other than a law established for a public reason, any person may waive the advantage of a law intended for its benefit.  Here, Castaic waived the right to bring an action for unlawful detainer and the Court saw no public reason that would prohibit a landowner from agreeing to waive the unlawful detainer remedy.  Finally, the Court stated that the existence of a landlord tenant relationship was essential to an unlawful detainer action.

Castaic highlights that if an agreement is clear that it is a license and not a lease, the courts will review on the plain terms of the language of that license and the parties’ intent.  In this case, the Court found that the parties were explicit that an unlawful detainer remedy was unavailable to the licensor and nothing outside the language of the license would allow it to be implied otherwise.

New State Condo Law Allows Reduced HOA Assessments for Designated Affordable Units

| Jay Drake

We are following up on a previous update where we discussed Assembly Bill 572.  After undergoing a few amendments in the State legislature, the Bill passed and became effective January 1, 2024.  AB 572 amended Section 5605 of the California Civil Code, which is part of the Davis-Stirling Common Interest Development Act.

The amended law, with certain exceptions, prohibits a homeowners association (HOA) that records its original declaration (CC&Rs) on or after January 1, 2025, from imposing an increase of a regular assessment on the owner of a deed-restricted affordable housing unit that is more than 5% plus the percentage change in the cost of living, not to exceed 10% greater than the preceding regular assessment for the HOA’s preceding fiscal year.

In a significant break from previous State law and regulations, a qualifying HOA may impose an assessment against an owner of a deed-restricted affordable housing unit that is lower than the assessment imposed against other unit owners according to the proportional ownership of total subdivision interests subject to assessments.  This change would appear to allow an HOA to require market-rate unit owners to subsidize affordable unit owners with respect to payment of certain HOA assessments.

The new law is not all encompassing.  As stated above, it only applies to new common interest developments that record their original CC&Rs on or after January 1, 2025.  It also does not apply to any of the following:

  • A development of 20 units or fewer.
  • A development where the percentage of the units that are deed-restricted affordable housing units exceeds the percentage required by an applicable zoning ordinance in effect at the time the development received final approval.
  • A development that is located within a city, county, or city and county that does not have an applicable zoning ordinance requiring a percentage of deed-restricted affordable housing units and meets either of the following conditions:
    • The percentage of the units that are deed-restricted affordable housing exceeds 10 percent of the total number of units in the development at the time the development received final approval.
    • For certain other developments that were approved for streamlined processing pursuant to Section 65912.124 of the Government Code, the percentage of the units that are deed-restricted affordable housing exceeds 15 percent of the total number of units in the development at the time the development received final approval.

The well-intentioned law is designed to protect owners of designated affordable housing units from large increases in HOA assessments.  Owners of affordable housing units are typically low or moderate income and large increases in HOA assessments can be a financial burden, and can jeopardize their ability to afford the HOA assessments along with the monthly mortgage and other costs of home ownership.

Critics of the new law argue that it could lead to disproportionate financial burdens on homeowners who cannot afford to subsidize others as well as create inequities and divisions within the community by identification of a class of affordable housing or low-income owners, which could lead to resentment among other owners.

Critics also point out that the law may undermine the ability of HOAs to raise the necessary funds to maintain the community by limiting assessment increases for all owners in the HOAs effort to avoid unequal assessments, resulting in artificially low budgets, and/or deferred maintenance and repair obligations.  Artificially low assessments could eventually require multiple special assessments to fund HOA budget shortfalls.

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.