Task Force Recommends Fee and Permit Changes

Task Force

There are few cities that have not been negatively impacted by COVID-19.  Since March, San Francisco and the surrounding cities have been largely shut down, with businesses opening in a staggered manner based on infection and death rates.  Nonessential office workers remain at home.  Seven months into this “new normal”, a number of studies and reports have been issued, analyzing the impact the virus has had on the local economy.  Without a doubt, San Francisco appears to have been hit particularly hard, as more and more companies are allowing employees to work remotely, many through July 2021.  The result is an empty business district and what appears to be an exodus of residents from the City.  The lack of office employees working and residing in the City has had a drastic effect on the economy.  A few key statistics:[1]

  • 1% office vacancy rate in Q3
  • 43% decline in sales tax receipts from April to June as compared to 2019
  • 65% decrease in sales at restaurants and bars and consumer goods stores
  • 50%+ storefronts are not operating as of August 2020
  • 1% increase in online sales tax receipts

Recognizing that the City was facing a looming financial crisis, Mayor Breed and Board President Yee convened a task force – the Economic Recovery Task Force – in the spring to advise the City and provide recommendations to support the recovery efforts from COVID-19.  Consisting of over 100 members, the Task Force received 1000 surveys and conducted an additional 900 interviews with residents and business owners in San Francisco.  The Task Force issued its final report on October 8th, listing 41 recommendations ranging from economic stimulus to safe reopening guidelines.

Several of the recommendations focus on the real estate and construction industry.  Construction is a revenue-generator for San Francisco: in addition to bringing in permit and impact fees, statistics show that each $1 million spending in construction translates into approximately 5.93 jobs.  While a recession often leads to a significant slowdown in construction, San Francisco has not seen the resulting stoppage, largely due to projects that were already underway.  However, falling rents and sales prices, high construction costs, and broad economic uncertainty have resulted in developers unable to secure financing for their projects and a slowdown in development projects breaking ground.

The Task Force makes the following recommendations relating to development in San Francisco:

  1. Focus on the major development projects and public infrastructure investments

The Task Force recognizes that there are already many projects that could boost construction – ones that have already received approvals and/or been identified by the City.  The City recently underwent a major rezoning in Central SoMa, with several large projects approved.  In addition, there are several significant long-term projects underway on SF Port property.  Further, the City’s last 10-year Capital plan allocated $39 billion in investments from 2020-2029.

The Task Force calls for the City to continue focusing on its major developments, such as the Shipyard, Mission Rock, Pier 70, Treasure Island, and Central SoMa, as these projects bring with them thousands of jobs and support for local business.  They also call for an update to the City’s Capital plan, focusing on projects that promote good state of repair for its buildings, right-of-way, public spaces, and other infrastructure assets.  If these projects can begin (or continue) construction within the next year, then it would provide needed jobs for the construction industry while developing spaces for the eventual reopening of the City.

  1. “Redesign” the building permit processes and consider an application fee “holiday” or reduction to incentivize permits

The Task Force calls for the overhaul of the City’s permit processes – not a new idea but one that has gained traction over the past months.  The Task Force calls out DBI, Fire Department, SFPUC, and Planning, as agencies that should implement programmatic and regulatory changes to redesign the permitting process, increase transparency, make the permitting process as easy and affordable as possible, and to remove permitting and process requirements not directly related to health and safety.

The Task Force also calls for an application fee “holiday” – a temporary reduction or elimination of fees – that would incentivize owners (both business and residential) and developers to pull permits and undertake construction projects.

  1. Allow for the deferral of Development Impact Fees

Development Impact Fees are imposed on certain projects that will cause an increase in demand of public services, infrastructure, and housing.  Impact fees are imposed at project approval and collected at the issuance of the first construction document, often several years before a development receives its certificate of occupancy.  The City has implemented fee deferral programs before, most notably in 2010-2013 during the Great Recession, as well as 2019’s fee waiver for 100% affordable housing projects and Accessory Dwelling Units (ADUs).

The Task Force recommends that the Planning Department develop another fee deferral program for a limited time that would allow developers to defer paying impact fees until each project receives the first certificate of occupancy, at the end of construction, rather than at issuance of first construction document.  This would help developers secure financing on projects that would likely not be able to break ground and pay impact fees otherwise.

These three recommendations are a few of the 41 that address the financial impacts of COVID-19.  Any application fee reductions, impact fee deferrals, or other fee “holidays” will require legislation by the Board of Supervisors.  Application fees are imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, and the administrative enforcement and adjudication.  Simply put, the application fees charged go back into the City’s General Fund and are used to maintain City services and agency functions and for employee salaries.  According to the 2020-2021 City Budget, Planning experienced a decrease in application and permit volume of 10% – numbers that have likely increased due to COVID-19.  Reduction in applications results in a budget shortfall, impacting the City’s ability to review projects and permits.  Impact fees are used to create new affordable housing, build infrastructure projects such as parks, bike lanes, and street improvements, and fund new childcare facilities, to name a few areas where the fees are allocated.  These fees are integral to the City’s major improvement projects outlined in the first recommendation above.  The Board of Supervisors will have to balance these concerns when considering whether and how to implement the Task Force’s recommendations.

It is unclear at the date of this writing whether the Mayor’s Office or Board of Supervisors will seek legislation to reduce, eliminate, or defer application and impact fees.  Reuben, Junius, & Rose, LLP will continue to monitor these recommendations.

[1] Recovery Task Force Report, October 2020, City and County of San Francisco/OneSF, pgs. 16 – 19.

 

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.

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.

Prop. 21 – Another Attempted Costa-Hawkins Takedown

Costa-Hawkins

This November, California voters will be asked for the second time in as many years to overturn statewide restrictions on rent control in the Costa-Hawkins Rental Housing Act (“Costa Hawkins”). The following provides a summary of Proposition 21, named by its proponents as the Rent Affordability Act (“Prop. 21”), and its potential implications for residential landlords and tenants in California.

Prop. 10 and Costa-Hawkins

Its predecessor, Proposition 10, was rejected by nearly 60% of voters in 2018. It would have repealed Costa-Hawkins and allowed local governments to adopt rent control on any type of rental housing.  Costa-Hawkins, passed in 1995, allows local governments to enact and use rent control, except on (a) housing that was first occupied after February 1, 1995, and (b) certain classes of housing units, such as condominiums, townhouses, and single-family homes.  Landlords protected by Costa-Hawkins are currently allowed to increase rent to market rates when a tenant vacates a unit.

Prop. 21

If approved by voters, Prop. 21 would allow local governments to adopt rent control on housing units, except for (a) housing first occupied within the last fifteen (15) years and (b) units owned by natural persons who own no more than two (2) housing units with separate titles, such as single-family homes, condominiums, and certain duplexes, or subdivided interests, such as community apartment projects and stock cooperatives.  Prop. 21 would continue to allow local limits on annual rent increases to be more restrictive than the current statewide limit.  For vacancies where the previous tenant voluntarily vacated, abandoned or was lawfully evicted from a dwelling unit, Prop. 21 would impose, over the first three (3) years of a new tenancy, a combined rent increase cap of fifteen percent (15%) from the rental rate in effect for the immediately preceding tenancy.  This three-year rent increase cap would be in addition to any rent increases otherwise authorized by local law.

Tenant Protection Act of 2019

Prop. 21 follows the January 2020 roll-out of the Tenant Protection Act of 2019, which enacted a statewide rent control cap on annual rent increases of five percent (5%) plus the percentage change in the Consumer Price Index or ten percent (10%), whichever is lower.  The Tenant Protection Act of 2019, while considered to provide among the strongest state-implemented rent increase caps and renter protections in the country, does not affect vacancy decontrol, meaning landlords are currently able to set initial rents for new tenancies.  If passed, Prop. 21 would effectively foreclose the ability of landlords now protected by Costa-Hawkins to set initial rents at market rates if it would result in more than a fifteen percent (15%) increase from the prior tenant’s rental rate.

Support of Prop. 21

Proponents of Prop. 21 contend that the measure would provide more financial security for renters, reduce homelessness, and help alleviate a statewide housing affordability crisis.  The Prop. 21 campaign is sponsored by the Aids Healthcare Foundation, and notable supporters include Senator Bernie Sanders, House Representative Maxine Waters, the California Democratic Party, and the ACLU of southern California.

Opposition to Prop. 21

Opponents of Prop. 21 posit the proposed statutory changes would hurt renters by discouraging private sector builders from bringing more affordable housing units to market and diminish property values, resulting in less revenue for communities.  Californians for Responsible Housing is leading the campaign in opposition to this initiative, with other opponents including Governor Gavin Newsom, the Howard Jarvis Taxpayer Association, California NAACP State Conference, and Congress of California Seniors.

Votes Needed to Pass

For Prop. 21 to pass and become state law, greater than fifty percent (50%) of the votes cast for this proposition must vote “yes”.

 

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.

Real Estate Tax Update

Tax

Deadline to File Real Estate Tax Appeals for the 2020/2021 Tax Year

For property owners that disagree with their property valuation for the 2020/2021 tax year, the deadline to file an appeal is Tuesday, September 15, 2020. For property located in other counties, owners should check with the local Assessment Appeals Board. Unfortunately, these appeals would relate to the property value as of January 1, 2020, so the economic impact of Covid-19 is not likely to be considered. If you have questions about this, please contact Kevin Rose at krose@reubenlaw.com.

Commercial Properties May Lose Proposition 13 Protection

After many years of planning and political maneuvering, the opponents of Proposition 13 have settled on a ballot initiative, Proposition 15 (also known as the “Split Tax Roll”), to drastically overhaul California’s property tax structure. Proposition 13 is California’s landmark law, embedded in the Constitution that protects owners from increases in real estate taxes in excess of two percent per year. As a compromise to help ensure passage, residential property would be exempt from the tax increase.

The Basics

If passed in this November’s general election, Proposition 15 would require commercial and industrial properties to be reassessed every three years at the full fair market value of the property, as determined by County Assessors. This new assessment would be used to calculate property taxes based on the statutory tax rate, which is also limited to 1% by Proposition 13 and would remain unchanged. There would be no limit on reassessment, so many property owners could experience significant increases in real property taxes. This would wipe out the ability of property owners to plan for stable property tax increases of no more than 2% per year, and authorize County Assessors to exercise their discretion in determining the “fair market value” of real estate. Residential property, including multi-family structures (apartments), is specifically excluded from reassessment, as is commercial agricultural property.

Why Increase Taxes?

The proponents of Proposition 15 argue that commercial and industrial properties are underassessed and avoid over $11 Billion in local property taxes, which should be used to support schools, local governments and affordable housing. Advocates cite an unnamed University of California study claiming that such reassessment of commercial property will have a “net positive benefit” on jobs and the California economy. There was little discussion in the findings about the potential impact on tenants of commercial properties due to higher rents and expense pass throughs, other than the deferment for properties with at least 50% small business occupancy, discussed below. The opposition argues that this is the first step in completely dismantling Proposition 13.

The Process and Procedures for Reassessment

Starting with the 2022-2023 tax year, each County Assessor would be tasked with reassessing commercial and industrial properties to determine the value for property tax purposes. This process would be phased in over two years. Proposition 15 requires the creation of a task force comprised of different interests to recommend the statutory and regulatory details for implementation. Taxpayers would be given a “reasonable” timeframe during which to pay any tax increases. Such time frame is not defined and would have to be determined by the Legislature.

Proposition 15 imposes the burden of proof on the taxpayer with regard to any valuation disputes. Under current law, escape assessments (assessments for tax years later than the tax year the reassessment event occurred) or increased assessments due to change of ownership that are different than the purchase price require the Assessor to prove that the reassessment is justified. Property owners will likely be concerned that, due to political pressure to increase revenues, the Assessor will favor increases in value when there is any conflicting or disputed information. Local assessment appeal boards will almost certainly see a major increase in real estate tax appeals.

Some Properties Worth $3M or Less May Be Excluded

Small property owners are exempt from future reassessments if their property is worth $3 Million or less, but only after one reassessment under Proposition 15. This $3 Million threshold would be adjusted every two years for inflation, starting in 2025. This exception excludes “wealthy” property owners. This means if any owners of such low value property also own other property worth more than $3 Million, then the exception would not apply. The taxpayer has the burden of making this claim with the applicable County Assessor. The decision of County Assessors with regard to these exceptions are deemed to be final, and not subject to appeal to the local assessment appeals board, and judicial review of this exception is limited to “abuse of discretion.”

Small Business Temporary Exception

Properties that are used primarily (50% or more) for a small business, are exempt from reassessment, but only until 2025-2026. Small businesses are simply defined as businesses with less than 50 full time employees, provided that such business owns real property in California (not necessarily the same property) and is independently owned and operated. It is unclear if franchises are excluded, but it seems that the intent is to exclude franchise businesses from the exception.

The Personal Property Tax Exemption

As an incentive to the business community for support (apparently focusing on technology companies), up to $500,000 of tangible personal property and fixtures are exempt from taxation. This excludes airlines and boats. Also, small businesses (as defined above) would be fully exempt from taxation of personal property.

Use of Funds and Administration

Proposition 15 requires that all funds generated by these tax increases be distributed to community colleges (11%) and to school districts, charter schools and county offices of education (89%). There are complicated formulas and reporting requirements included as part of the administrative provisions. Each county and city is required to be compensated for additional costs incurred due to implementation of the reassessment requirements. Apparently, the payments are from the general fund, not the new tax revenues. The spending limitations in the California Constitution would not include any revenue generated by Proposition 15.

The Fight

While normally any proposed change to Proposition 13 would be highly contested, Covid-19, social unrest and the divisive presidential election may limit the publicity and focus on Proposition 15. The California Democratic Party, Bernie Sanders, and the San Francisco Board of Supervisors support Proposition 15. Opponents include the Howard Jarvis Taxpayers Association, The California Business Roundtable, the NAACP, and the California Business Properties Association. According to Ballotpedia, Proposition 15 had a 6% lead in the polls as of April 2020, with a 3% margin of error. Typically, new taxes need a large lead prior to the election as many voters become skittish when actually voting. It will be interesting to see how the voters feel about increasing taxes during recessionary times.

 

Authored by Reuben, Junius & Rose, LLP Attorney Kevin H. Rose.

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

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.

Oakland Entitlement Extensions, Is California Next?

Housing Entitlement

On July 27, 2020, Oakland City Administrator, Edward D. Reiskin executed Emergency Order No. 6 extending planning entitlements that have not expired as of March 9, 2020 (when Oakland’s COVID-19 Local Emergency was first declared), but are set to expire on or before August 1, 2022, by two (2) years. A project sponsor must submit a ministerial application and payment of the Administrative Extension Fee for an entitlement extension. Upon satisfaction of those requirements, the entitlement’s expiration date will automatically be extended by two (2) years. Emergency Order No. 6 does not cover entitlements eligible for extension under the city’s impact fee programs for Jobs/Housing, Affordable Housing, and Transportation and Capital Improvements.

If this sounds familiar to you, it is. In the wake of the nation’s last recession, Oakland enacted an extension of all non-expired entitlements. At that time, Oakland was grappling with a continuing weak housing and credit market.

Even prior to the pandemic, California was in the midst of a housing crisis. For years, demand has outpaced supply at all income levels. The economic fallout from the ongoing COVID-19 pandemic is ripping through the country. The extent of its lasting impacts are yet to be determined. To alleviate pressure in the housing sector exacerbated by the pandemic, State Senator Scott Wiener has introduced Senate Bill 281 (“SB 281”). SB 281 would automatically extend the period for expiration of a housing entitlement issued before and in effect on March 4, 2020, and expiring before December 31, 2021, by eighteen (18) months. A housing entitlement is defined as, among other things, a “legislative, adjudicative, administrative, or any other kind of approval, permit, or other entitlement necessary for, or pertaining to, a housing development project issued by a state agency” and “[a]n approval, permit, or other entitlement by a local agency for a housing development project.”

In a nod to the ever-present threat of litigation and the weaponization of CEQA often employed to stymie housing projects, the bill’s authors include a tolling provision. If passed, the 18-month entitlement extension would be tolled during any time that the housing entitlement is the subject of legal challenge.

The authors of SB 281 seek a statewide entitlement extension to avoid the significant cost and allocation of local government staff resources associated with addressing individual permit extensions on a case-by-case basis. This makes sense. Under Oakland’s entitlement extension, a project sponsor must submit an application that, while ministerial, still requires administrative resources to process. Having an automatic entitlement extension would reduce cities’ administrative burdens at a time when their limited funds are drying up and tax bases are shrinking.

We will continue to monitor SB 281, and will update readers accordingly.

 

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.

SB 1085 Emerges from Crucial Committee Vote

Affordable Housing

SB 1085 Clarifies that Affordable Housing Fees Do Not Apply to Affordable or Density Bonus Units

When Senator Nancy Skinner introduced Senate Bill 1085 (SB 1085) in February, the bill proposed numerous revisions to the state Density Bonus Law. Many were geared toward incentivizing the development of moderate-income rental housing, including a 35% density bonus for projects that provide at least 20% of the units affordable to moderate-income families, concessions, and reduced parking requirements. The bill also limited cities’ ability to deny requested concessions, limited parking ratios for certain senior housing projects, and allowed concessions for student housing projects. Of particular interest to developers with projects in San Francisco, SB 1085 clarified that “[a]ffordable housing impact fees, including inclusionary zoning fees, in-lieu fees, and public benefit fees, shall not be imposed on a housing development’s affordable units or bonus units.”

SB 1085 was passed by the full Senate in late June, after which it moved to the Assembly.

On July 30, the Assembly Committee on Housing and Community Development approved SB 1085 conditioned on Senator Skinner amending the bill to remove the incentives for development of moderate-income rental units. These amendments were encouraged by affordable housing advocacy groups that argued the incentives would cause a reduction in the supply of low-income and very-low income units. The prohibition on imposing Affordable Housing fees on affordable or Density Bonus units remains in the bill.

The City of San Francisco imposes an Affordable Housing Fee on Density Bonus units. Many practitioners believe that the imposition of these fees on Density Bonus units is fundamentally incompatible with the Density Bonus Law. In April 2019, Attorney General Xavier Becerra issued an Opinion that bolstered this view, concluding that the imposition of a “public benefit fee” on Density Bonus units reduced the benefits that the Density Bonus Law is intended to promote, and was therefore invalid. While the Attorney General’s Opinion addressed fees imposed only on the Density Bonus units, most practitioners understood its reasoning would also preclude generally-applicable Affordable Housing fees that were being applied to Density Bonus units. SB 1085 would make it explicit that Affordable Housing fees cannot be applied to Density Bonus or affordable units.

The Committee’s approval of SB 1085 with the language limiting fees could be interpreted as a promising sign, given that Assembly Member David Chiu, a former San Francisco Supervisor, chairs the Committee. The bill must be approved by the full Assembly and the full Senate by August 31 to make it to the Governor’s desk in 2020. The San Francisco Board of Supervisors remains opposed to the bill.

 

Authored by Reuben, Junius & Rose, LLP Attorney Matthew D. Visick.

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.

San Francisco Expands ADUs and Electronic Permitting

ADUs

State Law Changes to ADUs Incorporated into Planning Code

Early this year, state law changed to allow additional flexibility in adding Accessory Dwelling Units (“ADUs”) to existing and proposed housing. In May, some of those changes were incorporated into Planning Code Section 207. Additional changes to align the Planning Code with state law are expected soon.

The changes to the ADU program include an allowance for construction of ADUs in single family homes or detached auxiliary structures on the same lot. The Code changes allow for single-family “no waiver” ADUs under Section 207(c)(6), but limit expansion of the envelope of the single-family home or auxiliary structure for the ADU to 1,200 square-feet. State law also allows a Junior ADU (“JADU”) of no greater than 500 square-feet to be developed within the existing or proposed primary residence in addition to an ADU. Therefore, under the new state law, every lot can have at least three units. Single-family ADUs will require posted notice at the site, even if the ADU is built entirely within the envelope of an existing building.

“Waiver” ADUs for single family homes and ADUs in multifamily buildings are regulated by Section 207(c)(4). For lots that have four or fewer existing dwelling units or where the zoning would permit the construction of four or fewer dwelling units, one ADU is permitted. For lots that have more than four existing dwelling units or are undergoing seismic retrofitting, or where the zoning would permit the construction of more than four dwelling units, there is no limit on the number of total ADUs permitted, subject to restrictions for prior evictions. No minimum lot size is required for construction of an ADU.

Under Section 207, ADUs may be constructed in the buildable area of a lot, be converted from auxiliary structures, or be built within the envelope of an existing residential building. For auxiliary structures, dormers may be added even if the structure is within the required rear yard. The new state law also allows construction of a new detached unit, not otherwise subject to local development standards, if it is not more than 800 square feet, no more than 16 feet in height, and provides four-foot side and rear setbacks. In San Francisco, ADUs are not to be constructed from space within an existing dwelling unit, except that an ADU may expand into habitable space on the ground or basement floors if it does not exceed 25% of the gross square footage of the space. This limitation may be waived by the Zoning Administrator if waiver helps with the layout of the proposed ADU.

In an effort to incentivize creation of new units, ADUs of up to 750 square feet are now exempt from impact fees by state law. ADUs of 750 square feet or larger are only subject to impact fees proportional to the size relationship of the ADU to the primary dwelling. In addition, ADUs are not required to be sprinklered where the main unit is not required to be sprinklered.

Finally, state law now requires processing of ADU applications within 60 days. However, many property owners have experienced delay based on when the City deems a project application “complete.” The Planning Department continues to refine its procedures for ADUs, and we hope that property owners will encounter less red tape than they did in the past.

DBI (Department of Building Inspection) Implements Electronic Processing and Over-the-Counter Permits

COVID-19 has pushed DBI to implement its long-planned transition to electronic processing of permits. Electronic Plan Review (“EPR”) has a new online portal for building permit submittals that allows EPR through Bluebeam. For permits previously started in paper, DBI is evaluating the need to convert to EPR on a permit-by-permit basis. Conversion to EPR has resulted in delays as electronic submittals are processed, but should allow more efficient simultaneous review once permits move forward.

DBI has also restarted processing Over-the-Counter (“OTC”) permits. On June 24, DBI began offering OTC curbside services in coordination with its permitting agency partners (Public Works, Planning, Fire, and the Public Utilities Commission). Curbside services are offered from 7:30 a.m. to 4:30 p.m. Monday through Friday, including the following:

• Drop-in service for OTC without plans for up to two permits is available for up to 30 people per day between 7:30 a.m. and 9:30 a.m. Starting at noon on Fridays, Eventbrite tickets are available for the following week’s slots.
• Previously submitted electronic OTC permits with plans are being processed by appointment between 9:30 a.m. and 3:30 p.m., with appointments prioritized by length of time in the queue. Currently, DBI is processing permits submitted electronically between 6/1/2020 and 6/14/2020; new applications for OTC permits with plans are to be submitted electronically and added to the queue.
• Drop-in permit pick-up will be available throughout the day after DBI alerts a customer that a permit is ready. To use these OTC services, customers must arrive with forms complete and must wear face masks and stay six feet apart.

The following types of permits may be processed OTC:

Over-the-Counter without Plans

• Re-roofing
• Repair decks and stairs (less than 50%)
• Replacement windows (same size and same locations)
• Replacement garage doors
• Minor dry rot repairs
• Exterior siding repairs or replacement
• In-kind kitchen remodel (no changes to floor plan or walls)
• In-kind bathroom remodel (no changes to floor plan or walls)

Over-the-Counter with Plans

• Kitchen remodel (changing floor plans/walls)
• Bathroom remodel (changing floor plans/walls)
• Residential interior remodel (changing floor plans/walls)
• New windows and exterior doors
• Decks less than 10 feet above grade that meet Planning Code setbacks
• Sign permits
• Commercial tenant improvement projects
• Office or other B occupancy remodels
• Power door operators
• Permits to comply with the Accessible Business Entrance (“ABE”) program
• Voluntary seismic upgrades
• Disability access barrier removal
• Projects that do not require Planning Department neighborhood notification

Expect delays. DBI is currently processing permits submitted more than a month ago and will be closed to OTC permit processing for several days during the next few weeks while it moves its offices. Also, this is a pilot program that is subject to change as DBI continues to adapt to electronic filing and limited in-person services in the COVID-19 era. Check DBI’s website for the latest information about OTC processing.

 

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.

Recent California Condo/HOA Laws

Homeowners Association

The Davis-Stirling Common Interest Development Act (“Davis-Stirling Act”) is the primary body of law governing condo projects and homeowners associations (“HOAs”) in California. The state legislature enacted several bills that went into effect in 2020 that affect common interest developments (CIDs) such as condominium projects. The following is a brief summary of some recent changes to the Davis-Stirling Act (California Civil Code Section 4000 et seq.).

Senate Bill 323 – HOA Elections

This bill amends Sections 5100, 5105, 5110, 5115, 5125, 5145, and 5200 of, and adds Section 5910.1 to, the California Civil Code, relating to CIDs. This bill adds significant new requirements to the HOA election process. A few highlights: The ability of an HOA to impose conditions on a member’s eligibility to vote are constrained; while an HOA can disqualify a candidate from running for the HOA board of directors if that person is not a member of the HOA and for other specified reasons, the allowable grounds for disqualification are limited; inspectors of elections and ballots must be independent third parties; members’ email addresses must be included in the HOA membership list (unless a member opts out in writing). HOAs must make changes to their election rules to implement the requirements of SB 323.

Senate Bill 326

Adds Sections 5551 and 5986 to, and amends Section 6150 of, the California Civil Code.

Section 5551 – Inspection of Balconies

This new law applies to condo buildings with three or more units. It requires HOAs to perform periodic inspections of all exterior elevated elements that are more than six feet off the ground and supported in substantial part by wood or wood-based products, such as balconies, decks, stairways and walkways. These inspections must be performed by a licensed structural engineer or architect, and be completed no later than 2025, and thereafter at least every nine years.

Sections 5986 and 6150 – Authority to Commence Legal Proceedings

These laws prohibit, with certain exceptions, an HOA’s governing documents from limiting an HOA board’s authority to commence legal proceedings against a declarant, developer, or builder of a CID. Members of an HOA must be provided with a notice specifying, among other things, that a meeting will take place to discuss problems that may lead to the filing of a civil action against a declarant, developer, or builder of a CID, which notice must inform members that the potential impacts of filing a civil action, including financial, to the HOA and its members will be discussed at the meeting.

Assembly Bill 670 – Accessory Dwelling Units

This bill adds Section 4751 to the California Civil Code. This law renders void any provision in an HOA’s governing documents that prohibits the construction or use of an “accessory dwelling unit” (ADU) on a single-family lot. An association may enact reasonable restrictions regulating ADUs so long as they do not effectively prohibit or unreasonably increase the cost to construct an ADU. This new law applies primarily to planned developments with single family lots that are separately owned, and is not applicable to most condo projects.

Senate Bill 652 – Display of Religious Items

This bill adds Sections 1940.45 and 4706 to the California Civil Code. Subject to specified exceptions, this law prohibits the governing documents of a CID from banning the display of religious items on the entry door or entry door frame of a member’s unit. A religious item must be displayed because of a sincerely held religious belief and may not, individually or in combination with any other displayed religious item, exceed the lessor of 36×12 square inches or the size of the door.

 

 

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.