Court Broadens Applicability of CEQA Infill Exemption

| Thomas P. Tunny
CEQA

Readers no doubt are aware of the CEQA Infill Exemption, one of the most common CEQA exemptions used for projects in San Francisco and the Bay Area. In an important opinion published on November 18, the Sixth District Court of Appeal interpreted key terms in the Infill Exemption (CEQA Guidelines Class 32 categorical exemption) to broaden its application, in particular “in-fill development” projects that meet specified criteria, including being “substantially surrounded by urban uses.” In doing so, the Court upheld a lower-population city’s use (King City) of the exemption for a Grocery Outlet project near Highway 101. (Working Families of Monterey County, et al. v. King City Planning Commission (Best Development Group, LLC, Real Party in Interest) (2024) ___ Cal.App.5th ___.)

The project at issue was a Grocery Outlet store in a single-story building with surface parking on a 1.6-acre lot located within 1,000 feet of Highway 101. The parcel’s General Plan land use designation was Highway Service Commercial (HSC) and its zoning designation was Highway Service District (H-S). It was surrounded on two sides by commercial buildings, on the third side by sheriff’s department buildings, and on the fourth side by a cemetery.

An environmental assessment submitted by the project developer in support of the project’s permit applications (for a CUP, architectural review, monument sign permit, and landscaping permit) concluded the project would not result in any significant environmental impacts relating to traffic, noise, air quality, water quality, or otherwise, and that it qualified for the CEQA Guidelines Class 32 exemption for in-fill development. The City’s Planning Commission agreed on all counts, and its decision approving the project entitlements and exemption was upheld by the City Council, which did the same on administrative appeal.

The Petitioners, a union, sought to have the court narrow the infill exemption by arguing the project was not located in an “urbanized area,” as defined in CEQA Section 21071(a) (population 100,000 or more) or CEQA Guidelines Section 15387 (population 50,000 or more). Petitioners also alleged the project did not meet the definition of an “infill site,” as defined in CEQA Section 21061.3, since the project site was not previously developed for “qualified urban uses.”

The court refused to take the bait and turned to traditional rules of statutory construction to discern the meaning of these key terms. Finding the language of the exemption arguably ambiguous, the court looked to the findings of the Natural Resources Agency and the Office of Planning and Research (“OPR”) in establishing the exemption. Their statements of regulatory intent showed no indication that the regulators intended to limit the Class 32 categorical exemption for infill development to projects that meet the criteria set forth in the statutory definitions of “infill site,” “urbanized area,” and “qualified urban uses”.

Citing OPR directly, the court concluded, with a flourish, “The term ‘infill development’ refers to building within unused and underutilized lands within existing development patterns, typically but not exclusively in urban areas. Infill development is critical to accommodating growth and redesigning our cities to be environmentally- and socially-sustainable.” This broad definition will allow the Infill Exemption to be used in areas that may not meet specific definitions of “urban”, but as a matter of common sense are clearly “urbanized”. This decision is important because it reinforces and even broadens the applicability of the Infill Exemption in both typical urban areas and smaller cities.

 

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

Preliminary Election Results: Correction on Measures L & M

| Kaitlin Sheber

Measure L: Additional Business Tax on Transportation Network Companies and Autonomous Vehicle Businesses to Fund Public Transportation – Failed*

With preliminary election results showing 56.88% voter approval, it would seem voters passed Measure L, but the Measure has failed due to a provision in Measure M discussed below. Measure L would have placed a permanent additional tax on transportation network companies and autonomous vehicle businesses to support Muni transportation services and fare discount programs, titled the “Ride-Hail Platform Gross Receipts Tax.” The Measure would impose the tax specifically on businesses that provide passenger service for compensation and receive more than $500,000 in gross receipts. The tax rates range between 1% and 4.5% of gross receipts. The Controller estimates annual revenue from the measure at approximately $25 million.

Measure M: Changes to Business Taxes – Passed

Measure M proposed to modify several existing taxes in the City, including the Gross Receipts Tax, Homelessness Gross Receipts Tax, Overpaid Executive Gross Receipts Tax, Business Registration Fee, and the Administrative Office Tax on Payroll Expenses. In general, the Measure is expected to cut taxes for many small businesses and shift more tax burden onto medium, large, and wealthier businesses through a variety of changes. Preliminary election results show that Measure M was approved by 69.73% of voters so far. As discussed above, Measure M contained a provision to render Measure L null and void in the event it obtained more votes. With preliminary results showing Measure L with 201,074 votes in favor and Measure M with 228,038 votes in favor, Measure L is expected to fail.

*Corrected from original publication on November 13, 2024.

 

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.

San Francisco Empty Homes Tax Struck Down at Trial Court

| Alex Klein

Last week, the San Francisco Superior Court struck down the City’s “Empty Homes Tax” which was set to be collected for the first time starting in April 2025 for the 2024 tax year. As stated in a message on the San Francisco Treasurer and Tax Collector’s website, the agency is evaluating the court’s decision and its effect on the upcoming collections and will “expect to have more information in the coming weeks.”

Adopted by San Francisco voters with the passage of Measure M, during the November 2022 general election the Empty Homes Tax aimed to add residential housing stock back into the local rental market by imposing a tax on owners of certain multifamily buildings for keeping rental units vacant for 182 or more days each tax year. The Empty Homes Tax would have applied broadly to most multifamily property owners in the City whose properties had vacant units with limited exemptions for 501(c)(3) tax exempt nonprofits, governmental entities, and the owners of residential buildings with two or fewer units.

The tax would have been calculated based on the vacant units’ square footage. For the 2024 tax year, a minimum tax of $2,500 would have been assessed for vacant units with less than 1,000 square feet and up to $5,000 would have been assessed for vacant units with greater than 2,000 square feet. Tax rates imposed under the Empty Homes Tax were set to increase annually over the next few years.

The present litigation was brought in February of 2023, shortly after the passage of Measure M, by a handful of property owners in the City affected by the Empty Homes Tax, in addition to the various interested real estate organizations including the San Francisco Apartment Association and the San Francisco Association of Realtors.

In their complaint challenging the Empty Homes Tax, Plaintiffs argued that the Empty Homes Tax violated the Takings Clause of the US Constitution. Specifically, Plaintiffs argued that the tax amounted to the City compelling property owners to rent their property, an action the United States Supreme Court and California’s First Appellate District have held is a Taking. Yee v. City of Escondido (1992) 503 U.S. 519; Cwynar v. City & Cty. Of S.F. (2001) 90 Cal.App.4th 637, 658. The tax, plaintiffs argued, sought to “achieve indirectly the very result that the Constitution and state law prohibit…” by “coerc[ing] owners to rent their units by severely penalizing those who exercise their rights to keep units vacant…” (Complaint pg.5.)

Plaintiffs also argued that Prop M was preempted by the Ellis Act which prohibits public entities from compelling owners of residential real property to offer their accommodations for rent or lease. Cal. Gov. Code § 7060(a). As Plaintiffs highlighted in their motion for summary judgment, the “compulsion” prohibited by the Ellis Act extends to the imposition of financial or other penalties for declining to rent residential units. See Bullock v. San Francisco (1990) 221 Cal.App.3d 1072.

In addition to arguing that Plaintiffs did not have standing to challenge the tax before paying it under protest, the City argued in its motion for summary judgement that Plaintiffs had mischaracterized Prop M as requiring property owners to rent their units or pay the Empty Homes Tax. Rather, the City argued, property owners merely needed to ensure that their rental units were “occupied, inhabited, or used,” or that they fell within one of Prop M’s vacancy exclusion periods. Defendant’s Motion for Summary Judgement, Pg. 16.

The Court has yet to publish its decision granting summary judgment for Plaintiffs. It is certainly possible that the City will appeal the decision, which will create uncertainty over the future of the Empty Homes Tax.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Alex Klein.

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.

Fee Waiver Possible for Downtown Conversions

| Thomas P. Tunny
downtown

Mayor Breed and Supervisor Dorsey recently introduced legislation to waive development impact fees and inclusionary housing requirements for downtown office-to-housing conversion projects. For the Mayor it is the latest in a series of new policies she has dubbed the “30 x 30” initiative, designed to bring at least 30,000 residents and students downtown by 2030.

The city’s impact fees and inclusionary housing requirements are the largest source of city-imposed costs on conversion projects. According to some estimates they add between $70,000 to $90,000 per unit in project development cost. The legislation would waive these fees for all commercial-to-residential conversion projects downtown, specifically projects located in any C-3 zoning district or a C-2 zoning district east of or fronting Franklin Street/13th Street and north of Townsend Street. The legislation would apply to new projects and projects that have received Planning approvals or permit sign-off by Planning prior to January 1, 2025, but not yet received issuance of the first construction document. This legislation builds off the waiver of real estate transfer taxes for conversion projects that was enacted in March 2024.

The Mayor first introduced her 30 x 30 initiative in March 2024. The initiative has three components: (1) commercial to residential conversions; (2) 5,000 units of new housing; and (3) a focus on colleges and universities seeking to bring 10,000 students, teachers, and staff downtown.

The office-to-residential component of the initiative aims to convert 5 million square feet of office space to approximately 5,000 units of housing, bringing 10,000 of the 30,000 new residents downtown. Actions towards this goal include:

  • The Commercial-to-Residential Adaptive Reuse Program streamlines permitting by waiving a number of Planning Code requirements for conversion projects. Now scheduled to expire in 2028, the proposed impact fee legislation would extend this streamlining indefinitely.
  • Approved by voters in March 2024, Proposition C waives the real estate transfer tax on up to 5 million square feet of commercial-to-housing conversion projects downtown.
  • The Department of Building Inspection’s Commercial-to-Residential Adaptive Reuse Information Sheet, published in September 2024, clarifies Building and Fire Code requirements and alternative methods of compliance for adaptive reuse projects.
  • In 2025, as authorized by AB 2488, the Office of Economic and Workforce Development will establish a special Financing District for commercial-to-residential conversion projects that would reinvest incremental property tax revenue to offset a significant share of development costs for these projects.

 

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

New Federal Business Filing Requirement Starting in 2024

| Alex Klein
BOI Reports

Starting in 2024, many business entities will be required to comply with the Corporate Transparency Act (the “FCTA” or the “Act”).  Enacted in 2021 to enhance corporate transparency and combat tax fraud, the FCTA requires all “reporting companies” to submit Beneficial Ownership Information (“BOI”) reports to the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) by December 31, 2024.  (31 U.S.C. § 5336(a)(11)(A).)

I.  What are reporting companies?

For the purposes of the FCTA, a “reporting company” is defined as any corporation, limited liability company (“LLC”), or other similar entity that is (a) created either domestically by filing with the jurisdiction’s secretary of state or under the laws of a foreign county, and (b) registered to do business in any state.

There are, however, numerous carve-outs from the above definition, including certain highly regulated financial intuitions, nonprofit entities, political organizations, and certain business entities already subject to regulation by the Securities and Exchange Commission such as banks.  In addition, the Act also excludes “large operating companies,” defined as entities with an operating presence at a physical office in the United States and employing more than 20 employees on a full-time basis in the US that demonstrated gross receipts exceeding five million ($5,000,000) dollars in their previous federal income tax returns.

II.  What needs to be reported?

BOI reports must identify each reporting company’s beneficial owner or owners.  The FCTA defines “beneficial owners” as any person or entity that either exercises substantial control over the business entity or who owns or controls a twenty-five (25%) percent interest in the company.  (31 U.S.C. § 5336 (a)(3)(A).)  This definition does, however, exclude minors, creditors, and other discrete classes from the reporting requirement.

BOI reports must include each beneficial owners’ full legal name, date of birth, current residential or business address, and either a unique identifying number from an acceptable identification document or a FinCEN identifier.  (31 U.S.C. § 5336 (b)(2)(A).)  Either a valid United States passport, a valid driver’s license, a nonexpired identification document issued by a state, local government, or Indian Tribe, or, if the individual does not have one of these forms of identification, a foreign passport would be acceptable forms of identification.

In addition, BOI reports must also disclose some information about the business entity itself, including its full legal name, trade name, the current address of the company’s principal place of business, its jurisdiction of formation, and its taxpayer identification number.  Upon request and after submitting the BOI report to FinCEN, beneficial owners will be issued a FinCEN identifier.

BOI reports may be filed by anyone a reporting company authorizes to file the report on its behalf, including employees, owners, or third-party service providers such as attorneys or accountants.  The person responsible for filing the BOI report will need to certify that the information provided is accurate and complete.

III.  Deadlines and the BOI Reporting Process

Reporting companies must file a report containing their beneficial ownership information through FinCEN’s website.  Companies must file their BOI reports by the following deadlines to comply with the FCTA:

  • Domestic reporting companies formed prior to January 1, 2024, are required to file an initial BOI report by January 1, 2025. (31 U.S.C. § 5336 (b)(5).)
  • Companies formed this year (i.e. after January 1, 2024) will be required to file a BOI report within ninety (90) days of receiving actual or public notice of the company’s creation or registration, whichever is earlier.

Once a report has been filed, FinCEN will provide a confirmation receipt.  Reporting companies will need to update their reports in the event any beneficial ownership changes occur, such as a sale of the business or an owner’s death.

IV.  Penalties for Noncompliance

Intentional misrepresentation of BOI information or intentional failure to provide complete or updated BOI information on a BOI report could result in criminal or civil penalties.  (31 U.S.C. § 5336 (h)(3)(A).)  Continued reporting violations may result in five hundred dollar ($500) daily penalties until those violations have been remedied.  An FCTA violation may result in fines up to ten thousand dollars ($10,000) and up to two (2) years imprisonment.

The FCTA does, however, also contain a safe harbor provision exempting some reporting companies who submit BOI reports containing inaccurate information and voluntarily submit corrected reports to FinCEN.  (31 U.S.C. § 5336 (h)(3)(C).)

 

Authored by Reuben, Junius & Rose, LLP Attorney, Alex Klein.

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.

3 Day Notice to Pay or Quit – Compliance and Requirements

| Lindsay Petrone
rent

What is a “person” in the context of a 3 day notice to pay or quit?  Is it a natural person, like an individual, or could it also include an entity?  A recent case, City of Alameda v. Sheehan (2024 WL 4195486, Filed September 13, 2024), just explored this question.  In City of Alameda (“City”), the City served a 3-day notice on Shelby Sheehan (“Sheehan”) who had not paid rent for 17 months pursuant to a lease with the City.  Upon a successfully delivered notice to pay or quit and non-payment by the tenant within the 3-day period, the landlord can thereafter seek eviction of the tenant through an expedited unlawful detainer action.  The 3-day notice to pay or quit directed Sheehan to pay the outstanding rent by cash or check to City of Alameda c/o River Rock Estate Group at an address in Alameda, California.  Sheehan argued that the notice failed to provide the name of a natural person to whom rent may be paid, instead naming a corporation.  Therefore, the notice was invalid because the statute required a “person” to be listed.  The Court in Sheehan confirmed that a “person” in the context of a 3-day notice does include a corporation or entity.  However, the 3-day notice was ultimately defective because the corporation’s name was incomplete and incorrectly stated.

Section 1161 of the Code of Civil Procedure (“Section 1161”) governs the 3-day notice process, in which the notice is required to provide the tenant with the “name, telephone number and address of the person to whom rent shall be paid” within the 3-day period.  Section 1161 does not further define a “Person”.  In Sheehan, the Court looked to the definition of a “person” in another Code of Civil Procedure statute, Section 17, which states “a person includes a corporation as well as a natural person”.  The Court also noted that Section 1161 defines a “Tenant to include any person who hires real property” and that common sense and case-law both recognize that tenants, for the purposes of eviction via unlawful detainers, include both natural persons and entities.  In other words, if a corporate tenant can be served a 3-day notice, then a corporation or other entity can receive the rent.  The Court also recognized a lease can require rent to be paid by electronic means or otherwise to a corporate landlord, rather than to a named individual by mail.  Therefore, it would not make logical sense to allow payment to a landlord who is an entity, but then not allow an entity to collect the rent under a 3-day notice.  The Court also looked to the legislative history and noted that the legislature could have stated “natural person” in Section 1161 but did not.  For the stated reasons above, the Court held that the recipient or “person” named to receive the rent in a 3-day notice could be an individual or an entity.

Ultimately, in this case, the entity River Rock Estate Group was incorrectly spelled and the address stated on the 3-day notice for that entity did not match any River Rock entity found on the Secretary of State website.  As such, the 3-day notice did not strictly comply with the requirements of Section 1161 and would need to be corrected and again served on Sheehan to be enforceable.  The City of Alameda case reiterates that the requirements of Section 1161 must be strictly followed in order to be enforceable and also confirms a “person” to whom rent can be paid may be an entity or an individual, as long as clearly stated as to whom and where the money should be paid.  Landlords should make sure their notices are accurately drafted and follow the guidelines in Section 1161 to ensure any subsequent unlawful detainer action is valid if the rent remains unpaid after the 3 days.

 

Authored by Reuben, Junius & Rose, LLP Partner, Lindsay Petrone.

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.

2024 State Housing Legislation Preview

| Alex Klein and Melinda Sarjapur
legislation

During its 2024 legislative session, the California State Legislature again passed a variety of laws aimed at increasing housing production.  As this new housing legislation heads to Governor Newsom’s desk to be either vetoed or signed into law, here is a preview of nine housing bills which could soon become law:

Streamlining Laws

  • AB 2243 (Wicks): AB 2011 amendments. This bill would update the Affordable Housing and High Road Jobs Act of 2022 (AB 2011), which allowed for streamlined residential development on parcels abutting commercial corridors where office, retail, or parking are principally permitted uses.  If enacted, this bill would update the Affordable Housing and High Road Jobs Act of 2022 (AB 2011, Cal Gov Code Sec. 65912.100, et. Seq.).  Among other changes, this bill would expand program eligibility to sites up to 100 acres that contain a regional mall; expand the definition of “urban uses” [which must abut 75% of a qualifying site’s perimeter] to include parking lots and public parks surrounded by other urban uses; and revise the definition of “dedicated to industrial use” so that it applies only to sites which currently contain industrial use, were most recently permitted as industrial and occupied with such use within the past three years, or were designated for industrial use in the jurisdiction’s most recent general plan adopted before 2022 (except where residential uses are also principally permitted).  Further, AB 2243 would allow projects within five hundred (500) feet of a freeway, provided they meet certain ventilation and HVAC requirements.
  • AB 1893 (Wicks): Builders Remedy update. This bill would amend what’s known as the Builder’s Remedy: a provision of the Housing Accountability Act (HAA).  As amended, the Builder’s Remedy would generally prohibit local governments that have failed to adopt a compliant Housing Element from disapproving residential projects that provide either one hundred percent (100%) of units affordable to lower-income or moderate-income households; thirteen percent (13%) are affordable to lower-income households; ten percent (10%) are affordable to very-low income households; or seven percent (7%) are affordable to extremely-low income households.  This affordability requirement would not apply to projects with ten (10) or fewer units located on a site smaller than one (1) acre with a minimum density of ten (10) units per acre.  AB 1893 would also set some new site eligibility restrictions; establish maximum and minimum density limits; and allow qualifying developments to use an existing streamlining program such as AB-2011 or SB-423, as well as State Density Bonus Law.  Importantly, projects that are currently seeking Builder’s Remedy relief and filed applications with a local jurisdiction before January 1, 2025 may proceed under the original Builder’s Remedy law.
  • SB 1123 (Caballero): More flexibility for residential subdivisions up to 10 units. This bill would amend the Starter Home Revitalization Act of 2021 (Cal. Gov. Code Sec. 65852.28 & 66499.41), which allows ministerial approval for subdivisions with ten (10) or fewer units on parcels of five (5) acres or less, zoned for multifamily residential use, and surrounded by qualified urban uses.  Among other changes, this bill would extend the Act to vacant sites up to 1.5 acres that are zoned for single-family housing.  It would also provide that ADUs and JADUs (if permitted) would not count toward the 10-unit maximum.  If signed into law, these changes would become effective as of July 1, 2025.

Development Fees

  • SB 937 (Weiner): Delaying payment of certain development fees. This bill would amend the Mitigation Fee Act (Cal. Gov. Code 66007, et. seq.).  Among other changes, it would delay assessment of development impact fees on certain housing developments until issuance of a first certificate of occupancy or first temporary certificate of occupancy.  Further, it would limit the amount of utility service fees that can be collected at the time an application is received for a residential project to costs incurred by the utility related to the connection.
  • AB 1820 (Schiavo): Fee estimates for residential development. This bill would allow residential developers to request that a local agency provide a preliminary fee and exaction estimate at the time an SB 330 preliminary application is submitted. If requested, the local agency would be required to provide the estimate within thirty (30) business days.  Within thirty (30) business days of final project approval, the local agency would also be required to provide an itemized list and good faith estimate of all applicable fees and extractions.
  • SB 1210 (Skinner): Greater transparency for utility fees and timeframes. This bill would require certain publicly-owned utilities to post the following information on their websites by January 1, 2026: (1) a schedule of fee estimates for typical service connection fees; and (2) estimated timeframes for completing typical service connections for a variety of residential developments including ADUs, single-family homes, multifamily, and mixed-use developments.

Entitlement and Permit Extensions

  • AB 2729 (Patterson): Entitlement extension for certain projects. This bill would extend entitlements for housing developments that were issued prior to and in effect on or before January 1, 2024, and that are set to expire before December 31, 2025, by eighteen (18) months.  AB 2729 would apply to a broad range of entitlements including legislative approvals; administrative approvals; ministerial approvals; and building permits, but would not apply to development agreements, SB-330 preliminary housing applications, or tentative maps that have already been approved for at least twenty-four (24) months under the Government Code.  The area of qualifying housing development projects must be at least two-thirds residential.
  •  AB 2117 (Patterson): Tolling expiration dates. This bill would toll the expiration of certain local entitlements during the time when an action challenging them is pending.  AB 2117 tolling would apply to approvals including variances, conditional use permits, and any other development permits, but not to building permits issued under state or local code, demolition permits, minor or standard excavation and grading permits, or other nondiscretionary permits required post-entitlement prior to construction.

ADUs

  • SB 1211 (Skinner): Expanding state ADU law. This bill would increase the number of detached ADUs eligible for a ministerial approval on a lot that has an existing multifamily dwelling from two (2) detached ADUs to no more than eight (8) detached ADUs, provided that the number of ADUs does not exceed the number of existing dwelling units on the lot.  It would also prohibit local agencies from imposing objective development or design standards that are not authorized by state law on ADUs subject to ministerial approval, or from requiring the replacement of parking spaces if uncovered parking is eliminated to construct an ADU.

The Governor has until September 30, 2024, to either sign or veto legislation passed during the California State Legislature’s 2024 legislative session.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Alex Klein, and Partner, 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.

HCD Reverses Course: No Zoning Amendments for Builder’s Remedy Projects

| Chloe Angelis
HCD

Back in May, we wrote about a March 28, 2024, Department of Housing and Community Development (“HCD”) Letter of Technical Assistance to the City of Compton, which determined that the Builder’s Remedy does not prohibit a city or county from requiring Builder’s Remedy projects to obtain zoning or general plan amendment approvals.[1]  Since then, HCD has issued a Letter of Technical Assistance and a subsequent Notice of Violation[2] to the City of Beverly Hills, walking back that March determination and confirming that a Builder’s Remedy project cannot be denied based on inconsistency with a jurisdiction’s zoning ordinance or general plan land use designation.

The Builder’s Remedy, which is part of the Housing Accountability Act (“HAA”), allows developments that meet certain affordability thresholds to bypass local zoning when a city or county is out of compliance with housing element requirements.

In the March letter to the City of Compton, HCD wrote that “the Builder’s Remedy does not expressly prevent the City from requiring discretionary permits and/or legislative actions (e.g., GPAs, Zoning Changes, CUPs, specific plan amendments, etc.) that would be required for similar projects where the Builder’s Remedy does not apply.”  While the March letter focuses on a general plan amendment and zoning change intended “to remedy the inconsistencies between the project and applicable regulatory documents that will result when the project is approved,” the determination cuts to the core of the Builder’s Remedy, which is meant to provide a path for qualifying projects to completely bypass local zoning.

Thankfully, the latest pair of HCD letters to the City of Beverly Hills reverses course.  At issue in these letters is a 165-unit project with 20% low-income units.  The applicant had appealed an incompleteness letter, in which the City instructed the applicant to pursue a general plan amendment and zoning change.  Pending the City Council’s decision on the appeal, the applicant sought direction from HCD on whether a general plan amendment and zoning change could legally be required under the HAA.

The June 26, 2024, Letter of Technical Assistance acknowledges the earlier City of Compton Letter and walks back the March conclusion, explaining that a requirement to pursue a general plan and/or zoning amendment is, in fact, a violation of the HAA:

“While it remains true that the statutory language in the HAA does not expressly prevent the City from requesting or requiring legislative actions (e.g., a GPA/ZC) that would be required for similar projects where the Builder’s Remedy does not apply, requiring such action where the Builder’s Remedy does apply leads to an absurd outcome . . .

The HAA is clear that a project protected by the Builder’s Remedy may not be disapproved for inconsistency with a jurisdiction’s general plan and zoning ordinance.  Accordingly, a jurisdiction that refuses to process or approve a project subject to the Builder’s Remedy due to the applicant’s refusal to submit a GPA/ZC requested or required by the jurisdiction to resolve such an inconsistency violates the intent of the HAA.

. . . In other words, the requirement for a GPA/ZC is essentially a requirement for consistency, and disapproving the project for failure to resolve that inconsistency is effectively a disapproval on the grounds of inconsistency.  The HAA prohibits such a disapproval.”

Following the June letter, HCD issued a Notice of Violation after the Beverly Hills City Council ignored HCD’s prior guidance and denied the applicant’s appeal of the City’s incompleteness letter, based on a finding that a general plan amendment and zoning change are required for the application to be deemed complete.

HCD confirms in the Notice of Violation that, irrespective of the HAA, the Permit Streamlining Act prohibits a city from determining that an application is incomplete on the basis that it does not include an item (in this case, a general plan amendment and zoning change application) that was not included in the submittal requirement checklist.

The Notice of Violation also offers two important reminders about processing preliminary development applications (pursuant to Government Code section 65941.1) and the rights provided by a vested preliminary development application:

(1) The 90-day deadline that an applicant has to respond to a notice of incompleteness resets each time a city issues a notice of incompleteness, such that a project with multiple incompleteness letters and responses could have multiple 90-day response periods without losing the vested right of a preliminary development application.

(2) A vested preliminary development application remains vested unless the number of units or the square footage changes by at least 20%. Other project changes do not affect the rights conferred by a vested preliminary development application.

[1] HCD RE: 1601 W. El Segundo Blvd., Compton – Letter of Technical Assistance (March 28, 2024); available at https://www.hcd.ca.gov/sites/default/files/docs/planning-and-community/HAU/compton-hau604-ta-03282024.pdf.

[2] HCD RE: 125-129 Linden Drive, Beverly Hills – Notice of Violation (August 22, 2024) and HCD RE: 125-129 Linden Drive, Beverly Hills – Letter of Support and Technical Assistance (June 26, 2024); both available at https://www.hcd.ca.gov/sites/default/files/docs/planning-and-community/HAU/beverly-hills-hau-1071-nov-082224.pdf.

 

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

End of Summer Legislative Round Up

| Tara Sullivan
ordinance

As the summer winds down and with most of the San Francisco’s boards and commissions on break, there is not much activity happening in the local land-use world.  Below are a handful of ordinances that were introduced on July 30th, the last hearing before the Board of Supervisors’ legislative recess and currently winding their way through the review process.

Crackdown on Unauthorized Dwelling Units

Legislation proposed by Supervisor Melgar (BOS File No. 24-0803) would implement a new, multi-pronged approach to San Francisco’s (the “City’s”) handling of unauthorized dwelling units (“UDUs”).  Under the legislation, the Planning Department’s development application process would be amended to require project sponsors to disclose the presence of UDUs on the subject property, in addition to the number of dwelling units, mailboxes, and utility meters at the property.  Applicants may also be expected to provide information about whether any dwelling units or bedrooms had been rented for the previous ten years.  In addition, this ordinance would also require the Planning Department to conduct property inspections to determine whether UDUs exist before the department may recommend a residential demolition, conversion, or merger under Section 317.

To ensure compliance, Supervisor Melgar’s ordinance would also add specific penalties for misrepresentations on development applications and building permit applications.  If, after receiving a planning application, the Planning Department reasonably believed that an applicant did not disclose a UDU, this legislation would authorize Planning to further investigate and potentially cancel the development application.  Should the Zoning Administrator cancel a development application, applicants may need to start over by re-filing their application with a potential six-month penalty waiting period imposed for willful violations.

Under the proposed legislation, the City may also penalize parties other than the project sponsor for violating the ordinance.  In addition to allowing (and sometimes requiring) the Zoning Administrator to cancel planning applications featuring misrepresentations, the ordinance would also give the Planning Department authority to refer design professionals and authorized agents who signed off on those planning applications to the applicable licensing agency or regulatory body.

Increasing Income Limits for Certain BMR Units

The City’s Below Market Rate (“BMR”) homeownership and rental programs currently requires a percentage of newly developed housing units be made available to households earning a certain percentage of the Area Median Income (“AMI”), with limited exceptions or opportunities to adjust affordability levels.

Under legislation proposed by Supervisor Melgar (BOS File No. 24-0802), an owner who purchases a BMR owned unit at above the current affordable price may seek a permanent adjustment of the unit’s AMI threshold by petitioning the Mayor’s Office of Housing and Community Development (MOHCD).  If the city accepted the owner’s petition, MOHCD would be authorized to increase the BMR unit’s AMI levels up to a maximum of 150%.  Projects whose affordability levels were originally set by either the Planning Commission or the Planning Department, however, would also need that body to approve the adjustment.

This ordinance would also grant MOHCD the authority to grant a one-time exception for certain properties, setting the qualifying income level to 20% above the required AMI.  In addition, MOHCD would also be empowered to grant an exception to affordability limits for BMR rental units converted to owned units up to a maximum of 150% AMI.

Expanding Downtown Entertainment Zones

This ordinance (BOS File No. 24-0804) comes in response to Senate Bill 76 (the “Entertainment Zones Act”), which authorized San Francisco to create “Entertainment Zones” in public places where brick and mortar establishments could sell alcohol for off-premises consumption.  Since Governor Newsom signed the statute into law last year, however, the City’s only proposed entertainment zone had consisted solely of a segment of Front Street between California and Sacramento Streets.

Under this ordinance proposed by Supervisor Peskin, the City’s entertainment zone would be expanded to also include: (1) the segment of Annie Street between Market and Stevenson, (2) Claude Lane between Bush and Sutter, (3) segments of Jessie Street between Mission and Fifth and between Mission and Fourth, (4) Leidesdorff Street between Sacramento and Clay and Commercial and Montgomery, and other locations in and around the Financial District.

The legislation also creates a permitting scheme for businesses hoping to participate in the City’s Entertainment Zones.  If adopted, Supervisor Peskin’s legislation would task the Department of Public Works with issuing permits to sell alcoholic beverages for off-site consumption in entertainment zones on a discretionary basis under a new process, subject to certain conditions.

In addition to allowing outdoor alcohol consumption, the ordinance would also exempt businesses in entertainment zones from obtaining limited live performance permits, entertainment permits, and fixed place outdoor amplified sound permits for sound generated between 7 a.m. and 10 p.m.

New Interim CU Requirements for Change of Use in Certain Mid-Market Districts

This resolution (BOS File No. 24-0817), if passed, will create interim controls that will require a Conditional Use Authorization for any change of use from either an Entertainment, Arts and Recreation, or Retail Sales and Service use for certain mid-Market zoning districts for eighteen (18) months.  Citing high vacancy rates and public safety concerns, businesses wishing to change uses from one of the above uses would, in addition to making the required findings under the Planning Code, also be required to make certain findings showing that the use would detract from the area’s function as a commercial corridor nor its nearby entertainment, arts, or tourism uses.  The interim controls, proposed by Supervisor Dorsey, would give the City time to reevaluate current zoning controls for mid-Market as the area recovers from the impacts of the COVID-19 pandemic to determine whether changes are needed to encourage and retain entertainment and retail businesses.

 

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

Downtown Oakland Specific Plan Approved

| Justin A. Zucker
Oakland

Last month, the Downtown Oakland Specific Plan (“DOSP”) was adopted by the Oakland City Council, with the DOSP environmental impact report being certified July 16 and the implementing Planning Code, Zoning Map, and Municipal Code amendments passing on second read July 30.  The DOSP is intended to guide development over the next twenty years, to meet the projected housing and employment needs in Oakland’s downtown.  The plan encompasses approximately 850 acres, and is generally bounded by 27th Street to the north, I-980, Brush and Market Streets to the west, Embarcadero and Jack London estuary waterfront to the south, and Lake Merritt and Channel to the east.

Approval of the DOSP is the culmination of a near decade-long process.  As previously reported, the preliminary draft DOSP was released in 2019 with the draft zoning amendments released in April 2022 and the Zoning Incentive Program released in July 2022.  The delay in adoption of the DOSP was to allow for enhanced community engagement, adapting to the evolving social and economic conditions stemming from the COVID-19 pandemic.  The DOSP has been designed to help prevent displacement of both people and culture, while encouraging development of downtown.

The DOSP projects the addition of approximately 18.3 million square feet of new commercial space, 1.3 million square feet of new institutional space, and 500,000 square feet of new industrial space, resulting in approximately 57,000 jobs and $41 million in impact fees to fund affordable housing and transportation improvements.  In addition, 29,000 new housing units are planned for by the DOSP, including approximately 4,000-7,000 income-restricted affordable units, that would generate approximately $480-544 million in one-time impact fees to fund affordable housing.

Some changes to the DOSP since publication of the draft include:

  • Preservation of industrial land uses closest to the West Oakland industrial area, removing the “Green Loop” and other non-industrial improvements from Howard Terminal now that the Howard Ballpark is no longer going forward.
  • Development intensity changes clustered in five small areas, including portions of the West of San Pablo Planning sub-area, specifically from Grand Avenue to 20th Street and east to Martin Luther King Jr. Way (height increases from 85 feet to 175 feet in the Final Draft Plan, 7.5 FAR to 12.0, and from 200 square feet of lot area per unit for residential density to 110 square feet of lot area per unit), as well as between 14th and 15th Street between Martin Luther King Jr. Way and Jefferson Street (height increases from 175 feet to 275 feet in the Final Draft Plan, 12.0 FAR to 12.0/17.0, and from 110 square feet of lot area per unit for residential density to 90 square feet of lot area per unit).
  • Prohibiting demolition of the principal building at the sending site leveraged for the transfer of development rights program.
  • Requiring ten percent of the affordable housing Zoning Incentive Program benefit to be provided as an in-lieu fee rather than allowing entirely on-site benefits where projects propose at least 125 units above the base.
  • Creation of a new alcohol use special permit, relaxing controls in the non-residential districts within the plan area, removing the need for a major conditional use permit for alcohol permits.

There are too many specifics of the DOSP to include in an email update. Please contact us if you have any questions.

 

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.