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.

Mayor’s Measure Proposes to Cut Red Tape for Small Business

Small business

Even before COVID-19’s devastating economic impacts, the process of opening a small business in San Francisco was often difficult, lengthy, and expensive. Between high rents and operating costs and the shift to online shopping and food ordering, many small business have been forced to close. Retail vacancies have risen with many potential new businesses deterred by San Francisco’s bureaucratic, drawn-out process to get the necessary approvals. Closures, occupancy restrictions, and declining sales volumes due to COVID-19 have dramatically accelerated these long-term trends, with the Golden Gate Restaurant Association estimating that 50 percent of restaurants may fold as a result.

In response, Mayor London Breed recently introduced a new ballot measure for the November 2020 election—the Save our Small Businesses initiative—that focuses on two main goals: (1) streamlining the permitting and inspection process for new businesses and (2) relaxing zoning in all of the City’s neighborhood commercial (“NCD”) and neighborhood transit (“NCT”) zoning districts. The ballot measure was submitted by the Mayor directly to the voters and requires a simple majority of the votes to pass.

According to a 2019 report that is cited in the ballot measure, building permit applications for commercial uses took an average of 172 days to be issued, during which time small businesses were forced to pay rent without any income while waiting for permit issuance. In addition, many businesses must provide neighborhood notification when changing from one use to another, even if that use is principally permitted in the zoning district. This encourages appeals that can further delay new businesses for 4-6 months and introduce a high degree of risk. However, perhaps the most difficult are uses that require a Conditional Use Authorization (“CU”) from the Planning Commission. The same 2019 report found that it took an average of 332 days for CUs to be approved between 2015 and 2017. In all, the process of obtaining the necessary permits and inspections to open a commercial business in San Francisco can take over a year and a half, imposing extreme financial hardships on new small businesses. Combined with the anticipated rise in vacancies due to COVID-19, these standard operating procedures practically guarantee long-term vacancies on neighborhood shopping streets and long-term declines in sales tax revenues to the city.

Permit and Inspection Streamlining

First, the ballot measure proposes a 30-day time limit to review permit applications for commercial uses that are principally permitted in NCD and NCT zoning districts. One of the biggest factors contributing to the lengthy permitting process is the need for permits to be reviewed by many City agencies, including the Planning Department, Department of Building Inspection, Fire Department, Department of Public Works, and Health Department. Currently, the multi-agency review is completed sequentially. However, the ballot measure would instead allow “parallel cross-department review” of applications, during which the applicable City agencies would collectively have to complete their reviews within the allotted 30-day period for qualifying projects. If permit review is not completed within 30 days of submitting a complete application, the applicant would be provided with an explanation detailing why a longer review is necessary (e.g. additional information is needed from the applicant).

In addition, scheduling and completing necessary pre-approval inspections further delays new businesses from opening. The ballot measure would require City agencies to coordinate their inspections and schedule them within two weeks of an inspection request for principally permitted commercial uses in NCD and NCT districts. The inspection itself would be limited to compliance with an objective checklist adopted by the agency. Alternatively, an applicant would be able to submit an inspection report from a qualified entity to comply with inspection requirements.

Zoning Code Changes

The Mayor’s ballot measure also proposes overhauling the zoning in almost 50 NCD and NCT zoning districts. By principally permitting more commercial uses in these districts, it would allow businesses to qualify for streamlined review and thereby enable new small businesses to open quicker and at a lower cost.

The following uses would generally be principally permitted on all floors in all NCD and NCT zoning districts:
• Arts activities;
• Movie theaters;
• Community facilities;
• Public facilities;
• Social service or philanthropic facilities; and
• Retail professional services.

In addition, animal hospitals, general entertainment, restaurants, and limited restaurants would generally be principally permitted on the first and second floors only in NCD and NCT zoning districts. Note that formula retail restaurants and limited restaurants would not permitted in certain districts. Finally, non-retail professional services (most office uses) would be principally permitted on the second floor in all NCD and NCT districts; restrictions on other floors would vary by district.

The ballot measure would also help address the mandated reduced capacity in restaurants and limited restaurants in compliance with COVID-19 social distancing. First, the measure would permit food services in “parklets.” Parklets refer to on-street parking spaces that have been converted into sidewalk extensions with publicly accessible seating, landscaping, bike parking, and art. The measure would also make it easier to obtain permits for outdoor dining on back patio areas in NCD and NCT zoning districts. Eligible outdoor activity areas must: (1) be located on the ground floor; (2) operate only between the hours of 9am and 10pm; (3) not be associated with a bar use; and (4) only include seated areas for restaurant and limited restaurant uses. Outdoor dining areas that do not meet all of these conditions would need a CU.

Finally, the measure would allow businesses to diversify their services and products by permitting certain types of co-working uses as “retail workspaces.” Retail workspaces may rent space on a daily or hourly basis as an accessory use to eating and drinking establishments, such as restaurants and cafes. To qualify, the eating and drinking use must face the street and occupy at least one-third of the total gross floor area. (Unlike most other accessory uses, retail workspaces can occupy up to two-thirds of total area as accessory.) In addition, the accessory retail space must be open to the general public and would be limited to operating between 9am and 5pm; the eating and drinking establishment must also be open for business to the general public on the same days the retail space is open.

After deferring business registration fees and taxes, instituting a moratorium on commercial evictions, and as referenced in an earlier Reuben, Junius & Rose, LLP E-Update, delaying the implementation of the commercial vacancy tax, the Mayor’s ballot measure is yet another potential tool to help fill the many vacancies along commercial corridors that will only increase as a result of the COVID-19 crisis.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tiffany Kats.

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

Delay to San Francisco’s New Vacant Storefront Tax

Storefront Tax

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

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

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

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

2) how long the space has remained vacant.

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

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

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

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

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

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

 

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

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

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

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

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

 

See also:

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

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

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

 

Authored by Reuben, Junius & Rose, LLP Attorney Tara Sullivan.

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

Legislation Imposing Moratorium on Commercial Evictions Fails to Pass

San Francisco

Senate Bill 939 (“SB 939”), which was the subject of our June 17th Update, would have imposed significant statewide restrictions on commercial evictions and allowed tenants to renegotiate or terminate their lease. The Legislation failed to advance from the Senate Appropriations Committee yesterday, and will not move forward this session. In response, SB 939 sponsors, Senators Scott Wiener and Lena Gonzalez, issued a press release urging the Legislature and Governor to take steps to help small businesses and nonprofits.

It remains to be seen whether similar provisions are introduced in the future, but those efforts would be met with similar concerns about the serious economic impacts of upending commercial leases. We will continue to follow legislation aimed at the economic fallout of COVID-19.

 

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.

Court Upholds City of Cupertino’s Approval of SB 35 Vallco Project

SB35 Vallco

Less than two weeks after issuing a decision that required the City of Los Altos to approve a 15-unit SB 35 project, the same Santa Clara County Superior Court judge (“Court”) issued a second favorable decision upholding the City of Cupertino’s (“City”) decision to approve an SB 35 project that would redevelop the former Vallco Fashion Mall site with more than 2.2 million square feet of mixed-use development (“Project”). The approved Project will subdivide the 50-acre site into 11 blocks consisting of 2,402 dwelling units (50% of which are affordable), 1,981,447 square feet of office space, and 485,912 square feet of retail space. After the City determined that the Project qualified for streamlined review under SB 35 and subsequently approved it, Friends of Better Cupertino (“Petitioners”) filed a lawsuit challenging the Project. The Court dismissed the Petitioners’ arguments, affirming for the second time in a matter of weeks that SB 35 is a powerful tool compelling cities to quickly accept much-needed housing development.

After unsuccessfully trying to construct a mixed-use project at the site, the developer submitted a revised project to the City under SB 35. Enacted in 2017 to increase housing production in California, SB 35 requires streamlined ministerial approvals for housing projects that meet objective planning standards and provide a certain amount of affordable housing (10% or 50% depending on the city’s failure to meet state housing construction goals). For qualifying projects, SB 35 sets time limits for the City’s review (three to six months depending on the size of the project), limits challenges to relatively narrow technical arguments, and eliminates complicated and drawn out CEQA litigation.

In its lawsuit, Petitioners argued that the City had a ministerial duty to determine that the Project did not qualify for SB 35 streamlining based on allegations that the Project: (1) was located on a hazardous waste site; (2) does not provide sufficient residential space; (3) exceeds height limits; (4) lacks sufficient setbacks; (5) does not comply with the City’s requirements for below market rate units; and (6) lacks dedicated park land. However, the Court disagreed with each of these arguments and found that the City correctly determined that the Project was eligible for SB 35 because the Project complied with all object planning criteria.

The Court held that SB 35 does not impose a ministerial duty on cities to determine whether a project qualifies for streamlined review, nor to reject the application if the project is ineligible for streamlined review. Rather, SB 35 imposes a presumption that a project qualifies for streamlined review if the city does not reject the project within the applicable time period (60 or 90 days, depending on the size of the project), even if the project does not actually qualify.  While this holding rejected the Petitioners’ central argument, the Court did not stop there.  The Court took the extra step of considering—and rejecting—Petitioners’ arguments as to how the Project did not qualify for streamlined review.

The Petitioners claimed that the Project site remained a hazardous waste site based on two leaking underground storage tanks related to tenants of the former mall, despite the passage of more than 20 years since remediation was completed and the State Water Resources Control Board closed its cases related to the leaks. They argued that SB 35 only identified the California Department of Toxic Substances Controls (“DTSC”) as an agency that would clear previously contaminated sites. The Court rejected the Petitioners’ suggestion that a site would remain a hazardous waste site for purposes of SB 35 unless DTSC cleared it, noting that in practice numerous agencies (including the Water Board) cleared sites. It also rejected the argument that the Legislature intended a more restrictive definition of clearance when it adopted SB 35.  The Court further noted the Legislature amended SB 35 in 2019 to acknowledge that other agencies, including the Water Board, could clear sites for residential uses, and determined that this amendment had retroactive effect.

The Petitioners also asserted that SB 35’s requirement that mixed-use projects designate two-thirds of the “square footage of development” for residential uses should exclude areas of the project authorized under the Density Bonus Law, and that the “square footage of development” must be defined using the definition of “floor area” in the California Building Standards Code which Petitioners asserted would exclude parking areas.  The Court rejected both arguments.  It held that there was nothing in the law in effect at the time the Project application was submitted that required bonus areas to be excluded from the two-thirds requirement, and noted that the Legislature amended SB 35 in November 2019 to explicitly include bonus areas in the two-thirds calculation. The Court also rejected the idea that “square footage of development” was somehow defined by reference to the Building Standards Code.

The Petitioners next argued that the Project was inconsistent with objective standards in the City’s General Plan and Zoning Ordinance, namely height, setbacks, requirements for below market rate units, and parkland. The Court found that, as to each argument, they were not well-reasoned and failed to explain how the City lacked substantial evidence to support its determination.

Finally, the Petitioners argued that a public hearing was required to approve the Project and that the Planning Commission, rather than City staff, should have decided whether to approve the Project. The court rejected this argument as well, pointing out that although SB 35 does not prohibit public oversight, it does not require public hearings or approval by local planning commissions. To the contrary, the legislative history of SB 35 shows that “the Legislature clearly intended . . . to drastically reduce the politicization of the planning process and the use of tactics like those Petitioners resort to here.”

This decision affirming the sizable mixed-use Vallco project highlights that although there are many requirements that developers must meet to qualify for project streamlining, SB 35 is an effective solution to minimize the opportunities for project opponents to frustrate housing development through litigation.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tiffany Kats

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

 

California Superior Court Reverses Denial of an SB 35 Project

California

In a groundbreaking ruling, the Santa Clara County Superior Court found that the city of Los Altos acted in bad faith when it denied a 15-unit density bonus project that was proposed under SB 35 and subject to the Housing Accountability Act (HAA). Instead of sending the project back to the City for further consideration, the Court in this case required the City to reverse the denial and approve the project. Although the ruling does not serve as binding precedent, it provides Los Altos and other cities in California with a clear warning that unsubstantiated project denials will not be upheld in court.

After attempting to obtain approval through the standard discretionary review process since 2013, the developer changed course and submitted an application for the project under SB 35 in 2018. SB 35 requires streamlined ministerial approval for projects providing a certain amount of affordable housing in cities that are not meeting their Regional Housing Needs Allocation (RHNA) goals. Under SB 35, a project that meets the affordability requirement can be denied if the city provides written documentation of the project’s inconsistencies with “objective planning standards” within a specified time frame.

In response to the application, the City claimed that the developer had submitted two separate applications, one for streamlined review under SB 35 and one for standard discretionary review, one of which would need to be withdrawn. Nevertheless, staff responded to the SB 35 application stating that it was not eligible for streamlined review because it failed to provide the correct amount of affordable housing, which the City later conceded was an error. The letter also noted that the project failed to provide sufficient parking and lacked adequate access to the proposed parking. The City replied to what it characterized as the discretionary review application with a separate incomplete letter. After some additional correspondence, the City informed the developer that an administrative appeal was required despite provisions to the contrary in the Municipal Code, and that the deadline for filing an appeal was that same day. The developer managed to file a timely appeal, but it was ultimately denied.

The Court held the City’s response to the application did not comply with SB 35 because the City failed to identify the objective standards it was relying on in denying the application. The project exceeded the amount of parking required under SB 35, and the City had not provided any explanation justifying the need for additional parking. As for access, the Court found that absent any specific requirements in the Code, this was not an objective standard that could be applied to the project under SB 35. The Court also rejected the City’s argument that the incomplete letter relating to what it determined to be a separate discretionary review application included other objective standards that the project failed to meet. The Court stated that the City was required to be held to the reasoning articulated in the SB 35 denial letter. Because the City failed to provide adequate notice of any inconsistencies within the time frame permitted under SB 35, the project was deemed to comply with the objective standards. Any claims of inconsistencies made outside that time frame were not entertained by the Court.

The Court also found that the City’s denial violated the Density Bonus Law for a number of reasons. Most notably, the Court rejected the City’s argument that more evidence was required to determine whether the concessions would result in cost reductions. The Court found that the burden was on the City to support their denial by making a finding that the concession would not result in a cost reduction. The onus was not the developer to prove otherwise.

Lastly, the Court held that the City failed to show it complied with the Housing Accountability Act, which requires cities to make specific findings before denying certain housing projects that comply with objective zoning standards. Under the HAA, cities must provide a written determination that the project is inconsistent with applicable zoning standards within a certain time period. As noted above, the City did not find the SB 35 application incomplete. Instead, they denied the SB 35 application outright and failed to provide a valid explanation for the alleged inconsistencies with objective zoning standards. As such, the Court found that the City acted in bad faith under the HAA because the denial of the application was “entirely without merit.”

By bolstering SB 35 and the Housing Accountability Act, this case serves as a victory for developers and pro-housing advocates, and a cautionary tale for cities. It suggests that denials of SB 35 projects must strictly comply with the letter of the law to be upheld.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi

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

 

 

 

 

 

 

 

 

Shelter-in-Place Order Sparks Rapid Transition to Digital

Municipal Governments

As San Francisco meets the broad set of challenges presented by the COVID-19 pandemic, San Francisco’s municipal agencies are implementing new processes to help assure that the measures that have been put in place to keep us safe during this challenging time do not hamper the progress of permitting.

Procedures at the Department of Building Inspection Electronic Plan Review (EPR)

The new online portal for permit submittals facilitates the much-anticipated introduction of Electronic Plan Review (EPR) for Building permits through Bluebeam. The entire department is working together to meet customer requests and facilitate solutions quickly. Smaller projects with limited review needs will be allowed to will resume in-person Over-the-Counter service once the Department reopens, but through EPR, they may also be submitted into a planned streamlined review in early May. With this dual process in place, timelines for processing should continue to shorten, and the public can anticipate commercial tenant improvement, interior demolition, and residential alteration permits to resume to a pre-Shelter-in-Place issuance timeline.

While the procedures for EPR have been in development for several months, the Shelter-in-Place Order necessitated its current, rapid implementation. The Permit Center team and DBI Management provided resources last week that will help applicants become acclimated to Bluebeam and the new EPR process.

DBI provides a detailed guideline for the EPR Applicant Procedure on their website: https://sfdbi.org/electronic-plan-review-applicant-procedure. Additionally, the Permit Center and DBI hosted a 2-hour video tutorial which can be accessed here: https://www.youtube.com/watch?v=9-x0_OAtIYg.

As can be expected with a change in process that is this large in scale, the corresponding reference materials that outline the new processes are very detailed, and some processes are still being finalized. Throughout the transition, the DBI Management along with the Permit Center team have conducted periodic customer updates and Q&A sessions through virtual sessions. The customer update and Q&A, which primarily addressed the implementation of the online portal can be found here: https://www.youtube.com/watch?v=ce7bGgR0C3c.

DBI is projecting that they will be able to take submissions to the online portal for all new non-essential projects by early to mid-May. For projects that are being accepted for submittal through the online portal during this time, fillable PDF’s of addenda cards as well as new construction and alteration permit paperwork are linked for easy submission with project plans, calculations, reports, and support documentation.

Another important resource that has been posted to the online portal are the guidelines (found here: https://sf.gov/information/how-create-pdfs-your-plans-or-addenda) for the naming conventions of permit documents submitted digitally as well as the required formatting for plan sets.

Following the new guidelines for the formatting of plan sets that are outlined on DBI’s online portal is necessary to more quickly allow DBI staff to set up an EPR session through Bluebeam. If an applicant wants to submit a PDF of a scanned physical set of plans not formatted in Bluebeam, staff recommends using 96 dpi resolution for optimal functionality within the session that plan reviewers will be working from. The Permit Center team has stated that they will ask applicants who submit plan sets that do not substantially

conform to these formatting guidelines to revise their submittals before staff will move it forward to intake.

The Introduction of EPR and the Bigger Picture

EPR will allow concurrent review of plan sets. For intake submittals, a building permit will no longer move from station to station as it previously did in a paper format. The development of concurrent review promises to increase the efficiency and speed of the review process for building permits. The Permit Center team also suggests that the ability for multiple disciplines to review a project concurrently will be broadly applied.

However, concurrent plan review will not be implemented where one discipline must complete their review of a permit before other disciplines. Consistent with current practices, concurrent review of permits requiring Planning review cannot begin until Planning approvals are granted.

While the City plans to eventually integrate all municipal agencies into the EPR process through Bluebeam, it is currently only being implemented on DBI building permits and by DBI satellite offices of other agencies, such as the Department of Public Works, that directly review building permits.

The Permit Center team intends to integrate permits through the Department of Public Works-Bureau of Street Use and Mapping next, but only after the DBI workflow and integration is complete. Relatedly, the Planning Department is using Bluebeam to review building permits but have not yet decided whether to use Bluebeam for review of entitlement applications.

Updates to Other DBI Processes

DBI pre-application meetings are occurring via conference call. Applicants will have to submit pre-application request letters and PDF’s of plans to Jeffrey Ma (jeffrey.ma@sfogv.org) as well as PPC staff (eddie.m.chan@sfgov.org, mandy.lei@sfgov.org, carrie.pei@sfgov.org) via email. Applicants must include a list of the email addresses of all participants in the pre-application meeting in order to guarantee that all participants receive an invitation with the conference call code.

Upon completion of the pre-application meeting and receipt of payment, DBI will provide a digital copy of the signed pre-application letter.

During Shelter- in- Place, payments for pre-application meetings and permit issuance can be made to DBI by mailing a check made payable to CCSF-DBI with the project address information. Other payments, such as payment of issuance fees, can be made to DBI by sending funds electronically through the Federal Wire System or ACH. Funds submitted electronically should expect an expedited turnaround time. RJR is available to help your teams navigate these changes and work with DBI to effect approvals expeditiously.

 

Michael Verity is a Permit Analyst for Reuben, Junius & Rose, LLP

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.

Senator Wiener Takes Aim at Single-Family Zoning

ousing

After SB 50 failed to pass earlier this year, Senator Scott Wiener introduced a new housing bill that aims to increase density across the state and provide cities a streamlined process for upzoning certain areas of their communities. Although more modest than the sweeping overhaul that was proposed under SB 50, this bill would effectively eliminate single-family zoning statewide by allowing two to four units per lot depending on the size of the city. In response to concerns that SB 50 interfered with local decision-making, this bill takes a more tempered approach by reducing obstacles to upzoning transit-oriented and job-rich infill areas to allow up to 10 units without prescriptively requiring cities do so.

This is consistent with a larger movement to eliminate single-family zoning across the country. In 2018, Minneapolis became the first major city to vote to eliminate single-family zoning policies citywide. Last year, Oregon approved a bill allowing duplexes in all cities with at least 10,000 people and up to four units in larger cities. Austin has eased restrictions that would allow greater density in single-family zoning districts. Seattle was able to ban single-family zoning, but only in about 6% of the city. Most recently, a bill was introduced in Washington state that would eliminate single-family zoning in most cities. Even the United Nations has warned of the social and environmental impacts of single-family zoning. It’s clearly becoming more and more recognized that there are significant drawbacks to single-family zoning districts that outweigh their justification as “preserving neighborhood character.”

SB 902 would extend this movement to California by authorizing multifamily housing “by right” on all properties zoned for residential use, with few exceptions. Ministerial approval under the legislation would exempt such projects from CEQA. The number of units permitted per lot depends on the city’s population, as follows:

  • Two units in unincorporated areas and cities with up to 10,000 people;
  • Three units in cities with between 10,000 and 50,000 people; and
  • Four units in cities with more than 50,000 people.

Although the bill would allow for increased density, projects would still need to meet local height and setback limits, which would ensure compatibility with the existing scale of development. Projects would also need to meet local demolition standards. The legislation would not apply in very high fire hazard severity zones or where the project would involve the demolition of affordable housing, rent controlled units, housing that has been rented out in the past seven years, or buildings listed in a national or state historic register.

Aside from eliminating single-family zoning statewide, the legislation would also ease some of the difficulties associated with rezoning parcels to allow greater density. The legislation would allow cities to rezone parcels for up to 10 units in transit-rich and jobs-rich areas, as well as on urban infill sites. Such rezoning ordinances would not be subject to CEQA, which would significantly streamline the legislative process. This provides cities with a flexible tool they can use to allow higher density projects where appropriate.

SB 902 was originally scheduled for the Senate Housing Committee hearing on March 31st, but it was postponed when the legislative session was suspended due to COVID-19. The Senate is currently set to reconvene on May 4th, although that date is subject to change. The path ahead for SB 902 and other housing bills is unclear, as the legislature will undoubtedly be focused on COVID-19 related legislation once they are back in session. Stay tuned.

Notable Upcoming Virtual Events:

  • DBI Bluebeam Applicant Training – Tuesday, April 21, 1-3pm – A two-hour virtual training of the electronic plan review process using Bluebeam Studio Projects and Sessions
  • DBI Customer Update and Q&A – Friday, April 24, 11-12pm – A discussion regarding the transition to digital permitting with Patrick O’Riordan, DBI Interim Director, and Melissa Whitehouse, Permit Center Director in the City Administrator’s Office

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi

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