California Adds Incentives for Developers and Homeowners

October 24, 2019October 24, 2019 | Jonathan Kathrein

Governor Gavin Newsom announced this month that he has signed 18 bills into law that will boost housing production in California. Many of these bills fall into two categories: first, bills that reduce barriers for developers to build large-scale housing (more than four units), and second, bills that reduce barriers for homeowners to build accessory dwelling units (“ADUs”) in single-family homes. Of the bills the Governor signed, we find the following to be the most promising and impactful to larger-scale housing development at a statewide level.

AB 1763 – Chiu (San Francisco)

AB 1763 expands the state’s Density Bonus Law for 100% affordable housing projects. As the law exists currently, a local jurisdiction must allow an increase in density and provide up to three incentives or concessions to a development with certain levels of affordable units. Two new features this bill adds to existing Density Bonus Law include:

If a developer provides 80% or more units to lower income households and up to 20% of units to moderate-income households, the development may increase its otherwise allowed height by three stories or 33 feet and the jurisdiction must grant the developer four incentives or concessions. In addition,
- if the development is more than ½ mile from a major transit stop, the density may be increased by 80% of the number of units dedicated to lower income households, or
- if the development is within ½ mile of a major transit stop, unlimited density is allowed within the building envelope.
For a special needs housing or supportive housing project that is 100% lower income housing, no parking is required. Such a development can increase its density to 180% of the number of units otherwise allowed, will receive four incentives or concessions, and can increase its height by three stories or 33 feet. Special needs relates to mental health needs, physical disabilities, developmental disabilities, person at risk of homelessness, and veterans.

This is a promising change in state law because many projects we see in urban infill locations take advantage of the Density Bonus Law, but the bonus is not always enough. Now, these projects can further increase their height and density, eliminate parking, and apply four incentives to make the development more affordable. These bonuses will help increase unit count, increase affordability, and reduce the per-unit cost of development. Another promising aspect of this legislation is that it incentivizes housing for middle class. Moderate income families have been an overlooked segment of the California population.

For a state that wants to encourage mass transit, this legislation should be a strong incentive. A “major transit stop” means a rail station, a ferry terminal with bus or rail service, the intersection of two or more major bus routes with service every 15 minutes during commute periods, or a high-quality transit corridor included in a regional transportation plan. To put it differently, these incentivized development locations will include sites near Caltrain stations, SMART train stations, AMTRAK stations, BART stops, bus stops, ferry terminals, and more. According to Metropolitan Transportation Commission data, there are more than 6,000 major transit stops in the San Francisco Bay Area. According to the Southern California Association of Governments, there are thousands more major transit stops in the greater Los Angeles area.

AB 1485 – Wicks (Oakland)

AB 1485 is another new law focused on increasing density and increasing moderate-income housing production at urban infill locations. The Density Bonus Law currently allows jurisdictions to include underground space, such as basements and underground parking garages, toward the square footage of a development. In other words, this underground space, sometimes required by a jurisdiction to meet parking requirements, is included in floor area calculations and puts a limit on the intensity of development. This new law eliminates underground space as part of the floor area calculation and, as a result, gives a boost to developable space on a site.

This bill also enhances the streamlining process for infill developments created by SB 35 in 2017 because it adds permit streamlining for moderate-income development projects within the San Francisco Bay Area. Assembly staff analysis points to Cupertino, Berkeley, and San Francisco as cities where the streamlining of affordable housing development is set to make an impact.

Finally, this bill eliminates California Environmental Quality Act (“CEQA”) review for certain projects located on Bay Area Rapid Transit (“BART”) owned property. It also eliminates CEQA review for the sale of BART-owned property. This will impact sites where BART itself is planning projects, including possible projects in Berkeley, Concord, Oakland, and San Francisco, for example. It will also impact land BART may sell. According to BART, the agency is considering the sale of agency-owned land in El Cerrito, Hayward, Oakland, Walnut Creek, Richmond, San Leandro, San Lorenzo, and Union City. This law has the potential to streamline housing development on significant amounts of Bay Area land.

ADUs

This year, a package of new ADU laws will encourage housing development at an individual scale. In particular, AB 68, AB 881, and SB 13 will encourage the development of ADUs and junior ADUs. These new laws address the ways local governments indirectly discourage the development of ADUs. Features of the new laws include capping setback requirements, prohibiting lot coverage and floor area ratio calculations for ADUs, prohibiting replacement parking requirements when a garage is converted to an ADU, and restricting owner-occupancy requirements. These new ADU laws will encourage smaller increases in density in residential neighborhoods, outside of the types of large developments discussed above, but will nonetheless increase the affordable housing stock in California.

Please keep in mind that there are many subtleties to both new and existing law. Please contact Reuben, Junius & Rose, LLP for more information.

Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein.

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

Statewide Rent Control & Eviction Protections Signed into Law

October 16, 2019November 5, 2019 | Sabrina Eshaghi

For over 20 years, Costa Hawkins has set the parameters for rent control in California by limiting a city’s ability to enact rent control regulations that apply to units built after 1995. Many local rent control ordinances provide a much earlier cutoff than what is permitted under State law. For example, San Francisco’s rent control ordinance applies to housing built before June 1979. And although cities are allowed to enact rent control ordinances within the limits set forth under Costa Hawkins, many have not.

AB 1482, which was authored by Assemblymember David Chiu and signed into law by Governor Gavin Newson last week, upends the current system by mandating a statewide rent cap for housing built more than 15 years ago, which will apply on a rolling basis. The legislation will also provide statewide eviction protections in cities that do not already provide their own just cause eviction ordinance. According to the California State Assembly’s analysis, AB 1482 will affect nearly three million households across California.

Rent Cap

Beginning on January 1, 2020, AB 1482 will apply a cap on annual rent increases of 5% plus the percentage change in the Consumer Price Index or 10%, whichever is lower. The legislation does not affect vacancy decontrol, meaning owners are able to set initial rents for new tenancies. After the initial rent is set, the cap will apply to any subsequent increases.

This legislation applies to all units that have been issued a certificate of occupancy more than 15 years ago. This 15-year exemption applies on a rolling basis. That means starting in 2020, units built in 2005 will be subject to the rent cap. In 2021, units built in 2006 will be subject to the rent cap, and so on until 2030 when the legislation expires.

AB 1482 will not apply to units in cities that are already subject to lower rent caps. Therefore, it will not preempt San Francisco’s existing rent control provisions for housing constructed prior to June 1979. However, housing units built after June 1979 that have received a certificate of occupancy more than 15 years ago will be subject to the rent cap.

Aside from exempting units built within the last 15 years, AB 1482 also exempts:

Duplexes if one of the units is owner-occupied;
Dorms;
Affordable housing units; and
Single-family homes or condos that are not owned by a real estate investment trust, a corporation, or an LLC where one member is a corporation, if the tenants were provided notice of the exemption.

Just Cause Eviction

The just cause eviction protections set forth under AB 1482 only apply to cities that have not enacted their own just cause eviction ordinance prior to September 2019, so the legislation will not apply in San Francisco. AB 1482’s eviction protections will apply in all other cities unless new local ordinances enacted after September 2019 are more protective than AB 1482.

In cities where AB 1482’s eviction protections apply, tenants that have legally occupied a unit for more than 12 months cannot be evicted without just cause. The legislation provides two categories for just cause evictions—at-fault and no-fault. An at-fault eviction applies in the following circumstances:

Nonpayment of rent;
Breach of a material term of the lease;
Nuisance, waste, criminal activity, use of the unit for an unlawful purpose;
Failure to sign a written extension or renewal of the lease;
Assigning or subletting in violation of the lease;
Refusal to allow the owner to enter the unit; or
Failure to vacate after terminating the lease.

A no-fault just cause eviction applies when the owner withdraws the unit from the rental market, intends to demolish or substantially renovate the unit, moves into the unit (also applies to the owner’s family members), or when the unit is required to be vacated under a local ordinance or due to a court order. For no-fault evictions, the owner must either provide relocation assistance in the amount of one month’s rent or waive the final month’s rent.

Written notice of these protections must be provided for all new tenancies and to all existing tenants by August 2020. Like the rent cap provisions, the eviction protections are set to expire on January 1, 2030.

The just cause eviction protections do not apply to housing that was issued a certificate of occupancy within the last 15 years, owner-occupied units, ADUs in owner-occupied single family homes, duplexes if the owner occupies one of the units, affordable housing units, dorms, hotels, and certain residential care facilities. The legislation also exempts single-family homes and condos that are not owned by a real estate investment trust, a corporation, or an LLC where one member is a corporation, if the tenants were provided notice of the exemption.

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

COPA is Here – Now What?

October 2, 2019October 21, 2019 | Tuija Catalano

The Community Opportunity to Purchase Act (COPA) was approved unanimously earlier this year. COPA legislation became effective on June 3, 2019, however, the COPA program rules were not published until September 3, 2019 by the Mayor’s Office of Housing and Community Development (MOHCD). The COPA program applies to the sale of all San Francisco multi-family rental housing developments with three (3) or more units, and all vacant lots that could be constructed with three (3) or more residential units by right. COPA essentially changes the way in which multi-family rental projects (and certain vacant lots) can be sold by providing certain nonprofit organizations a right of first offer and in some instances a right of first refusal.

Before a multi-family residential building (or vacant lot) with three (3) or more units can be offered for sale, the owner is required to notify certain nonprofit organizations that are on a “Qualified Nonprofit” list maintained by the City. The Qualified Nonprofit list at this time contains six (6) nonprofits. The initial “Notice of Sale” must be made via email, and should be sent to all Qualified Nonprofits at the same time. The Notice of Sale must include statements indicating: (a) seller’s intent to sell the building, (b) the number of residential rental units, (c) the address for each rental unit, and (d) the rental rate for each unit. Qualified Nonprofits then have five (5) days to notify the owner if they are interested in making an offer. If a Qualified Nonprofit expresses interest in buying the building, the owner must provide further disclosures to the interested nonprofit, including the name and contact info for each tenant, which triggers an additional 25-day period during which the Qualified Nonprofit may submit an actual offer. If none of the Qualified Nonprofits expresses an interest in making an offer within the initial 5-day period, the owner may proceed in offering the building for sale and may solicit officers for purchase.

If a Qualified Nonprofit expresses interest during the initial 5-day period, and thereafter during the 25-day period makes an offer, an owner is not required to accept an offer, however, any Qualified Nonprofit that made an offer that was rejected maintains a Right of First Refusal. Under the Right of First Refusal, the owner is required to provide notice to the Qualified Nonprofit(s) that includes the same terms and conditions that were received from the 3^rd party purchase offer.

Similarly, in the event the owner fails to provide the initial 5-day Notice of Sale before offering the building for sale, the Qualified Nonprofits are entitled to receive notification of their Right of First Refusal, followed by a 30-day offer submittal period.

If a building is purchased by a Qualified Nonprofit, the existing tenants are entitled to displacement protection and the building would be restricted as rent-restricted affordable housing in perpetuity, at 80% AMI level. A sale to a Qualified Nonprofit is also subject to a partial transfer-tax exemption.

Under COPA, all multi-family building (and vacant lot) sellers are required to provide a signed declaration to the City, under penalty of perjury, within 15 days after the sale, affirming that the seller complied with the COPA requirements. Seller’s failure to comply with COPA could result in damages in an amount sufficient to remedy the harm to the Qualified Nonprofits and e.g. in penalties in the amount of 10% of the sales price for the first willful or knowing violation, 20% for the second willful or knowing violation, and 30% for any subsequent willful or knowing violation.

Authored by Reuben, Junius & Rose, LLP Attorney Tuija Catalano.

ALERT: Jobs Housing Linkage Fee on Offices Could Increase

September 17, 2019October 21, 2019 | Daniel Frattin and Justin Zucker

This Thursday, the Planning Commission will consider legislation to more than double the Jobs Housing Linkage Fee (“JHLF”) on both office and laboratory uses. The Jobs Housing legislation is authored by Supervisor Matt Haney and co-sponsored by five other supervisors (Fewer, Ronen, Mar, Peskin, and Walton) who, together, comprise a majority of the Board of Supervisors.

The JHLF was first established in the 1980s and applies to commercial projects over 25,000 square feet. In May of this year, Supervisor Haney introduced legislation to increase the JHLF on office to $38.00 per square foot, an approximate $10 increase over the current rate. Last week, Supervisor Haney modified the legislation to propose an office rate of $69.60 per square foot and a rate of $46.43 per square foot of lab space. A comparison of current and proposed rates follows:

The legislation does not include grandfathering for pipeline projects. For most projects, the higher fee would be collected at the “first construction document” (usually a building permit or foundation addendum to a site permit) for a project. However, the higher fee could also be retroactively collected from projects with issued permits if they were approved by the Planning Commission or Department before the end of 2019 with a condition that they would be subject to a higher JHLF. Prior to receiving a Certificate of Occupancy, these projects would be required to pay the difference between any fee assessed at site permit issuance and the higher fee effective when the Certificate of Occupancy is issued.

The Planning Department has expressed its support for “the overarching aim of the Ordinance” to generate funding for affordable housing, but expressed strong concerns about the proposed rates:

“Imposing development impact fee rates above those found feasible would postpone or halt the construction of a Development Project. Any public benefit revenue or public improvements that were expected from such projects would not materialize and would necessarily be postponed or abandoned until such time as market conditions or policy changes make the rates feasible…[H]undreds of millions of dollars’ worth of public recreation and open space projects, pedestrian and bicycle safety improvements, cultural preservation, and affordable housing would not materialize with an infeasible rate.”

Planning staff recommends setting the rate for office uses no higher than $38.57 per square foot “in accordance with feasibility assessments” prepared by the city’s consultants earlier this year. Because those assessments did not include an analysis of laboratory uses, Planning staff “cannot recommend increasing rates for this use.”

In fact, the feasibility assessment prepared for the City concluded that “[n]one of the tested office prototypes appears financially feasible based on current market conditions.” A combination of construction and land costs, along with other newly imposed community benefit costs, including impact fees, special “community facilities” taxes, and Prop. C commercial rent taxes, have added to the overall cost burden. Further fee increases only became feasible when a hypothetical 25 percent reduction in land value and construction cost were factored in, along with a hypothetical 13 percent increase in rent. With those assumptions, three of six prototypes are thought to be feasible with a $5/gsf increase in the JHLF; only one of six would be feasible with a $10/gsf increase.

The Planning Commission will hear the legislation this Thursday afternoon in City Hall, Rm. 400. The agenda, including supporting documents for the JHLF legislation, is available here: https://sfplanning.org/sites/default/files/agendas/2019-09/20190919_cal.pdf.

Authored by Reuben, Junius & Rose, LLP Attorney’s Daniel Frattin and Justin Zucker

San Francisco Tax Battles Continue

July 10, 2019October 21, 2019 | Corie A. Edwards

Much has been written about the social ills facing the greater San Francisco Bay Area, what solutions have potential to make an impact, and to what extent the business community should be required to fund them. Debate raged in advance of the November 2018 election, when approximately 61% of San Francisco voters passed a gross receipts tax on some businesses to fund homelessness and mental health services. The arguments were revisited in June of 2018, when competing commercial rents tax measures were proposed to provide additional funds to housing and homeless services or fund childcare and early education. The latter measure passed with approximately 50.87% of the vote.

The validity of both voter-initiated tax measures has been subject of litigation filed in the Superior Court for the City and County of San Francisco. The actions claim that the initiatives cannot lawfully impose the special taxes because they received only a simple majority of the vote, in violation of the California Constitution’s requirement that taxes imposed by local governments receive a two-thirds supermajority. The measures were also challenged under the San Francisco Charter.

On Friday, July 5, 2019, San Francisco Superior Court Judge Ethan P. Schulman upheld the validity of both initiatives, and determined that a simple majority of the vote was sufficient to support their passage. The rulings are well summarized by the following comment from the order on the June 2018 measure:

the procedural two-thirds vote requirement . . . of the California Constitution that limit[s] the Board of Supervisors’ authority to impose new taxes does not apply to the voters’ initiative power, either directly under those provisions or indirectly under the San Francisco Charter.

The Court evaluated claims that the June 2018 measure was placed on the ballot by a member of the San Francisco Board of Supervisors in an effort to end-run the requirement of a supermajority vote. The argument invited the Court to view the initiative as a legislative initiative rather than a voter initiative. The Court rejected the arguments, based on a variety of earlier rulings regarding voter initiatives, including a 2017 decision by the California Supreme Court regarding an initiative that imposed licensing and inspection fees of medical marijuana dispensaries. Similar analysis appears in the order regarding the November 2018 initiative.

Given the magnitude of the Court’s decisions, appeals are expected.

Coincidentally, the decision on the tax measures was issued on the same date on which the 2019 San Francisco Homeless Point-in-Time Count & Survey was released by the San Francisco Department of Homelessness and Supportive Housing. The report concluded, that as of January 2019, there were over 8,000 homelessness people living in San Francisco, a 17% increase over the 2017 count, and a 14% increase between 2013 and 2019.” It comments: “Unstable living conditions, poverty, housing scarcity, and many other issues often lead individuals to fall in and out of homelessness . . . [i.e.,] the experience of homelessness is part of a long and recurring history of housing instability.” Although there has been suggestion that the survey actually undercounts the homeless population in San Francisco, there can be no question that homelessness is a problem that is getting worse.

There are myriad differences of opinion about how to address homelessness and other social ills facing San Francisco and other California jurisdictions. However, the Court’s decision on the June 2018 and November 2018 tax measures will likely yield more efforts by state residents to tax the business community in an effort to fund possible solutions.

Commercial property owners should consider the financial risks associated with voter-initiated tax measures, and may wish to include provisions in their lease agreements that allow such special taxes to be passed through to commercial tenants as operating expenses. As the characterization of such taxes continues to evolve – from payroll taxes, to gross receipts taxes, to commercial rent taxes – limited definitions of “operating expenses” may prevent property owners from recovering property-related expenses from commercial tenants, resulting in diminished property values.

Stay tuned.

Authored by Reuben, Junius & Rose, LLP Attorney, Corie Edwards

New State Condo Law Protects HOAs from Financial Fraud and Embezzlement

March 13, 2019October 21, 2019 | Jay Drake

Responding to reported cases of fraud and embezzlement against homeowners associations (“HOAs”), the California Legislature enacted Assembly Bill 2912 (“AB 2912”), which became effective on January 1, 2019. AB 2912 amends the Davis-Stirling Common Interest Development Act by adding safeguards to protect HOAs for common interest developments by increasing HOA board of directors (“Board”) oversight over the HOA’s financial accounts, establishing tighter control over monetary transfers, and generally protecting HOAs from financial fraud.

The key provisions of AB 2912 are summarized below:

Civil Code Section 5380 has been amended to prohibit an HOA’s managing agent from making transfers of greater than Ten Thousand Dollars ($10,000) or five percent (5%) of an HOA’s total combined reserve and operating account deposits, whichever is lower, without prior written approval of the Board.
Civil Code Section 5500 now requires an HOA Board to review the HOA’s financial statements monthly (rather than quarterly under the prior law). The Board’s review must now include more complete financial statements and HOA account records.
Civil Code Section 5806 requires that HOAs maintain fidelity bond insurance providing coverage for dishonest acts, including computer fraud and funds transfer fraud, by an HOA’s managing agent and their employees, in addition to the HOAs’ directors, officers and employees. The coverage must be in an amount equal to or more than the combined amount of the reserves of the HOA and the total assessments of the HOA for three (3) months.

HOA Boards and managers should review their procedures to make sure they comply with the new legal requirements. While AB 2912 may increase the burden on HOA Boards and HOA managers, the new rules will help to ensure that HOAs maintain control over their finances and protect the investments of home owners.

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake

2016 End of the Year Legislation Round-Up

December 16, 2016December 10, 2019 | Melinda Sarjapur

Mayor Vetoes Proposed Short-Term Rental Restrictions

Mayor Ed Lee vetoed legislation last week that proposed additional restrictions on the short-term rentals in the City. The legislation, which was introduced by Supervisors Breed and Peskin and approved 7-3 by the Board of Supervisors on November 29th, would have restricted short term rentals not already registered with the City to 60 days per year, regardless of whether the host was present. The legislation would also have narrowed the group of people that are allowed to bring a private right of action against owners violating the City’s short-term rental laws.

The Mayor’s veto means that the City’s current short term rental law will likely remain intact for now, as the Board would need a vote of eight supervisors within 30 days to override it.

The City’s current short-term rental law, which was passed in 2014, restricts rentals of residential units for less than a 30-day period unless done by a permanent resident of the unit, who registers it with the Office of Short Term Rentals. Short term rentals are currently capped at 90 days a year for un-hosted rentals (where the owner is not in the unit when it is rented), and are unlimited for hosted rentals. The legislation also provides that a permanent resident must reside in the unit for at least 275 days per year.

According to a San Francisco Chronicle article dated December 9th, the Mayor wrote in his veto letter that the proposed legislation would make enforcement of the current law more difficult and less effective, and would drive even more people to illegally rent units. The move may also reflect the will of the electorate, as San Francisco voters rejected a less-severe 75-day cap on short-term rentals proposed in November 2015.

It’s likely that we’ll see alternative measures proposed to increase regulation of the City’s short-term rentals in the future, as they’ve been the subject of considerable controversy over the past few years. As reported by the Chronicle, only about 1,700 out of an estimated 8,000 to 10,000 hosts in the city are currently registered as required by the legislation, complicating enforcement.

Small Sites Program Adopted by the Board of Supervisors

This Board of Supervisors passed legislation this week amending the City’s Inclusionary Housing Program to allow sponsors of small projects (those comprised of 24 or fewer units) to meet their Program requirements by designating their Fee payment into a Small Sites Program overseen by the Mayor’s Office of Housing and Community Development (“MOHCD”). The designated funds would then be used to acquire or rehabilitate “Small Sites” located in the same neighborhood as the development project.

Qualifying “Small Sites” eligible to receive designated funds under this program must meet the existing requirements for the City’s Small Sites Program under the Planning Code, including that they be: (1) rental properties that will be maintained as rental properties; (2) vacant properties that were formerly rental properties as long as those properties have been vacant for a minimum of two years prior to the effective date of this legislation; (3) properties that have been the subject of foreclosure; or (4) a Limited Equity Housing Cooperative as defined in City’s Subdivision Code or a property owned or leased by a non-profit entity modeled as a Community Land Trust.

As noted by the Planning Department, these Small Sites are typically rental properties subject to the City’s Rent Ordinance that are occupied by long-term tenants at risk of eviction and displacement. Some Small Sites also have street-level retail or commercial uses. When acquired by the MOHCD, they become permanently affordable housing.

The legislation also provides that if the MOHCD is unable to identify and apply the fee to a qualifying Small Sites project within the same neighborhood within two years of the fee payment, the fee would then be released into the City’s Affordable Housing Fund for use on Small Sites projects elsewhere in the City.