Letter From DBI Interim Director

Recently the San Francisco Department of Building Inspection sent a letter to it’s customers regarding permitting services.  Reuben, Junius & Rose, LLP is notifying you of this letter as a courtesy for being a client and friend of the firm.  Please contact us should you have any further questions. (DBI Letter)

New/Pending Local and State Rent Protections

Rent Protections

San Francisco Rent Increase Moratorium:

Last week, the Board of Supervisors unanimously passed an emergency ordinance that would temporarily prohibit rent increases otherwise permitted by the Rent Ordinance.

Initially introduced by Supervisor Peskin, the ordinance is based on a finding that prohibiting rent increases will reduce risk of displacement, “which is essential for public health .  . . and will help ameliorate the broader economic effects of the [COVID-19] emergency.”

The legislation is backdated to an effective date of April 7, temporarily suspending a landlord’s right to impose rent increases that are otherwise permissible under Administrative Code Section 37.3(a). This means that for units covered by the Rent Ordinance, landlords will not be able to impose even those rent increases that the Rent Ordinance generally allows—including annual rent increases, banked increases, and capital improvement increases.

Once the moratorium on rent increases is lifted, a landlord will be able to reinstate a rent increase that was deferred by the moratorium—i.e. if a landlord sent notice about a permissible annual rent increase that would have taken effect May 1 but is now deferred by the moratorium, that increase could be reinstated when the moratorium is lifted. Reinstating a deferred increase will require tenant notice. Once the moratorium is lifted, rent increases will apply prospectively from the date of the notice, without an allowance for additional amounts that the landlord could have imposed earlier had the moratorium not applied.

The ordinance would expire after 60 days, unless re-enacted by the Board. The ordinance can be reviewed here.

Proposed Statewide Unlawful Detainer Moratorium – AB 828:

Assemblymember Phil Ting’s state proposal goes even further than San Francisco’s ordinance. In addition to prohibiting foreclosure of residential property until 15 days after a state or local COVID-related state of emergency ends, AB 828 would also prohibit rental evictions and allow a court to order a 25% rental reduction for defendants in unlawful detainer actions.

The 25% rent reduction could be granted by a court as part of an unlawful detainer action that includes a cause of action for a person continuing in possession without permission of their landlord. More specifically, the bill would allow a defendant to an unlawful detainer action to submit a notice and request for an order pursuant to this provision. Following that notice, if the court determines that a tenant’s inability to pay rent is attributable to COVID-19—and that the rent reduction would not be a material economic hardship on the landlord—the court would be required to issue an order allowing the tenant to remain in the subject property, reducing the subject rent by 25% for the next year, and requiring the tenant to make the reduced rent payments beginning the next calendar month.

The tenant would have the burden of showing that the inability to pay rent is the result of increased costs for household necessities or decreased earnings due to COVID-19. However, any such increased costs or decreased earnings that occurred between March 4, 2020 and March 4, 2021 will be presumed to be a result of COVID-19.

If the court finds that the tenant’s inability to pay rent is a result of COVID-19, the landlord will have an opportunity to show that a rent reduction would result in “material economic hardship.” The bill defines “material economic hardship” as having “to limit spending on household necessities.” “Reduction in savings, profit margins, discretionary spending, or nonessential assets” would not qualify.

For owners of 1-2 rental units, the court will presume such a hardship; but for owners of 10 or more rental units, the court will not presume a hardship. In considering whether an order under this section would constitute a material economic hardship for the landlord, the bill directs the court to keep in mind “that the common economic hardship resulting from the COVID-19 virus is not the fault of any one person or group of people and so must ordinarily be born by both landlords and tenants.”

If passed, the unlawful detainer moratorium and rent reduction provisions would remain effective until 15 days after a state or local COVID-related state of emergency ends. The full bill can be reviewed here.

 

Authored by Reuben, Junius & Rose, LLP Attorney Chloe Angelis

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

 

 

 

Supervisor Ronen Proposes to Remove Most Office Uses in UMU Districts

Office Use

On Tuesday, February 11th, Supervisor Ronen introduced legislation that would greatly curtail the amount of office use that can go into buildings in Urban Mixed Use (“UMU”) Zoning Districts.  The legislation, available here, will prohibit all general office and allow “client-oriented” office uses at the ground floor with a Conditional Use Authorization.

UMU Districts were created through the Eastern Neighborhoods Area Plan, adopted by the Board of Supervisors in 2009.  The intent of the UMU Districts was to function as a buffer zone between the more restrictive residential and neighborhood commercial districts and the industrial PDR districts.  Uses such as light manufacturing, arts activities, laboratory, business service, and retail are encouraged. Housing is also permitted but is subject to higher affordability requirements.  UMU Districts are primarily located in Eastern Mission, Potrero Hill south of 16th Street, Showplace Square/West SoMa, and the Dogpatch neighborhoods. These areas have historically contained warehouse style buildings that contain a mix of uses interspersed with housing.

The intent in UMU Districts is to locate office use on the upper floors, keeping the ground floors available for more “public-facing” uses, such as traditional retail.  Only office uses that have a “client-oriented” business model, such as doctors offices, accountants, real estate brokers, and the like are permitted at the ground floor. General office use, such as an advertising agency and technology offices, are limited to the upper floors.

Currently, office uses are regulated in UMU Districts through “vertical controls” based on the height of a building.  A two-to-four story building can have 1 floor of office use; five-to-seven story building can have 2 floors of office use; and 8 or more story buildings can have 3 stories of office use.

Under Supervisor Ronen’s proposal office uses would be prohibited on the upper floors throughout UMU Districts.  Exceptions would still exist for qualifying landmark buildings.  The other notable change is that “client-oriented” office uses would be allowed at the ground floor but require a Conditional Use Authorization from the Planning Commission.  As proposed, there are no grandfathering provisions for projects currently under review.

Since the legislation was recently introduced, there are no Planning Department or Legislative Analyst reports or recommendations available.  The Planning Commission must review and make a recommendation on the proposed legislation within 90 days, after which it will return to the Board of Supervisors.  We will keep track of this legislation and provide updates when they become available.

 

 

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, subdivisions and condominium work.

 

SB 50 Revamp: The More HOMES Act Amended

SB 50 Housing

SB 50, The More HOMES Act introduced by San Francisco State Senator Scott Wiener in December 2018 was reintroduced with amendments earlier this week. The reintroduction comes after SB 50 was held by the Appropriations Committee last spring by State Senator Anthony Portantino.

SB 50, which we have previously reported on, seeks to address California’s housing crisis by requiring cities to allow increased density for housing projects near “high-quality” transit stops or “jobs-rich areas.” In addition, SB 50 would streamline permitting for multifamily housing developments up to 4 residential dwelling units that are code complaint per the zoning requirements in place as they existed on July 1, 2019. For such projects, the bill would establish a streamlined ministerial approval process, thereby exempting them from the California Environmental Quality Act (“CEQA”) approval process. And SB 50 would prohibit a local agency from adopting any requirement that applies to a project solely or partially on the basis that the project receives ministerial or streamlined approval.  Not surprisingly, opponents of SB 50 continue to express concerns regarding its incentive program taking away local control and the likely displacement of locals through gentrification.

There is an estimated shortfall of 3.5 million units of housing in California that is the result of a decade of low housing production. SB 50 enables the production of more housing and requires larger projects to set aside 15% to 25% of homes to low-income residents. SB 50 aims to increase density in residential areas by making it legal to construct small apartments complexes, such as triplexes and fourplexes, in single-family neighborhoods and up to six-story buildings adjacent to “high-quality” transit.

In order to address the local push back, the following amendments have been added:

  • Gives local governments flexibility – local flexibility plans – for how they implement SB 50’s requirements;
  • A priority preference program for local low-income residents; and
  • Continues to provide a two-year implementation delay for “potentially sensitive communities” and five-year implementation delay for “sensitive communities.” These are generally defined as communities that are vulnerable to gentrification.

Local Flexibility Plans

In lieu of being subject to SB 50, local governments may submit a “local flexibility plan” that crafts their own housing plans. The local flexibility plan must create at least the same number of new units as would be allowed under SB 50.

By July 2, 2021, the Governor’s Office of Planning and Research shall publish rules, regulations, or guidelines for the submission and approval of a local flexibility plan. Local governments will have to submit their local flexibility plans to the Department of Housing and Community Development for review and approval. If the local flexibility plan is certified by the Department of Housing and Community Development, the local government would not be required to grant the incentives provided under SB 50.

To prevent a local government from concentrating new housing in certain areas, a local flexibility plan cannot result in increased vehicle miles traveled and must distribute new housing equally among both lower-income and more affluent areas. The goal being to add housing near jobs to reduce residents’ commutes, and in turn help the state reach its greenhouse gas reduction goals.

Priority Preference Program

In an effort to prevent displacement of low-income residents from their neighborhoods, individuals living within one-half mile of the housing development will receive priority for some of the project’s homes. Forty percent of a housing development’s affordable housing units are to be reserved for low income, very low income, and extremely low-income households living within one-half mile. Note, SB 50 does not include a provision for the creation of guidelines on implementation of the priority preference program.

Sensitive Communities

By July 1, 2023, “sensitive communities” in each county shall be identified by a working group comprised of residents of potentially sensitive communities within the county. The working group will develop a map of sensitive communities within the county to be adopted by the board of supervisors or council of governments, as applicable. And implementation of SB 50 would be delayed until January 1, 2026, for the identified “sensitive communities.” For “potentially sensitive communities,” implementation of SB 50 would be delayed until July 1, 2023.

Senator Wiener has indicated that housing is his top legislative priority this year. And he is likely to have a receptive ally from Governor Gavin Newsom who has pledged to have 3.5 million new homes built by 2025.

SB 50 has until January 31, 2020, to pass the State Senate otherwise the proposal officially dies in the legislature.

 

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.

Trial Court Challenges to State Housing Laws

In the last few weeks, two California trial courts interpreted state housing development laws—SB35 and the Housing Accountability Act—in ways that limit their applicability to cities. While trial court opinions are not binding on other courts, these decisions may give development opponents tools to slow the creation of new housing supply. The decisions are summarized below.

Ruegg & Ellsworth et al. v. City of Berkeley et al.

When first passed in 2017, SB35 (authored by Senator Wiener) sought to streamline the approval process for affordable housing. For two years it has done that. Some of its provisions have also been expanded.

Notably, SB35 faced mixed support in the Senate. It was supported by the cities of San Francisco, Sacramento, Oakland, San Jose and Los Angeles. It was also supported by private companies, chambers of commerce, and housing advocates. At the same time, it was opposed by nearly 90 cities across the state, including the City of Berkeley.

The City of Berkeley lawsuit is rooted in a mixed-use project (multi-family over retail) at the parking lot next to well-known Spenger’s Restaurant on 4th Street. The City of Berkeley denied the streamlined ministerial approval allowed under SB35 (i.e., without discretionary review) based on an argument that the project would require demolition of an “historic structure,” specifically an historic shell mound buried under the site.  Projects that require demolition of “historic structures” are exempt from the SB35 process.

The Alameda County Superior Court applied a very deferential standard when reviewing the City’s decision, concluding that the City’s decision could only be overturned if it was “entirely lacking in evidentiary support.”  While the project sponsor provided relevant studies showing that no intact remnants of the shell mound still existed, the City had relied on a study of the site from 2000 that concluded one boring sample “probably represents a remnant” of the shell mound.  This lone statement in a twenty-year-old study was enough for the Court to uphold the City’s determination that the project would require demolition of an historic structure.

While the Court’s determination on this point was enough to uphold the City’s decision, the Court didn’t stop there.  The Court also limited the application of SB35 to mixed-use projects in general.  Taking a very narrow reading of SB35, the Court concluded that SB35 only applies to mixed use projects when the zoning requires at least two thirds of a mixed-use project be designated for residential use.  This reading of the statute would eliminate its application to most if not all mixed use projects.

For both reasons, the Court held that Berkeley’s denial of the Spenger’s project was appropriate.

SFBARF et al. City of San Mateo et al.

The Housing Accountability Act (“HAA”) was passed in 1982 and has been modified several times since.  The HAA generally forbids a city or county from reducing the density of, or denying approval of, a housing project that complies with objective general plan, zoning, and subdivision standards and criteria unless the project will have a specific adverse impact to public health and safety that cannot be mitigated in any other way.

In the City of San Mateo lawsuit, a developer applied for a 10-unit condominium project. The City denied the project based on an alleged failure to comply with the City’s Multi-Family Design Guidelines, specifically to set back upper floors of a project that exceeds the height of neighboring buildings. Housing advocacy groups then sued the City.

The San Mateo County Superior Court upheld the City’s decision to deny the project based on its conclusion that the City’s Multi-Family Design Guidelines were objective criteria.  The Court rejected the plaintiffs’ arguments that design guidelines were fundamentally subjective.  Instead, it endorsed the City’s argument that there was a way to apply the guidelines objectively.

Here again, while this determination was sufficient to decide the case, the Court did not stop there.  The Court also concluded that the HAA is inapplicable to a charter city (like San Mateo) because it would violate the “home rule” doctrine that allows charter cities to legislate without state interference in areas that are “municipal affairs.”  This remarkable interpretation of the HAA would eliminate its application—and potentially the application of other state housing laws—in 121 charter cities in California, including San Francisco, Oakland, San Jose, Sacramento, and many others.

Conclusion

If upheld, the Berkeley and San Mateo decisions could hamper housing production statewide.  The Berkeley decision provides an arrow in the quiver of project opponents – when an SB35 project is proposed, they will argue that exemptions (like the “historic structures” exemption) eliminate the potential for ministerial review and reject SB35 processing for many if not all mixed-use projects.  The San Mateo decision would blur the distinction between subjective and objective criteria, likely leading to additional litigation, and eliminate the application of the HAA (and potentially other state housing laws) in charter cities, which include some of the largest housing centers in the state.

These are fluid areas of law. Keep in mind these are trial court decisions and are not binding on other courts, though they will likely be used by project opponents to create delay and confusion regarding housing project approvals. These cases will likely be appealed, and the appeals court decision will carry real weight. We will be watching closely for the result of those appeals.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein & Matthew Visick

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

Statewide Rent Control & Eviction Protections Signed into Law

Rent protections

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.

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.

 

COPA is Here – Now What?

COPA

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 3rd 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.

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.

 

ALERT: Jobs Housing Linkage Fee on Offices Could Increase

Jobs Housing

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

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.

Confirming A Defense To An Ellis Act Eviction

Ellis Act Eviction

The Ellis Act allows owners of residential real estate to take their properties off the rental market if they fulfill certain conditions, including the removal of all units at the property from the rental market.  A recent case entitled Hilaly v. Allen clarified one of the specific conditions precedent to an Ellis Act “eviction” and discussed the impact of a residential estoppel in the context of such eviction.  (2019 WL 2500495, Filed May 21, 2019).

As part of any Ellis Act eviction process: (1) the tenants must be notified of the intent to withdraw the unit, (2) the tenants must have sufficient move out time (one year in the case of an eligible or disabled tenant), and (3) during the notice period, the tenancy must continue on the same terms and conditions as existed prior to the notice of removal from the rental market.  In Hilaly, the owner of the San Francisco property (Hilalys) decided to recover possession of its property and issued an Ellis Act eviction notice to the tenants at the property, which included an elderly and disabled tenant named Allen.

Allen had an oral lease at the property with the prior owner for an apartment and use of a garage and driveway at the property.  During the Hilalys purchase of the property, a questionnaire was issued to Allen with no explanation of its significance.  The questionnaire included a question whether parking was included at the property and if so, what was the space number.  Allen stated no to the question because, although she had driveway and garage rights, she didn’t have the right to a numbered parking space.  The Hilalys thereafter closed on the property and later issued this Ellis Act eviction notice to the tenants.  During the one-year notice period (as to Allen’s lease due to age and disability), the Hilalys started using the driveway and blocked Allen’s access to use the same.

Allen set out to defeat the Ellis Act eviction on the premise that the owner changed a tenancy term when they blocked Allen’s access to the driveway and garage during the one year notice period.  The Hilalys argued that the Ellis Act confers a landlord with the unfettered right to leave the residential rental business and the requirement to maintain the tenancy on the exact same terms contradicts settled law which bars habitability defenses to an Ellis Act eviction.  As such, the removal of the driveway rights, even if it made the premises less habitable, did not negate her right to possession and was not a defense to the Ellis Act eviction.  The Court agreed with the premise that a withdrawing owner is relieved of affirmative repair obligations during the notice period, but also found that a landlord must refrain from taking affirmative steps to reduce an elderly or disabled tenant’s leasehold during the notice period.  The Court agreed with Allen and found that the owners unlawfully changed a term of Allen’s tenancy during the one-year notice period, and as such, allowed for an affirmative defense to the eviction.

The Hilalys also alleged that even if the Ellis Act supported such a defense for “change in tenancy terms”, Allen was barred from using such a defense based upon Allen’s answer to the questionnaire stating no parking or driveway rights were included in her lease.  Therefore, there was not a change in a term of tenancy since she confirmed no such rights  existed.  The Court again held for Allen stating that this questionnaire was not a contract and Allen was not bound by contract to complete the questionnaire.  Also, the questionnaire did not state that Allen’s answers would be binding on her leasehold.  The Court in Hilaly differentiated an estoppel in a commercial context stating that a commercial estoppel binds the tenant to its factual statements, in part because the parties in a commercial transaction have more equal bargaining power and share a widespread understanding that estoppel certificates are binding and relied upon.

The Hilaly case illustrates that a landlord must conform to very strict procedures to ensure an Ellis Act eviction will not be defeated, including that any term of the lease must remain the same during the required notice period.  Further, the Court in Hilaly confirmed that an informal “estoppel” in a residential context carries less weight than an estoppel in a commercial context and that a residential tenant may not be held accountable for statements made within said estoppel.

 

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

 

Borrower’s Deficiency Protection Limited – Lenders May Pursue Claims for Sold Out Junior Loans

Sold out Junior Loans

This month, the California Supreme Court affirmed the Fourth District’s decision in Black Sky Capital, LLC v. Cobb (2017) 12 Cal.App.5th 887 (“Black Sky”), ruling that a creditor who holds two deed of trust on the same property may recover a deficiency judgment on a junior lien extinguished by a nonjudicial foreclosure sale on the senior lien.

In so holding, the California Supreme Court applied a strict construction of Code of Civil Procedure section 580d, which reads, in part, “…no deficiency shall be owed or collected, and no deficiency judgment shall be rendered for a deficiency on a note secured by a deed of trust or mortgage on real property or an estate for years therein executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.” CCP §580d(a).

Relying on the plain language of section 580d, the California Supreme Court emphasized that the statute precludes a deficiency judgement on a note secure by a deed of trust on real property when the trustee has sold the property “under power of sale contained in the … deed of trust. The court concurred with the Fourth District’s reasoning that the phrase “the … deed of trust” makes clear that section 580d applies only where the sale of the property has occurred under the deed of trust securing the note sued upon, and not some other deed of trust. In the words of the California Supreme Court, “nothing in the text of section 580d indicates that the statute applies where no sale has occurred under the trust deed securing a junior lien, even if the lien is held by a creditor who has foreclosed on a senior lien on the same property.”

The Fourth District’s ruling – and the California Supreme Court’s affirmation of the same – stray from the long followed decision in Simon v. Superior Court, (1992) 4 Cal.App.4th, 63, 66, which held that the anti-deficiency protections of California Code of Civil Procedure 580d barred a creditor in such circumstances from pursuing a deficiency on the junior note. While noting that where there is evidence of “gamesmanship” (e.g. intentional loan splitting, bid rigging, etc.) by the holder of senior and junior liens on the same property, a substantial question may arise whether the liens should be treated as a single lien within the meaning of section 580d, the California Supreme Court concluded that such circumstances were not present in the case before it, as the loans at issue were made more than two years apart. The court did not elaborate on what other factors might be considered in determining the presence of “gamesmanship” by a holder of senior and junior liens on the same property.

Practical Considerations

The California Supreme Court’s upholding of the Fourth District’s ruling is likely to be heralded as a victory for lenders, as the opinion in Simon – which unequivocally rejected a lender’s ability to recover on a junior lien after foreclosing on the senior lien – is now a dead letter. So long as the two loans are truly separate and there have been no improprieties at the foreclosure sale, a lender foreclosing on a senior note should be able to pursue a deficiency judgment on the junior note.

Unfortunately, the California Supreme Court provided virtually no guidance on what would constitute “loan splitting.” In Simon, two loans were signed four days apart with the liens recorded on the same day, while Black Sky involved loans made two years apart. The large delta between the respective timelines of senior and junior loans being made in Simon and Black Sky creates a gray area that will at some point need to be addressed by the courts. When has enough time passed so that a subsequent loan made on the same property would not constitute loan splitting? Six weeks? Six months? A year? What were the motivations behind making the second loan? For now, those questions will remain unanswered at the judicial level. In the meantime, lenders should carefully consider these circumstances when making or buying multiple loans secured by the same property.

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

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