​Affordable Housing Increase Proposed for November Ballot

Who says the period between Thanksgiving and New Year’s is slow at City Hall? Both the Mayor and the Board of Supervisors are hard at work on a number of land use related issues, directives, and legislation.

Arguably the biggest news is that Mayor Lee and Board of Supervisors President London Breed have called for a Charter amendment to increase the required amount of affordable housing in new market rate projects. First things first: there is a noticeable absence of specifics on numbers, including how high above the current on-site and off-site requirements the initiative would propose going and whether any grandfathering of projects in the pipeline will be included. Mayor Lee and Supervisor Breed are commissioning a housing working group consisting of the usual suspects: market rate and affordable housing developers, housing advocates, community leaders, and other City officials. This group is expected to meet within the month to start laying the groundwork for a consensus proposal to go on the ballot, likely in November 2016.

Reading the tea leaves in press releases and quotes to media outlets, a broad framework of issues may be covered in the initiative. Quotes from Mayor Lee’s office indicate that the affordability component may involve not just low-income housing, but also middle income. There have been references to shortening the timeline for new housing development projects or providing other incentives such as increased density or raising height limits in exchange for higher affordability levels. Larger projects may have higher affordability requirements than smaller ones. (It’s worth noting that 5M and the Mission Rock projects, which voluntarily agreed to exceed the affordability requirements, each also needed significant site-specific upzoning and height increases, unlike most other development projects in San Francisco). And finally, San Francisco voters approved Proposition K in 2014 (by a vote of almost two to one), which established a city policy of having at least 33% of new units be affordable.

There are at least three other proposals related to affordable housing making their way through the City right now. The first is the affordable housing density bonus program, which would bring the City into compliance with state law. The second would add a “dial” feature tying increased affordability to the maximum Area Median Income (AMI) level of the units, allowing higher AMI if a project increased its on-site affordability percentage. The third would loosen location restrictions on the off-site option. We will continue to track these proposals as well, including whether either or both of these are incorporated into the ballot initiative. 

Board of Supervisors Rejects Sale of 30 Van Ness Avenue

On Tuesday, the Board of Supervisors disapproved the $80 million sale of 30 Van Ness, a city-owned site at the corner of Van Ness and Market, to a private developer. The vote was 7-4, with President London Breed siding with Supervisors Kim, Avalos, Mar, Yee, Campos, and recently sworn in Supervisor Peskin to reject the deal negotiated by the Department of Real Estate. There were two primary grounds for denying the project: the City had initially proposed to sell the property for $87 million, and the terms of the agreement apparently did not satisfy some of the Supervisors that the developer would provide increased affordability levels. According to news reports, the property value dipped because the current building on the site requires approximately $60 million in seismic levels to keep it safe for City employees while a new ground-up project is making its way through the entitlement process. We will keep monitoring the progress of this site, both its potential sale and its redevelopment.

All in all, it looks like the land use regulatory environment is going to get more challenging in San Francisco in 2016.  As always, we will keep you posted on the latest.

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.

​Maximum Impact Fees in Oakland Released; Fee Proposal Floated

With modern zoning mostly in place (with the exception of the Downtown Plan process) and with the real estate market showing signs of supporting new development, the biggest question in Oakland land use is what the soon-to-be-adopted impact fees will look like.  With the fee consultant’s release of its nexus study approaching in December, the city finally released details on how much these fees may be.  A powerpoint presentation provided to a stakeholder working group has been made public.  We now know the maximum legal amounts for the three fees have been determined as follows:

Affordable housing:

Applies to residential development only

$35,172 per unit (low-rise construction)

$39,887 per unit (mid-rise construction)

$50,804 per unit (high-rise construction) 

Combined Transportation/Capital Improvements Fees

$20,737 per unit of multi-family residential

$19.50/sf office use

$16.94/sf retail use

The powerpoint emphasizes throughout that the maximum legal fee amounts are higher than the maximum feasible fee amounts that would be supported by new development.  

The city has proposed to create three new zones for the residential affordable housing fee: generally, West Oakland, East Oakland, and everywhere else.  The fee for “everywhere else” has been proposed at a rate of $20,000 per new dwelling unit.  The fee is proposed to phase in, with a lesser fee going into effect on July 1, 2016 and the fee would increase up to $20,000 in one or more phases in the coming years.

The city has proposed the transportation/capital improvements fee for office use at $4/sf, with a lesser fee going into effect on July 1, 2016 and the fee would increase up to $4 in one or more phases in the coming years.

Whether these two fees will be the full extent of the impact fee program adopted next year is unclear.  The City Council’s Community and Economic Development Committee will hold a hearing on the nexus study and fee proposal on December 15, 2015, starting at 1:30 pm (City Hall, Hearing Room 1).

The powerpoint presentation can be found at:  http://www2.oaklandnet.com/Government/o/PBN/OurOrganization/PlanningZoning/s/ImpactFee/index.htm.

Pending Approval of the Transportation Sustainability Fee 

Last week, the Board of Supervisors voted on legislation that would replace the existing Transit Impact Development Fee (TIDF) with a new citywide Transportation Sustainability Fee (TSF).  As we have reported before, the adoption of the TSF will result in several significant changes, including the expansion of the transportation impact fee to residential projects, which were exempt under the TIDF.  Several amendments to the TSF legislation were introduced and discussed at last week’s BOS hearing, and consequently the legislation was duplicated so that one part was approved by the BOS on November 3, 2015, and another part (with substantive amendments) was referred to the Land Use and Transportation Committee.  

The duplicated file that was referred to the Committee included two substantive amendments: 1) change to the grandfathering provision for non-residential projects so that all non-residential projects that were submitted after July 21, 2015 would be subject to the full TSF, and 2) change whereby the amount of the TSF for hospitals would be determined based on the number of net new beds along with few other changes related to hospital uses.  No Committee hearing has yet been scheduled for these substantive amendments. 

The portion of the proposed legislation that was voted on November 3rd was approved unanimously on the first reading, and is scheduled for the second and final reading for November 17th.  If passed on the second reading, the Mayor would have up to ten (10) days to sign the legislation, and the legislation would become effective thirty (30) days thereafter.  In other words, the new TSF legislation and fee is likely to become effective before the end of the current calendar year.  

If finally passed and adopted, the TSF will apply to all residential projects with more than twenty (20) units and to non-residential projects that propose an addition or new construction of more than 1,500 gsf of PDR use or more than 800 gsf of other non-residential use, or a change of use to a land use category that is subject to a higher fee rate.  The legislation was approved with some grandfathering provisions so that all projects which were approved prior to the effective date of the legislation will be subject to the prior TIDF.  With respect to pending projects, i.e. those that submitted a development or environmental review application on or prior to July 21, 2015, TSF will apply in reduced amounts so that pending residential projects will be subject to 50% of the applicable TSF rate, and pending PDR and non-residential projects will be subject to the prior TIDF.  As proposed, the initial rate schedules are as follows: $7.74/gsf for residential projects with 21-99 units; $8.74/gsf for residential projects with more than 99 units; $18.04/gsf for non-residential projects with more than 99,999 gsf; $19.04/gsf for non-residential projects with more than 99,999 gsf; and $7.61/gsf for PDR projects.  

Annual San Francisco Fee Increases 

Development impact fees for San Francisco projects are calculated based on the rate schedule in effect at the time the “first construction document” for the project is issued.  The issuance of the “first construction document” refers to either the first building permit for the project or, in the case of a site permit, the first addendum to the site permit that authorizes construction of the project.  Most of the impact fees are subject to annual, inflationary increases, and an updated rate schedule typically becomes effective as of January 1 of each year, including January 1, 2016. 

Those projects for which a site permit was issued recently, or is expected to be issued soon, should note that if the first construction document, i.e. typically the first addenda to the site permit, is not issued until after January 1, 2016, the Development Impact Fee Report (DFCU) issued by the Department of Building Inspection will be adjusted to reflect the fee rate schedule in effect on and after January 1, 2016 and the impact fees will be recalculated.  In other words, those projects that will obtain their first addenda to the site permit within the current calendar year will be able to pay the impact fees in accordance with the current rate schedule and avoid the fee increases that will become effective on the first of January.       

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.

     

​Proposition C – the ballot measure aimed at regulating “indirect” lobbying – passed overwhelmingly in San Francisco on November 3, 2015, with nearly 75% of voters in favor. While the City’s Lobbyist Ordinance already regulates lobbyists who are paid to directly contact City officials, this new ordinance allows the City to further regulate “expenditure lobbyists” who are individuals, businesses, and organizations that urge others to directly contact City officials in order to influence local legislative or administrative action.  

These new regulations are designed to promote open government and greater transparency in decision-making.  However, the new registration and disclosure requirements could have a chilling effect on public interest, participation, and advocacy efforts in San Francisco.  This is especially true for direct lobbyists and permit consultants who are already subject to reporting and disclosure requirements under the Lobbyist Ordinance (For a discussion about direct lobbyists and permit consultants, see “New Lobbyist Ordinance Amendments: Too Much of a Good Thing”.  With that said, San Francisco voters made clear their desire for additional oversight of lobbying activity in San Francisco. This ordinance will become operative on February 1, 2016. 

Here’s what you need to know about the new regulations:

Expenditure Lobbyist Qualification Threshold

An expenditure lobbyist is an individual, business, non-profit organization, labor union or trade association that makes payments totaling $2,500 or more within a calendar month to solicit, request, or urge other persons to contact City officials in order to influence local legislative or administrative action.   

A number of activities count toward the $2,500 threshold, including making payments for public relations, media relations, advertising, public outreach, research, investigation, reports, analyses, or studies.  On the other hand, a number of activities do not apply, including payments made to a registered lobbyist who directly contacts City officials, payments made to an organization for membership dues, payments made by an organization to distribute communications to its members, and payments made by a client to a representative to appear on the client’s behalf in a legal proceeding before a City agency.  

Let’s consider a few scenarios.  Have you spent at least $2,500 within a month to transport speakers to Board of Supervisors meetings?  If so, then you would qualify as an expenditure lobbyist.  Have you spent at least $2,500 within a month buying advertising that urges members of the public to contact City officials in order to influence local legislative or administrative action?  If so, then you would qualify as an expenditure lobbyist.  Have you donated at least $2,500 within a month to nonprofit organizations in exchange for their direct lobbying activities?  If so, then you would qualify as an expenditure lobbyist.  

Expenditure Lobbyist Registration and Reporting

The new law requires expenditure lobbyists to register with the Ethics Commission within five business days after qualifying as an expenditure lobbyist, and pay an annual $500 registration fee.  Employees of nonprofit organizations are exempt from paying the fee.  At the time of registration, the expenditure lobbyist must provide information about its business, including the nature and purpose of the business and names of corporate officers, including those officers who are charged with authorizing the lobbying payments.

Expenditure lobbyists are also required to file monthly reports with the Ethics Commission and disclose information about its lobbying activities.  The reports must include information about:

• The legislative or administrative action that the lobbyist sought to influence, including, if any, information about the resolution, motion, appeal, application, petition, nomination, ordinance, amendment, approval, referral, permit, license, entitlement, or contract;

• The total amount of payments made during the reporting period to influence the action;

• Each payment of $1,000 or more made during the reporting period, including the payment date, the name and address of each person receiving the payment, a description of the payment, and a description of the consideration for which the payment was made; and

• All campaign contributions of $100 or more made or delivered by the lobbyist, or at the lobbyist’s request, to a City official during the reporting period, a candidate for City office, a committee controlled by a City official or candidate, a committee primarily formed to support or oppose a City official or candidate, or a committee primarily formed to support or oppose a measure to be voted on only in San Francisco. 

Expenditure lobbyists are also now required to disclose information about campaign contributions, including the contribution amount, the contributor’s name, the date on which the contribution was made, the contributor’s occupation, the contributor’s employer or, if self-employed, its business name, and the committee to which the contribution was made.

Lastly, as with direct lobbyists who are already regulated by the Lobbyist Ordinance, this measure prohibits expenditure lobbyists from making gifts over $25 to City officials, influencing a City issue for the sake of personal employment, or evading the City’s rules and regulations through agents or employees.

Noncompliance with these regulations and reporting requirements could result in late fees of $50 per day, administrative fines up to $5,000 per violation, and/or civil penalties up to $5,000 per violation.

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.

​On August 21, 2015, we introduced the Planning Department’s Affordable Housing Bonus Program implementing the State’s density bonus law. [Density Bonus Program Unveiled]. The Program was formally introduced on September 29, 2015, and could be adopted before the end of 2015.

The Local Affordable Housing Bonus Program would provide an incentive for project sponsors to set aside a total of 30% of residential units for onsite below-market-rate units to low- and moderate-income households. The most appealing benefit of the program is that it would allow projects to add an additional two stories above current height limits and remove density constraints. The City hopes that this will increase the number of affordable housing units, allow development of underutilized sites, and expand affordable housing for the middle income families that are increasingly squeezed out of the San Francisco housing market. 

The program would apply to projects with 3 or more non-density bonus residential units in the following zoning districts:

 

To be eligible for the Local Affordable Housing Bonus Program, project sponsors must set aside a total of 30% of units onsite for low to moderate-income and middle-income households. For a project with 9 or fewer units, 30% of units must be affordable to middle-income households, defined as 120% of AMI for rental housing and 140% of AMI for ownership housing. For a project with 10 or more units, 18% of units must be affordable to middle-income households and 12% must be affordable to very low, low, and moderate income households as currently required under the City’s Inclusionary Affordable Housing Program. In addition, the overall project must provide at least 40% of all units as two bedroom units or larger, or any unit mix such that 50% of all bedrooms are provided in units with more than one bedroom.

A project sponsor that qualifies may receive any or all of the following benefits:

Form-based density. The density of an eligible project shall not be limited by lot area.

Height.  An eligible project may be built up to 20 feet above existing height limits.

Ground Floor Ceiling Height. An eligible project may receive up to an additional 5 feet in height at the ground floor to provide at least a 14-foot ground floor ceiling height.

Zoning Modifications. An eligible project may use up to 3 of the following:

Rear yard- reduction to 20% of lot depth or 15 feet, whichever is greater, with corner properties permitted to provide 20% of the lot area at the interior corner of the property as rear yard.

Dwelling Unit Exposure- may be satisfied with windows facing an open area is at least 25 feet by 25 feet.

Off-Street Loading – not required.

Parking- up to a 75% reduction in residential and commercial parking requirements.

Open Space- up to a 5% reduction in common open space.

Additional Open Space – up to an additional 5% reduction in common open space beyond the first 5% reduction.

Also included in the pending legislation is the 100 Percent Affordable Housing Bonus Program (which provides for up to three additional stories of development). In addition, projects not in the zoning districts covered by the Local Affordable Housing Bonus Program can still take advantage of the State Density Bonus Program, as described in our August 21 update. However, that program would subject them to a complicated scheme providing for a maximum density bonus of 35% and an additional two stories of height only where needed to achieve the density.

It remains to be seen how much the Local Affordable Housing Bonus Program will impact projects in San Francisco, which are constrained not only by other provisions such as historic review and limitation on new shadows, but also political considerations in a city that in most areas has yet to embrace significant increases in building height, despite the ongoing housing crises. 

The program is expected to be heard by the Planning Commission on November 5, after which it will be heard by the Land Use and Transportation Committee and then the full Board of Supervisors. 

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.

​Last week, the Board of Supervisors Land Use Committee continued to hear the proposed Transportation Sustainability Fee (“TSF”). As we have covered in the past months, the TSF would replace the current Transit Impact Development Fee (TIDF) and would apply to both residential and non-residential projects. The TSF as proposed would establish a rate of $7.74/sf for residential uses, $18.04/sf for non-residential uses, and $7.61 for PDR uses. The TSF would apply to residential projects that result in more than 20 dwelling units, group housing facilities with more than 800 square feet, or the new construction or addition of a non-residential or PDR use greater than 800 gross square feet.

After two prior hearings, the Committee members voted on amendments to the proposed TSF at this week’s meeting. The approved amendments include the following:

– Eliminate the credit for projects located in area plans;

– Increase the threshold area at which PDR uses would be subject to TSF from 800 sf to 1,500 sf;

– Remove hospitals from the non-profit exemption to TSF;

– Exempt non-profit, post-secondary educational institutions from TSF;

– Increase TSF for residential and non-residential projects based on project size; residential projects of 1-99 units would continue to be subject to a rate of $7.74/sf, whereas for projects involving 100 units or greater, $7.74/sf would apply for first 99 units and $8.74/sf would apply for any units over the first 99; commercial projects under 100,000 square feet would continue to be subject to $18.04/sf, whereas commercial projects 100,000 square feet or greater would be subject to a rate of $19.04/sf

– Provide that grandfathering would not apply for residential or non-residential projects for which development applications were submitted after July 21, 2015

The TSF was continued to the October 19th Land Use Committee meeting.  

Changes to Requirements for the Off-Site Alternative to Inclusionary Affordable Housing Program

Proposed changes to the off-site alternative to the Inclusionary Affordable Housing Fee were introduced in mid-September that are intended to encourage more projects to choose the off-site affordable housing option. 

First, geography. Under the ordinance, off-site units may be built within 1-¼ mile from the primary project site or within the same neighborhood, as illustrated on the Planning Department’s neighborhood map. Currently, off-site units must be within 1 mile of the primary project site.

Second, the “dialing up” option. The proposal includes the option to increase income requirements in exchange for providing more affordable units. Currently and in most situations, projects sponsors of new market-rate residential units are required to pay a fee, provide 12% of the total units for on-site affordable units, or 20% of the units as off-site affordable units. On-site rental units must be affordable to households earning 55% of AMI, and on-site ownership units must be affordable to households earning up to 90% of AMI. Whereas, off-site rental units must be affordable to up to 55% of AMI, and off-site ownership units must be affordable up to 70% of AMI.

Under the ordinance, On-site units could be made available to households earning up to the following income amounts, so long as the accompanying percentage of units is made affordable:

– On-site Rental units:

• 55% of AMI: 12% of units,
• 70% of AMI: 13% of units, or
• 90% of AMI: 16% of units

– On-site Ownership units:

• 90% of AMI: 12% of units, or
• 120% of AMI: 15% of units

For units offered off-site, the options would be the following:

– Off-site Rentals units: 

• 55% of AMI: 20% of units,
• 70% of AMI: 23% of units, or
• 90% of AMI: 30% of units

– Off-site Ownership units:

• 90% of AMI: 20% of units, or
• 120% of AMI: 31% of units

Lastly, timing. The legislation also increases the amount of time in which the off-site units could be constructed. Under the proposed ordinance, off-site units may be completed within one year of the primary project’s completion. Currently, the requirement is that the off-site units be completed concurrently or before the primary project receives its First Certificate of Occupancy.

This update was prepared with significant research and writing from RJR’s associate Louis Sarmiento.

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.

​This week, the Board of Supervisors Land Use Committee continued to hear the proposed Transportation Sustainability Fee (“TSF”). As we have covered in the past months, the TSF would replace the current Transit Impact Development Fee (TIDF) and would apply to both residential and non-residential projects. The TSF as proposed would establish a rate of $7.74/sf for residential uses, $18.04/sf for non-residential uses, and $7.61 for PDR uses. The TSF would apply to residential projects that result in more than 20 dwelling units, group housing facilities with more than 800 square feet, or the new construction or addition of a non-residential or PDR use greater than 800 gross square feet.

After two prior hearings, the Committee members voted on amendments to the proposed TSF at this week’s meeting. The approved amendments include the following:

– Eliminate the credit for projects located in area plans;

– Increase the threshold area at which PDR uses would be subject to TSF from 800 sf to 1,500 sf;

– Remove hospitals from the non-profit exemption to TSF;

– Exempt non-profit, post-secondary educational institutions from TSF;

– Increase TSF for residential and non-residential projects based on project size; residential projects of 1-99 units would continue to be subject to a rate of $7.74/sf, whereas for projects involving 100 units or greater, $7.74/sf would apply for first 99 units and $8.74/sf would apply for any units over the first 99; commercial projects under 100,000 square feet would continue to be subject to $18.04/sf, whereas commercial projects 100,000 square feet or greater would be subject to a rate of $19.04/sf

– Provide that grandfathering would not apply for residential or non-residential projects for which development applications were submitted after July 21, 2015

The TSF was continued to the October 19th Land Use Committee meeting.  

Changes to Requirements for the Off-Site Alternative to Inclusionary Affordable Housing Program

Proposed changes to the off-site alternative to the Inclusionary Affordable Housing Fee were introduced in mid-September that are intended to encourage more projects to choose the off-site affordable housing option. 

First, geography. Under the ordinance, off-site units may be built within 1-¼ mile from the primary project site or within the same neighborhood, as illustrated on the Planning Department’s neighborhood map. Currently, off-site units must be within 1 mile of the primary project site.

Second, the “dialing up” option. The proposal includes the option to increase income requirements in exchange for more required affordable units. Currently and in most situations, projects sponsors of new market-rate residential units are required to pay a fee, provide 12% of the total units for on-site affordable units, or 20% of the units as off-site affordable units. On-site rental units must be affordable to households earning 55% of AMI, and on-site ownership units must be affordable to households earning up to 90% of AMI. Whereas, off-site rental units must be affordable to up to 55% of AMI, and off-site ownership units must be affordable up to 70% of AMI.

The proposed changes would allow project sponsors increase income requirements, which would require an increase in affordable units. On-site units could be made available to households earning up to the following income amounts, so long as the accompanying percentage of units is made affordable:

– On-site Rental units:

• 55% of AMI: 12% of units,
• 70% of AMI: 13% of units, or
• 90% of AMI: 16% of units

– On-site Ownership units:

• 90% of AMI: 12% of units, or
• 120% of AMI: 15% of units

For units offered off-site, the options would be the following:

– Off-site Rentals units: 

• 55% of AMI: 20% of units,
• 70% of AMI: 23% of units, or
• 90% of AMI: 30% of units

– Off-site Ownership units:

• 90% of AMI: 20% of units, or
• 120% of AMI: 31% of units

Lastly, timing. The legislation also increases the amount of time in which the off-site units could be constructed. Under the proposed ordinance, off-site units may be completed within one year of the primary project’s completion. Currently, the requirement is that the off-site units be completed concurrently or before the primary project receives its First Certificate of Occupancy.

The proposed ordinance was introduced on September 15th.

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.

​With the issue of government regulation of short-term rentals such as Airbnb and VRBO in San Francisco coming up in the November election as Proposition F, we are revisiting a recent California court decision that affirms the ability of a condominium homeowners association (“HOA”) to regulate short-term rentals.  The right of an HOA board of directors (“Board”) to impose rules and regulations regarding short-term rentals and charge fees for short-term rental activities without member approval was affirmed in the case of Watts v. Oak Shores Community Association (2015) 235 Cal.App.4th. 466. 

The Oak Shores community is a common interest development governed by Covenants, Conditions and Restrictions (“CC&Rs”) which provide like most CC&Rs that the HOA Board may adopt rules and regulations concerning the use, occupancy and maintenance of the project; for the general health, welfare, comfort, and safety of members; and to interpret and implement the CC&Rs, and establish penalties for violation of such rules.

The HOA Board determined that short-term rentals imposed a greater burden on the HOA and its members than long-term rentals or owner-occupied units, including problems with parking, lack of awareness of HOA rules, noise and abuse of common facilities.  The HOA Board imposed certain rules and fees on owners who rent their homes on a short-term basis, as well as restrictions on short-term renters’ activities.  

Absentee owners who rent their homes on a short-term basis challenged the HOA rules and fees on the basis that the Board exceeded its authority in adopting such rules and fees, and that the fees exceed the amount necessary to offset the actual costs incurred by the HOA related to short-term rentals, thereby violating California Civil Code Section 1366.1 (now Section 5600(b)) which prohibits an association from imposing or collecting an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.

The court applied judicial deference to the decisions of the HOA Board, stating that courts will generally uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with the public policy.  After the HOA produced experts and evidence establishing that short-term rentals cost the HOA more than long-term rentals or owner-occupied units, including costs associated with using the common facilities more intensely, taking more HOA staff time, and being less careful in using the common facilities, the court found that the Civil Code Section 1366.1 standard was met, as the fees imposed on short-term rentals were reasonably related to the costs incurred by the HOA in connection with these impacts.  Moreover, the HOA fees did not have to exactly match the costs incurred by the HOA, but only be reasonably close to the costs such fees were intended to offset.

The plaintiff owners also challenged the HOA’s authority to establish rules setting minimum leasing periods for tenants (which had been set by the HOA at 7 days).  While the court did not expressly discuss the minimum leasing period rule, it did throw out plaintiff’s case, suggesting HOAs do in fact have the ability to restrict or prohibit short-term rentals.

The Watts case generally affirms the right of an HOA to impose rules, regulations and fees on short-term rentals intended to offset impacts of short-term rentals on the community, so long as such rules and fees are reasonably related to the burdens imposed on the HOA.

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

​A recent case just decided in the Court of Appeal analyzed an important issue regarding the Right to Repair Act (SB800) (“Act”).  In McMillin Albany LLC v. Superior Court (“McMillin”), the Court asked whether homeowners of certain new residences are required to engage in non-adversarial pre-litigation procedures and accommodate a builder’s right to attempt repairs even if the construction defect cause of action is not based upon a violation of the Act.  The Court of Appeal in McMillin held that yes, there is an absolute right to repair for the builder (subject to certain exceptions and terms of the Act) even if the cause of action for construction defects does not specifically rest on violations codified under the Act.  (Cal.Rptr.3d (2015) (Filed August 26, 2015)). 

The Act sets forth a mandatory process to be followed if construction defects are discovered in a new residence sold on or after January 1, 2003.  The Act was passed by the legislature to try and reduce the amount of litigation involving builders and homeowners by providing a framework for resolving disputes outside of the courtroom.  Chapter 4 of the Act proscribes the measures which are required before a homeowner may bring a civil action against a builder for construction defects.  They include giving the builder written notice of the claim, time for the builder to inspect the defects, and allowing the builder to either make an offer to repair the defects or compensate the homeowner in lieu of a repair.  If the builder declines to attempt the repairs or misses any deadlines, the homeowner is released from the requirements of Chapter 4 and may proceed with a civil action against the builder.

In McMillin, the homeowners brought various actions against the builder (McMillin), including claims for strict products liability, negligence and breach of warranty, as a result of defects in the construction of the homes.  McMillin moved to stay the litigation until the homeowners engaged in the statutory non-adversarial pre-litigation procedures required by the Act.   The homeowners opposed the motion on the basis that they had disposed of the only cause of action which supposed a violation of the Act and therefore they were no longer required to engage in the procedures required by the Act prior to initiating litigation.  

The Court in McMillin discussed the California case Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (“Liberty Mutual”), which held that the requirements of the Act only apply when a plaintiff expressly alleges a violation of the Act and do not apply if the plaintiff alleges a common law cause of action for damages caused by a construction defect in residential housing.  McMillin ultimately rejects that finding in Liberty Mutual and holds that the text of the Act proscribes that the Act applies broadly to “any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction”, subject to certain specific exceptions including condominium conversions.  Therefore, the Act and its requirements apply to common law tort causes of action where the construction defect has caused property damage, subject to certain express exceptions.  For example, if a component of a home is not covered by the Act but a defect in such component causes damages to the home, a homeowner must first follow the pre-litigation non-adversarial procedures required by the Act before it can bring a common law action for negligence or strict liability.  

In discussing their analysis, the Court in McMillin reasoned that the legislature must have intended that most construction defect claims in affected new residences would be covered by the Act.  Otherwise, the Act would not be that helpful in trying to limit litigation if the homeowner could simply allege common law causes of action and bypass the requirements of the Act. 

Builders and homeowners of new residences sold on or after January 1, 2003 should be aware of this groundbreaking case to ensure that, unless the issue is excluded by the Act, both parties comply with Chapter 4 of the Act before bringing a construction defect claim, regardless of whether the claim’s basis is pursuant to the Act or common law.

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.

​With Labor Day weekend approaching and the Planning Commission and Board of Supervisors both on hiatus for the remainder of August, things have quieted down.  But, here’s a summary of some recent items to keep on your radar for early fall.

Code Clean Up

On August 13th the Planning Commission adopted a recommendation to approve various Planning Code text amendments suggested by staff to correct a number of errors, oversights, and outdated language, many of which are associated with the recent re-organization of Article 2.  As the staff report explains, the existing Code contains “various errors, improper and outdated cross-references, lack of clarity, grammar mistakes, and incorrect illustrations.”  The clean-up legislation is necessary as even minor or clerical revisions to the Code require a legislative amendment to revise.  Something as small as forgetting to dot an “i” or cross a “t” could take years to correct.

While the proposed Code revisions are generally minor and not intended to make substantive changes, there are some noteworthy items.  For example: (a) replacing a table containing FAR limits for several districts that was mistakenly removed earlier this year; (b) specifying a conditional use requirement for private parking lots in RC and RTO districts, where the existing Code incorrectly prohibits such use; (c) returning the prohibition against massage establishments in RC Districts that was mistakenly eliminated; (d) amending residential parking controls for C-3 Districts in Table 210.2 so that  it is consistent with Section 151.1; (e) revising the zoning control tale for C-3 Districts to prohibit public and private parking lots in C-3-S Districts; and (f) replacing the criteria for large lot developments in RTO and RTO-M Districts that was inadvertently deleted, among many others. 

The Commission recommended approval of the amendment to the Board, which is anticipated to consider the legislation later this year. Until then – read with caution.

The Ever-Expanding Definition of Formula Retail

Late this summer, Supervisors Mar, Breed, and Avalos proposed new legislation that would once again expand the definition of formula retail uses.  The ordinance, which trails last year’s more expansive formula retail control amendments, would revise the definition of formula retailers to include subsidiaries or affiliate of qualified formula retailers that meet certain criteria. 

The Planning Code currently defines formula retail as a type of retail sales or service activity that has 11 or more other retail sales establishments in operation, or with local land use or permit entitlements approved for operation, worldwide. In addition, formula retailers must maintain two or more standardized features, including array of merchandise, façade, décor and color scheme, uniform apparel, signage, trademark or servicemark.

The proposed ordinance would expand this definition to include all subsidiaries or affiliates of qualified formula retailers that meet all of the following criteria: (a)  fifty percent (50%) or more of the stock, shares, or any similar ownership interest of such establishment is owned by an existing formula retail use, or a subsidiary, affiliate, or parent of an existing formula retail use; (B) there are 3 or more other retail sales establishments already in operation anywhere in the world; and (C) the retail establishment maintains two or more of the required standardized features for a formula retail use. 

We’ll be interested to see how this proposal is received by the Land Use Committee and Board, as the Planning Department recommended against expanding the definition to include subsidiaries in connection with last year’s more expansive formula retail control amendments.  Land Use Committee calendars for September have not yet been posted, but this legislation was referred to the Committee in July, and is likely to be heard in the fall. 

2015 Planning Department Fee Schedule Effective August 31st

It’s that time of year again.  Planning has updated its fee schedule for each class of application, permit, filing request or activity undertaken by the Department.  Each year, the City Controller adjust the fee amounts in this schedule by the 2-year average consumer price index (CPI) change for the San Francisco/San Jose Primary Metropolitan Statistical Area (PMSA).  

A copy of the 2015-2016 Planning Fee schedule, which takes effect on August 31st, is available on the Department’s web site. 

​Last week, the Planning Department unveiled its long-awaited program density bonus program, called the “Affordable Housing Bonus Program.” Details are still being worked out within the City and various stakeholders—including the development community. But a basic framework has been formulated. The new program will allow projects in RM, RC, RH-3, and NCD zoning districts (“Program Area”) to choose from two different streamlined and codified approaches to receiving development incentives—including a possible two-story height bonus—in exchange for providing more on-site affordable units than the existing 12% baseline. In other districts – a large portion of the City that includes the Eastern Neighborhoods, Market Octavia, Central SoMa and downtown – development incentives will not be codified. Instead, they will be scrutinized in a case-by-case negotiation.

For background, San Francisco has effectively ignored California’s mandatory statewide density bonus requirements, a state law since the 1970s. Until recently, the City took the position that required affordable units under the inclusionary housing program did not qualify a project for a density bonus.  In 2013, the California Court of Appeals in Latinos Unidos del Valle de Napa y Solano v. County of Napa ruled decisively against Napa County, which took the same position. The current Affordable Housing Bonus Program is a direct response to bring the City into compliance with Latinos Unidos.

Projects within the Program Area will now have two options: the somewhat complicated state rules, or San Francisco’s own approach. Under state law, a maximum density bonus of up to 35% can be achieved, based on a graduated scale depending on factors like percentage of affordable units, the affordability level of those units, and if the units are rentals or owner-occupied. Some projects will be able to receive a height increase up to a maximum of two stories, but only where needed to achieve the permitted density or the bonus units. 

Projects electing to use the state law will also be eligible to select between 1-3 “concessions” allowing relief from other aspects of the Planning Code. Possible options include a 20% rear yard; no graduated 5-foot expansion under Section 140 for interior-facing units’ exposure requirements; 50% reduction in required parking (yes, there are still areas of the city with minimum parking requirements); 5% reduction in common open space; and relief from off-street loading.

San Francisco’s program is more straightforward, and also appears to be more enticing. It would eliminate residential density limits altogether, with density indirectly controlled by a unit mix requirement (i.e. 40% two bedroom or 30% three bedroom), bulk, height and other building envelope limits. Projects could pick three of the development concessions summarized above. Most importantly, up to two additional stories would be permitted if needed to accommodate the permitted base density and bonus units. In exchange, projects would need to provide 18% “middle income” units (120% AMI for rentals and 140% AMI for owner occupied) in addition to offering 12% of the units as low income under the current Section 415 inclusionary requirement.

It also appears projects participating in either form of the density bonus program that would otherwise qualify for a Class 32 exemption under the California Environmental Quality Act (“CEQA”) will be considered “code compliant” under CEQA. As a result, they would not end up triggering heightened review just by virtue of getting the density bonus, development concessions, or height increase. This is not a guarantee that participating projects will always be able to receive streamlined review: other site-specific CEQA factors such as historic status, shadow, traffic impacts and the like can still draw a project into negative declaration or EIR territory.

As the proposal stands, projects that are not inside the Program Area must negotiate directly with the City on a site-by-site basis, and can only use the state approach to density bonus. They will be required to present two projects for entitlement processing and environmental review, a “base” and a “density bonus” variant. A full site-specific feasibility analysis will be required to justify a density bonus or concession, and they may not be able to tier off of an existing EIR—meaning there is a risk for heightened environmental review, making the entitlement process longer, more expensive, and more uncertain. It remains to be seen how many project sponsors will decide to strike out on their own, given the lack of straightforward procedures and the potential for delays. 

Planning Staff hope to have legislation implementing the program introduced at the end of September, with Board of Supervisors approval before 2016. We will continue to track this program as it is finalized.

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.