​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.

​Stop me if you’ve heard this one before.  A public agency issues a permit authorizing a particular use, but later refuses to recognize the validity of the permit and the authorized use.  

Recently, this issue has been a common one in San Francisco concerning building permits issued for office use.  The property owner applies for a building permit declaring that the existing and proposed use at the property is office, and the City’s Department of Building Inspection approves the permit.  The property owner then operates an office use, sometimes for decades.  Later, when the property owner seeks to show that office uses were approved by the City, the City does not recognize the validity of the permit as to the office use. 

Many property owners are tempted to try to enforce the validity of an approved permit pursuant to the legal doctrine known as equitable estoppel.  In short, under the equitable estoppel doctrine, a city may be barred, or “estopped,” from failing to recognize the validity of the permit where the property owner has relied on the issuance of the permit to the property owner’s detriment.  Over the years, however, California courts have become more and more restrictive in their application of equitable estoppel against the government, to the point now where it is rarely, if ever, applied.  A recent decision by the California Second District Court of Appeal has made the application of equitable estoppel against the government even more difficult.  (Schafer v. City of Los Angeles, No. B253935 (2nd App. Dist., May 20, 2015).  

In the Schafer case, a property owner operated its property in Los Angeles as a parking lot for over fifty years.  During this period, the City repeatedly recognized the parking lot as an existing use, largely through the issuance of permits noting the use as “parking lot.”  No certificate of occupancy was issued at any time, however, and at one point the zoning was amended to remove parking lots as a permitted use.  Ultimately, two residents of the nearby neighborhood challenged the use of the lots for parking.

The Zoning Administrator found that the parking lot was not allowed and was not a legal nonconforming use because no certificate of occupancy was issued.  The Planning Commission reversed this decision, concluding that the Zoning Administrator was equitably estopped from failing to recognize the parking lot use due to the City’s recognition of the use over the years.  The neighbors filed suit.

Both the Trial Court and the Court of Appeal disagreed with the Planning Commission.  The Court of Appeal found that even though the elements of equitable estoppel were met, the adverse effect on public interest outweighed any injustice to the property owner caused by failing to uphold the estoppel claims.  The Court concluded that particularly in the land use context, the public’s interest in maintaining the character of an area through established zoning plans and processes is dispositive.

The lesson for property owners is dispositive as well:  Be wary of relying on implied representations made by public agencies in the issuance of a permit.

City of Oakland Sued Over Public Art Fee

Like the equitable estoppel case, this one may sound familiar.  A City experiences strong real estate development growth.  The City imposes exactions on development to address public needs and interests.  The Developers claim exactions go too far, and sue city.  

In this case, the city is Oakland and the exaction is a public art fee.  In February 2015 Oakland adopted the new ordinance which requires developers either to install public art at the site of new projects or pay a fee equal to 1/2 percent of the value of residential projects or 1 percent of the value of commercial projects.  This public art requirement is similar to the public art requirements in San Francisco and other California cities.

In response, the Building Industry Association of the Bay Area (BIA) and Pacific Legal Foundation (PLF) have filed a lawsuit claiming the ordinance violates the U.S. Constitution.  The plaintiffs argue that the public art requirement violates the Fifth Amendment’s prohibition against “uncompensated takings” because funding art has no connection to the effects of the development, and that it violates the First Amendment by requiring developers to pay for art that is created by artists endorsed by the City.

The BIA/PLF lawsuit appears also to be a strategic first move.  Oakland is in the process of studying more impact fees for developers amid a growing wave of new project proposals.  This raises concerns among developers that the City may go too far in its imposition of impact fees.  We will continue to track this lawsuit and the City’s impact fee process.  

​Last week, legislation that would replace the Transit Impact Development Fee (“TIDF”) with a new Transportation Sustainability Fee (“TSF”) was introduced at the Board of Supervisors.  As we wrote several months ago [San Francisco Approaches New Transportation Fee, Reduced Transportation Analysis], the broader Transportation Sustainability Program would do several things, including (1) replace the TIDF with the TSF, which will apply to residential development and increase the former fee rate on non-residential development, (2) eliminate the requirement of a transportation study for most projects, and (3) establish standardized transportation demand management measures that will apply to new development projects.  

The TSF ordinance would eliminate the existing TIDF and establish a TSF fee rate of $7.74/sf for residential uses, $18.04/sf for non-residential uses, and $7.61/sf for PDR uses.  The TSF would apply to all new non-residential and PDR development of more than 800 square feet, but would only apply to residential developments of more than 20 dwelling units.  New group housing projects would be subject to the full fee.

Certain fee reductions would apply.  Changes of use within existing buildings will receive a credit for existing uses.  Residential projects located only in certain plan areas (including Eastern Neighborhoods, Market/Octavia, Balboa Park) will get a reduction equal to the amount of the area plan fee that is dedicated towards transit expenditures.  

Projects that have a development application (building/site permit, conditional use, variance, Large Project Authorization, Downtown Authorization) approved prior to the enactment of the TSF are fully grandfathered (although non-residential projects would still be subject to the TIDF).  Projects with development applications filed by the time the TSF is enacted will be eligible for a 50% reduction in the residential TSF and will be subject to the existing non-residential TIDF.   Therefore it is important for projects to get a development application on file prior to the enactment of the TSF ordinance.  The Planning Department expects passage before the end of 2015, and likely the earliest it could be passed is in late October.  An informational hearing will be held at the Planning Commission tomorrow.

In-Law Units Expanded to Supervisorial Districts 3 and 8

Last week, the Board of Supervisors passed on first reading two pieces of legislation that would allow new in-law units to be constructed (above the otherwise-applicable density limit) in Supervisorial Districts 3 (North Beach/Northeast Waterfront/Downtown/Chinatown) and 8 (Castro/Upper Market/Noe Valley/Twin Peaks/Glen Park).  In District 3, the legislation allows one new in-law unit (even if the building is already above the density limit) in an existing building with four or less units and removes all density limits for existing buildings with more than four units.  In District 8, the legislation allows one new in-law unit (even if above density) in existing buildings with up to 10 units and allows two new in-law units in existing buildings with more than 10 units.  In-law units must be constructed within the existing envelope of a building and may not take space from any existing dwelling unit.  In-law units are not permitted in RH-1(D) zoning districts.

There was some debate at the Board about creating units to be used as Airbnb rentals.  The final legislation requires that a building owner disclose whether the unit is intended to be used for short term rentals.  

New Planning Application Fee Schedule Goes Into Effect August 31

Planning’s annual update to its application fee schedule has been released, and is set to go into effect on August 31.  You can find the fee schedule here:  http://www.sf-planning.org/Modules/ShowDocument.aspx?documentid=9381. Get your applications on file now to avoid the increased fees.

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 California appellate court case clarified an important issue related to trespassers and subsequent court created easement rights.  In Shoen v. Zacarias, the Court of Appeal held that although a court does have the right to establish an equitable easement on behalf of a trespasser, it did not in this case because the hardship to the trespasser in ceasing the trespass was not greatly disproportionate to the hardship to the owner in the continuance of the encroachment. (237 Cal.App.4th 16 (2015)).

In Shoen, Shoen’s neighbor Zacarias had been using a plot of Shoen’s land for several years innocently believing it to be part of Zacarias’ property.  Zacarias had placed temporary patio furniture on the area for his own personal use. Shoen did not use that part of her land because certain physical attributes made it difficult for Shoen to access.  Eventually, Shoen brought suit for trespassing against Zacarias related to his use of that portion of Shoen’s land as a patio area.  The Superior Court granted Zacarias an equitable easement as to that part of Shoen’s land and Shoen appealed.

Equitable easements are implied easements created by equity and are decided by courts under the doctrine of relative hardships.  Essentially, a court can deny a landowner’s request to eject a trespasser and instead force the landowner to accept damages as compensation for the judicial creation of an easement over the trespassed-upon property in the trespasser’s favor.  Courts are reticent to issue equitable easements since it essentially gives the trespasser a right of eminent domain by permitting them to occupy property owned by another.  However, if certain requirements are fulfilled a court can establish an equitable easement in favor of a trespasser instead of ejecting them from the owner’s property.  The equitable easement doctrine is intended to prevent a situation where a property owner, who is minorly inconvenienced by a trespass, extorts an innocent trespasser by threatening to sue the trespasser unless they pay the property owner a very large sum of money. This situation often arises in urban environments, where buildings, driveways and uses are located very close to property lines.

The following criteria must be fulfilled in order to warrant the granting of an equitable easement in favor of the trespasser: 

(1) the trespass was innocent rather than willful or negligent, 

(2) the public or property owner will not be irreparably injured by the easement, and 

(3) the hardship to the trespasser from having to cease the trespass is greatly disproportionate to the hardship caused to the owner by the continuance of the encroachment.  

Unless all three prerequisites are established, a court lacks the discretion to grant an equitable easement.  Further, it is not enough if the hardship simply favors the trespasser, it must tip disproportionately in favor of the trespasser.  In Shoen, the Court of Appeal found that the third criteria was not fulfilled in that the hardship to the trespasser in removing his temporary patio furniture and not using the land was not disproportionately more difficult than the hardship that Shoen would suffer in losing the land that she owns.

This case is important for property owners to be aware of because it evidences that even trespassers can acquire property rights in another’s land, as long as it is done innocently and the balance of hardships tips proportionately in the trespasser’s favor.  Of course, there is a very high standard to meet for the courts to grant such a right, but property owners should be aware of their property boundaries and the use of any portion of their land without their permission.

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.

​At this November’s general election, the San Francisco electorate will vote on a variety of issues that concern housing, short-term rentals, development along the waterfront, and public disclosure of lobbying activities.  In addition to the Mission Housing Ballot Initiative (discussed in last week’s article – July 16, Mission Housing Ballot Initiative) the following notable measures will appear on the ballot.

Expenditure Lobbyists Ordinance. The Ethics Commission placed this measure on the ballot to expand the definition of lobbyists to include “expenditure lobbyists” and reinstate the reporting of all spending aimed at influencing local legislative or administrative action.  If passed, this ordinance will require individuals and businesses to register and report as “expenditure lobbyists” if they make payments totaling $2,500 per month to solicit, request or urge other persons to communicate directly with a City officer in order to influence local legislative or administrative action.  Labor unions, prospective City contractors, and non-profit organizations are not exempt from these requirements.

The threshold can be met by paying for various activities, including public relations, media relations, advertising, public outreach and research to the extent used to further efforts to urge persons to communicate directly with a City officer about the drafting, enactment, defeat, approval, granting or denial of any resolution, motion, appeal, application, petition, nomination, ordinance, permit, license, entitlement to use, or contract.  However, “expenditure lobbying” will not include payments made to a registered lobbyist for lobbyist services; payments made to an organization for membership dues; and payments made by a client to a representative to appear in an adjudicatory proceeding.

Expenditure lobbyists will be required to register as a lobbyist, pay a $500 registration fee, and file monthly reports disclosing, among other things, the action that the lobbyist sought to influence, the amount of payments made to influence the action, each payment of $1,000 or more, including who received the payment and a description of the consideration for which the payment was made, and campaign contributions of $100 or more. 

Although this measure seeks to encourage public disclosure of lobbyists and efforts to influence local decision-making, these new regulations could impose considerable burdens on land use practitioners and non-contact lobbyists.

If passed, this measure would become operative on February 1, 2016.

Short-Term Residential Rentals. This measure, sponsored by the housing activist group Share Better SF, seeks to restrict short-term rentals in San Francisco.  The regulation of short-term rentals has been a contentious topic over the past few months.  On July 14, 2015, rather than supporting Supervisor Campos’s ordinance to effectively restrict short-term rentals to 60 days per year, the Board of Supervisors voted to uphold existing law and restrict “unhosted” short-term rentals to 90 days per year and allow for unlimited “hosted” short-term rentals.  “Hosted” rentals are where hosts stay in the units while guests are visiting.  “Unhosted” rentals are where hosts are not present in the units while guests are visiting.

If approved, this measure will cap all short-term rentals at 75 nights per year, regardless of whether the rental unit is hosted or unhosted.  Conditional use approval from the Planning Commission would be required to rent a unit on a short-term basis for more than 75 days per year.  If granted, the unit would have to operate as a bed and breakfast establishment.  Hosting platforms like AirBnB will be required to stop listing a unit for short-term rental if the unit has been rented on a short-term basis for 75 days per year.  Hosting platforms will be subject to severe penalties of up to $1,000 per day for violating these rules.  Further, homeowners will be prohibited from renting their in-law units on a short-term basis.  

This initiative also expands the definition of “interested parties” who can sue to enforce the City’s law.  Currently, only persons who live in the same building as a short-term rental unit are deemed “interested parties” with legal standing to sue violators of the law.  If passed, this measure will expand the definition of “interested party” to any person who lives within 100 feet of a unit used for short-term rental, or any housing-related non-profit organization.  

San Franciscans are clearly divided over how to regulate short-term rentals.  Sharing sites claim that home sharing allows homeowners to make additional income by renting units on a short-term basis.  They also claim that the City benefits from increased tax revenue by way of hotel taxes paid by hosting platforms to the City.  On the other hand, proponents of the measure argue that unregulated home sharing exacerbates the current “housing crisis” by removing dwelling units from the market.  

If passed, this measure would become operative on January 1, 2016.

Mission Rock Development Initiative. This initiative, sponsored by the San Francisco Giants, is intended to comply with Prop B, adopted in June 2014, which prevents the City from allowing development along the San Francisco waterfront to exceed height limits that were in effect as of January 1, 2014, unless voters approve the height limit increase.  

If approved, this initiative will authorize height limit increases at the 28-acre Mission Rock site, which includes Pier 48 and Seawall Lot 337, mostly used as a surface parking lot.  As of January 1, 2014, and currently, the Pier 48 building height limit is 40 feet and the remainder of Mission Rock is open space with building height limits of one-story high. This measure would retain the Pier 48 height limit and Pier 48 apron as open space and limit buildings to one-story high on open space elsewhere at Mission Rock.  In fact, there will be no height limit in excess of 40 feet within 100 feet of the shoreline and building heights will step down as they approach the shoreline.  The measure, however, proposes height limit increases elsewhere at Mission Rock with heights ranging from 90 feet to 190 feet for office and retail uses, and 120 and 240 feet for housing.

This initiative will effectively allow the Giant’s Mission Rock development project to move forward, thereby creating new mostly rental housing, 33% of which will be affordable, eight acres of parks and open spaces, and space for a variety of uses, including restaurants, retail, commercial, production, manufacturing, artist studio, small business and non-profit uses.  The project will also rehabilitate and renovate Pier 48 to historic standards.  

If you recall, the San Francisco electorate voted last November to allow height limits at Forest City’s Pier 70 development to increase from 40 feet to 90 feet on some portions of the site.  This is some indication that San Franciscans are receptive to development of the waterfront.  However, the passage of Prop B, the withdrawn original Warriors’ arena proposal, and the voter-defeated 8 Washington project make clear that development along the waterfront is a contentious issue and the outcome rests solely in the hands of voters.

If passed, this ordinance would go into effect 10 days after the official vote count is declared by the Board of Supervisors

Legacy Business Historic Preservation Fund. As of the date of this article, this measure sponsored by Supervisors Campos, Avalos, Kim and Mar has not been officially submitted to the Department of Elections.  If submitted by the deadline on July 31, 2015 and, if passed in November, this ordinance will modify the definition of “Legacy Business” and establish a Legacy Business Historic Preservation Fund which will fund grants for Legacy Businesses, and for landlords who extend leases to Legacy Businesses for terms of at least 10 years.  The intent of this measure is to offer incentives for longstanding community-serving businesses to stay in San Francisco, and incentives for landlords to enter into long-term leases with such businesses.

Each year, the Small Business Commission can nominate up to 300 Legacy Businesses to receive grants.  There would be no limit on the number of nominations made by the Mayor or any member of the Board of Supervisors.  To qualify for a nomination, a business would have to meet three criteria: 

The business has operated in San Francisco for at least 30 years with no break in operations exceeding two years or for 20 to 30 years if the Small Business Commission finds that the business significantly contributed to the history or identity of a neighborhood and it would face a significant risk of displacement;

The Historic Preservation Commission finds that the business has contributed to a neighborhood’s history or identity; and 

The business is committed to maintaining the physical features or traditions that define the business, including craft, culinary, or art forms.

If nominated, the Legacy Business could receive an annual grant from the Legacy Fund equal to $500 per full-time equivalent employee, up to 100 employees.  Also, any landlord who, on or after January 1, 2016, enters into a lease with a Legacy Business for a term of at least 10 years, or extends an existing lease for a term of a least 10 years, could receive a grant from the Legacy Fund for each year of the lease or each year that was added to an existing lease, equal to $4.50 per square foot, up to a maximum of 5,000 square feet.

To reflect increases in the Consumer Price Index, the grant amounts for both Legacy Businesses and landlords are intended to increase in fiscal year 2017-2018 and each second succeeding fiscal year thereafter. 

If passed, this ordinance would become 10 days after the official vote count is declared by the 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.

  

​Mission Housing Ballot Initiative Certified

After the Board of Supervisors rejected a moratorium on new market-rate housing developments in Mission in June 2015, the proponents of such a moratorium proceeded to gather signatures that would qualify a similar ballot initiative for the November ballot.  On Tuesday, the Department of Elections certified that a sufficient number of valid signatures by registered San Francisco voters were submitted with the petition, and thus the ballot initiative has been deemed to have qualified for the November ballot.  If approved by the voters in November, the initiative will impose an 18-month moratorium prohibiting issuance of building permits that seek to demolish, convert or construct a housing project with five (5) or more units, or demolish, convert or eliminate a PDR use, with the exception of projects seeking to construct 100% affordable housing projects.  The language of the moratorium initiative would allow the term to be extended by an additional 12 months by a majority of the Board of Supervisors.  The Mission moratorium would apply in an approximate area south of US 101, west of Potrero Avenue, north of Cesar Chavez Street and east of Guerrero Street.  

Introduction of Mission 2015 Interim Controls by Planning Commission

In addition to the pending ballot initiative, the Planning Commission initiated its own “Mission 2015 Interim Controls” at last week’s hearing.  If adopted, the Interim Controls would require project sponsors for new market-rate housing, retail and office developments to obtain a conditional use authorization during a proposed 6-month period for any project that would result in the loss of more than one (1) rent-controlled dwelling unit, creation of five (5) or more dwelling units, or demolition or conversion of certain community and arts uses.  The Interim Controls would not prohibit market-rate housing projects (with five (5) or more units), however, they would make the approval process more difficult as such projects would need to have a “displacement study” prepared, wherein economic data and analysis on affordable housing impacts that would occur as a result of the project would need to be provided, including an evaluation of whether, and to what extent, the project would affect nearby housing costs, property values, and number of units available to lower-income groups along with an estimate on the likely demographics for the project occupants.  As currently proposed, the Mission 2015 Interim Controls would apply to projects located in an approx. area south of Division Street, east of Potrero Avenue, north of Cesar Chavez Street and west of Mission Street, albeit including properties on both sides of Mission Street.  The Interim Controls would not apply to projects for which a planning, building or environmental application was filed on or before December 31, 2014, or to 100% affordable housing projects. The purpose of the Interim Controls would be to provide time for the City to complete an analysis on affordable housing and PDR needs while imposing additional scrutiny to certain projects during the 6-month period.  An informational hearing on the Mission 2015 Interim Controls will take place before the Planning Commission on July 23, 2015, and consideration of the adoption of the controls will take place on or after August 6, 2015.  

Expansion of BMR Requirements to Group Housing Projects

The Planning Commission recently also approved an amendment to the City’s Inclusionary Affordable Housing Program after a 5-2 vote, which upon approval of the Board of Supervisors would impose the requirements of the said program to group housing projects.  Until now, the inclusionary requirements under the Planning Code have applied only to projects exceeding certain number of “units” (currently set at ten (10) or more units), and thus the requirements have not been applied to group housing projects since group housing is not considered to consist of “units.”  As proposed by the Planning Commission, those bedrooms in group housing projects that contain less than 350 sf would be subject to pricing equal to 75% of the maximum purchase price for studio units.  The Planning Commission forwarded its approval recommendation to the Board of Supervisors and in order for the amendments to become effective, the Board of Supervisors will need to adopt the proposed ordinance.  On Monday, the Board of Supervisors’ Land Use and Transportation Committee amended the measure and continued it to July 20, on a 3-0 vote (including Supervisor Wiener), which means it is likely it will ultimately pass the full Board.  

Introduction of Interim Signage Controls for Transit Center District Plan Area

Last week Supervisor Jane Kim introduced interim zoning controls for the Transit Center District Plan area which, if approved, would 1) restrict new signs that are located within 200 feet of, and visible from, an existing or planned public park or open space so that such signage could not exceed 50 sf in size and could not be located higher than 35-ft height, and 2) require any illumination for new signs between 30-100 ft in height to provide only indirect illumination or halo-style lighting, to be dimmable, and to be turned off between 9 pm and 6 am.  The Interim Signage Controls would apply to the Transit Center District Plan area (i.e. an approx. area south of Market Street, west of Steuart Street, north of Folsom Street and east of New Montgomery and Third Street), and in an area bounded by Folsom, Harrison, Essex and Second Streets, but excluding projects located within the so-called Zone 1 of the Transbay Redevelopment Plan and in the planned Rooftop Park on top of the Transbay District Center.  The Interim Signage Controls will be heard by the Land Use and Transportation Committee of the Board of Supervisors in all likelihood sometime in September 2015 after the BOS’ August break.

“Unaffordable” Housing Exemption from Dwelling Unit Merger Approval Eliminated in Interim Controls

Earlier this month, legislation proposed by Supervisor Avalos that would require conditional use authorization for all dwelling unit mergers went into effect.  Most importantly, the exemption from Planning Commission approval for mergers of “unaffordable” units (appraised at more than $1.506M) is eliminated during the 18-month period it is in effect.  Permanent controls are expected to be developed during this period, which means this widely-used exemption may be gone for good.

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.

  

​Pre-Hearing Exchange of Information

The San Francisco Assessor’s office has instituted a new policy concerning real estate tax appeals.  If  a taxpayer fails to respond to the Assessor’s pre-hearing request for information about the subject property, the Assessor will typically request a “pre-hearing” with the Assessment Appeals Board and ask that the hearing be postponed until the taxpayer complies with the information request.  The Assessor has a right to require property owners to provide “information and records” concerning the real or personal property owned or controlled by the taxpayer.  This right is quite broad and includes construction and development costs and details of the taxpayer’s acquisition of the property.   (California Revenue and Tax code Section 441(d)).  In many cases, the taxpayer was not providing the Assessor with information prior to the hearing or would fail to appear at all, which would create unnecessary work for the Assessor’s office and add to the pending backlog of appeals.  This new policy is to allow the Assessor to prepare for the hearing, with the added benefit of pressuring the taxpayer to decide whether to proceed with the hearing or withdraw the appeal.  Property owners with appeals pending should be prepared to respond to this request for information in a timely manner to avoid delays.

On the flip side, taxpayers also have the right to receive the information and analysis that the Assessor intends to use at the tax appeal hearing, provided that a request is made at least 30 days prior to the hearing.  This is a powerful tool that may be used to fully prepare for a tax appeal hearing and allows the taxpayer to formulate arguments in response to the Assessor’s position.

Big Brother is Watching

The Assessor has also recently requested that certain large commercial property owners provide the Assessor with detailed information concerning their tenants, including copies of the rent roll, leases, tenant contact information and lease abstracts.  The purpose of this request is stated to be “for updating records in the Assessor-Recorder’s Office, including identification and assessment of business and personal property”.  Apparently there is a concern that certain businesses operating in San Francisco have not properly registered with the Tax Collector and that there is lost personal property tax revenue on the table.  

Landlord’s are justifiably concerned that providing this information could result in unintended consequences, including unhappy tenants, or, in a worst case, legal claims for disclosing confidential information.  While the landlord may be protected from any such claims due to the fact the request came from a government agency, the intrusive nature of such requests have made some landlord’s feel uneasy.  Some landlord’s have relied on existing case law that arguably limits the extent of information that may be requested concerning third parties. 

Regular Assessment Appeal Period Opens July 2

The open filing period for appealing assessed property values for 2015-2016 begins on July 2, 2015 and expires on September 15, 2015.  No appeals may be filed after September 15, 2015.  Although the current real estate boom in San Francisco has raised most property values, there is still the opportunity to appeal this years’ assessed value due to particular circumstances or an excessive assessment that remains on the roll.

Backlog Remains

Although the economic situation has helped reduced the backlog of assessment appeals, there are appeals pending from as early as 2007.  The Appeals Board reports that approximately 3,957 appeals remain in process.  This is quite a daunting task for a small office of only 4 staff and three separate part-time Appeals Boards, but the office has done an admirable job of resolving the many appeals that were filed during the real estate downturn.

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.

  

​No conversation can be had about the future of San Francisco without including the Central SoMa Plan.  The Plan is coming at a time of both unprecedented growth and wealth along with unprecedented housing instability and need.  As a result, the Plan is very quickly becoming a vehicle to harness new growth to meet the city’s increasing needs.  In this environment, the Planning Commission began a conversation with its staff this afternoon about the financial aspects of the Plan.

Before we get to the new specifics, the big ideas.  The Planning Department sees the potential of up to $2B in new public benefits being generated by the Plan, through the capture of 66%-75% of the new value created by the rezoning and height increases proposed by the Plan.  This is clearly not a zero-sum process, which means the Plan represents opportunity for both the public and private sectors.  Planning Department staff should get credit for heavily emphasizing the need for a “Goldilocks” result here:  Too much public benefits will result in no development, too little public benefits will result in lost public benefit potential, so the Plan needs to hit the sweet spot in the middle that generates development along with sufficient public benefits.  Planning sees no less than eight different policies competing for public benefits dollars, and not all of them can be maximized in the Plan while actually allowing for new development.

Planning sees the potential for up to 3,600 new units of affordable housing (potentially 31% of all new units created).  $100M in new funds for open space and $60M new funds for child care are also expected.  

Enough for the high-minded policy.  On to the new details:

New fees.  

We finally received some specific proposals for the new fee increases in the Plan. The Plan proposes to extract additional public benefits above current levels only from sites receiving a zoning change or height increase of 15 feet or more.  These sites are generally located south of Harrison Street.  Proposed fee increases include the following:

• The Jobs-Housing Linkage Fee for office development is proposed to increase by $12/sf.
• The Central SoMa Impact Fee for projects receiving zoning benefits is proposed to increase by up to $10/sf.

BMR Rates.

The BMR rate for projects receiving zoning benefits is proposed to increase up to 20% for on-site and 30% for off-site or the in-lieu fee.

Mello-Roos.  

While the proposed Mello-Roos district results in an increase in property taxes after a new project, Planning Department staff provided per-square-foot estimates of what the fee could be for each type of use.  The fee is estimated at $4/sf for office use, $4.50/sf of rental housing, and $5/sf for condominiums.  If based on the same methodology as the Transit Center Mello-Roos District, this fee would apply annually for 30 years.  Keep in mind that the Mello-Roos District could not be established just through legislation – a vote would be required of the owners of parcels located within the District.  There are quite a few additional details and process steps involved with the Mello-Roos District formation.

Non-profit office requirement aired.  

Planning Department staff proposed the potential for requiring new office developments to provide a floor of non-profit office use (similar to the proposed PDR requirement).  This was merely one potential component of the Plan (to be balanced against other requirements put in place), but its highlight in the hearing today suggests it is being considered seriously by staff.

Despite the quite generous public benefits staff estimates it can capture, the general consensus from the Planning Commission (across the narrow SF political spectrum) was that staff should keep pushing the public benefits aggressively.  Planning Director John Rahaim was quick to remind the Commission that what was proposed today was only the current proposal, and that a nexus study was still underway to confirm whether these public benefits increases would even be allowed under state law.  But the message was pretty clear:  the Planning Commission wants to maximize public benefits to the fullest degree possible.

Back when the draft Plan was first made public in 2013, it was a “jobs space” plan (remember Mayor Lee emphasizing the need to lure new jobs to the city?).  In just two years, it is very clear that the Plan is being adapted to the changing political environment. Yes, this means more affordable housing, but more fundamentally it appears the Plan is becoming an opportunity to use the recent and rapid growth to benefit the city as a whole. One could say that this is merely another attempt to slow the change coming to the city, but in essence the Plan embraces these changes to ensure the city continues to be a great place to live for another generation.  In that sense, the Plan represents a win for smart growth.  As always, the devil will be in the details.

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.

​Passed in 1978 by 65% of voters, in response to a perception of out of control property tax increases, Proposition 13, among other things, sets the property tax rate at 1% of assessed value, restricts annual increases of assessed value to not exceed 2% per year, requires that local special tax increases be approved by voters with a two-thirds vote, and requires that state tax increases be approved by a two-thirds vote of each house of the Legislature.  Since that time, Prop 13 has been blamed for everything from poor schools to potholes.

Last week the latest attempt to change California’s legendary Prop 13 tax system was unveiled.  Senator Holly Mitchell (D-Los Angeles) and Senator Loni Hancock (D-Oakland) advanced a plan for a split roll property tax measure and held a press conference with a number of public employee labor groups to announce the effort.  “Split roll” literally means splitting the tax rules so that home owners will still be protected by Prop 13, but commercial property would not.

SCA 5 would amend the State Constitution to allow for regular reassessments of commercial and industrial property to their fair market value (rather than establishing the value once, at the time of purchase), starting with the 2018-19 fiscal year. However, the constitutionally mandated 1 percent tax rate would be retained.  Proposition 13 protections would continue to apply to residential rental property and agricultural property.  If approved by two-thirds of the Legislature the measure would be placed on the November 2016 ballot.  The Governor’s signature is not required.

The measure would also provide for a five-year phase-in of regular fair market value reassessments for certain commercial and industrial property owners; and exempt from personal property taxes $500,000 of tangible personal property used for business purposes, beginning January 1, 2019.

The California Business Properties Association is coordinating with Californians to Stop Higher Property Taxes and allied groups such as the California Chamber, CalTax, and Howard Jarvis, to respond.  The anti-tax folks have come up with some pretty compelling facts and arguments as to why Prop 13 should be left alone:

* According to a 2012 report by the Legislative Analyst’s Office, “Property tax revenues increased throughout the recession while other major revenue sources declined significantly.” 

* A Pepperdine study showed that in 2008-09 when California property values faced the dramatic decline in the wake of the sub-prime crisis and the market collapse (industrial and commercial values fell 6.5%), property taxes collected from these same properties actually rose 5.0%. 

* Board of Equalization data shows that the average annual growth of property taxes for non-homeowner property is 7.34% and for homeowners it is 6.82% since Proposition 13 was put in place. Business property taxes have increased at a higher rate than homeowner property taxes. 

* Local government services and schools can more easily plan out their future budgets because property tax revenues are more predictable and stable than other sources of revenue. 

We will keep an eye on this effort as it moves forward.

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.

​It is no secret to anyone who travels around and through San Francisco that its transportation infrastructure is in need of a serious facelift. From BART and MUNI capacity to bike lanes, damaged roads, and public transit vehicles themselves, San Francisco – and the greater Bay Area – are struggling to upgrade critical aspects of our multi-modal transportation infrastructure. This week, the Planning Department presented refined plans for the City’s Transportation Sustainability Program (TSP).

The TSP has three principal components: a Transportation Sustainability Fee (TSF) for new development; a change to how transportation analyses under CEQA are conducted; and a standardized menu of options for implementing transportation demand management (TDM) tools in new developments. These new changes could begin rolling out by the end of the year.

First, the new impact fee. The Transportation Sustainability Fee would replace the current Transit Impact Development Fee (TIDF). Where the TIDF only applies to non-residential projects, the TSF will apply to both residential and non-residential project. For new projects, the TSF is currently proposed as follows: $7.74/sf for residential, $18.04/sf for non-residential, and $7.61 for PDR. Projects entitled when the new fee is enacted will still pay the existing TIDF only. Projects with pending entitlement applications will not pay the TIDF and instead pay a reduced TSF rate that is roughly 75% of the fees listed above. Projects with plan area fees (i.e. Eastern Neighborhoods, Market/Octavia) will pay a reduced TSF fee, based on the portion of the plan-area specific impact fee allotted to transportation. For example, Eastern Neighborhoods projects will pay a reduced TSF fee equal to the amount of the EN Infrastructure Impact Fee that is directed to transportation infrastructure. The reduction will vary depending on plan area.  

Next, the CEQA change. San Francisco is set to implement a statewide change to how transportation impacts are analyzed. Currently, CEQA focuses on how the Level of Service at nearby intersections is impacted by a new project. This translates to an inherent disadvantage for urban infill projects, which are much more likely to be located near a busy intersection than a suburban subdivision. The new approach would focus on Vehicle Miles Traveled, which is an inherent benefit to urban infill projects which generate much less vehicle miles traveled due to better public transit and the dense, walkability of cities. As a result of this change, the Planning Department expects that traffic from most new projects in the City will likely have a less than significant impact on the environment. The City estimates that all but the largest of new projects will be able to avoid preparing a project-specific transportation study. This will have a truly transformative impact on the entitlement process, since a transportation study typically takes 6-9 months to complete and transportation is the most likely environmental issue to trigger environmental review.

The final piece in the puzzle is the City’s Transportation Demand Management program. Under the program, there will be a standardized menu of options for project sponsors to choose from when implementing a TDM program for their development. These measures will be implemented citywide and will be put into legislation so that it is codified as a requirement, like the Maher and greenhouse gas ordinances.

Between the City and the State, there are numerous next steps. Planning is completing the technical analysis of TSP and confirming a policy approach. It has already begun public outreach to present the program and receive feedback. We can expect the introduction of the new impact fee and the standardized Transportation Demand Management Program to the Board of Supervisors in the summer or early fall, which are projected to be adopted in late fall. Finally, State action on the CEQA reform is expected in the winter, and the City will begin working to implement the new changes shortly after state CEQA rules are amended.

This update was prepared with significant contribution from one of Reuben, Junius & Rose’s newest attorneys, 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.