To Sublease Or Not To Sublease?

May 5, 2021May 5, 2021 | Michael Corbett

With overall rental rates having fallen nearly 30% and vacancy rates risen roughly 150% between Q4 of 2019 and Q1 of 2021[1], the leasing of office space in San Francisco undisputedly remains a tenant’s market. Of the approximately 20.2 million square feet of available office space in San Francisco, nearly 45% is comprised of sublease offerings.[2] For companies in the market for office space, special factors should be considered when evaluating sublease opportunities. The following outlines the primary benefits and potential risks of subleasing office space in San Francisco.

BENEFITS

Discounted Rental Rates. Sublease offerings traditionally undercut the prevailing market rates for direct deals with a master landlord and offer the greatest benefit to a sub-tenant. Sub-landlords are generally more inclined to provide a substantial period of rent abatement as compared to master landlords.
Flight to Quality. With discounted rental rates comes the opportunity for a sub-tenant to lease higher-quality space it otherwise would not be able to afford, enhancing the image of the sub-tenant company without paying the premium a master landlord would otherwise require.
Plug and Play. A sublease may provide the sub-tenant with the option of using – often at no additional charge – existing furnishings, fixtures and wiring within the sublet premises. Such “plug and play” opportunities are a benefit to a sub-tenant’s bottom line, and may allow for a more efficient, seamless relocation and/or opening.
Less Detailed Lease Negotiation. Sublease agreements are typically shorter in length and more simplified as compared to master leases.

RISKS

Master Landlord and/or Lender Consent. Proposed subleases generally require the consent of the Master Landlord, which poses a risk of uncertainty for both prospective sub-landlords and sub-tenants seeking to enter into a sublease agreement. Further, in instances where an approved sublease requires the sub-tenant to first obtain sub-landlord consent (e.g., making alterations to the premises), prior consent of the master landlord will also be necessary. Depending on the terms of the master lease, approval of master landlord’s lender may be required in certain instances.
Recapture and Termination Rights. Depending on the terms of the master lease, the master landlord may have the right to recapture the premises and/or terminate the master lease in the event a request to sublease is made.
Sub-Tenant is Subject to Master Lease. Sub-tenants are responsible for complying with the sublease agreement as well as the master lease. As a sub-tenant, it is important to review the master lease to avoid unexpected obligations and limitations (e.g., insurance requirements, operating expense pass throughs, relocation rights, requirements to restore the premises to original condition, burdensome indemnity provisions, etc.).
Less Opportunity for Improvements. Generally, sub-landlords are less inclined to offer a Tenant Improvement Allowance, requiring the sub-tenant to instead sublease the premises on an “as-is” basis.
Eviction and/or Attornment Issues. A breach of the master lease by sub-landlord may result in the sub-tenant being unexpectedly evicted (if master landlord terminates the master lease) or having to attorn to the master landlord (if required by the sublease and authorized by the master lease).
Potential Tax Pass-Through Obligations. Master landlords may pass through to the sub-landlord those taxes generated pursuant to San Francisco’s Early Childcare and Educational Commercial Rents Tax Ordinance and the Gross Receipts Tax Ordinance. Depending on the terms of the sublease agreement, sub-landlord may in turn pass through such costs to sub-tenant.
Increased Documentation. While the sublease agreement is usually less involved than a master lease, a review of the master lease is also necessary, and possibly a separate attornment and/or lender consent agreement.
No Direct Recourse Against Master Landlord. Because a sub-tenant is not in privity of contract with the master landlord, sub-tenants do not have any direct remedies against the master landlord. This can be especially problematic when there are poor or defective building conditions and/or service issues, as the sub-tenant finds itself at the mercy of the sub-landlord to seek recourse from master landlord on sub-tenant’s behalf.
Allocation of Expenses Disputes. Issues may arise regarding whether the sub-landlord or sub-tenant is responsible for paying certain operating costs passed through by the master landlord.

Companies considering a sublease in San Francisco should make clear in any such agreement which party will be responsible for what costs and understand how the terms of the master lease may impact their sub-tenancy. Without a meaningful evaluation of the above risk factors, the boon of discounted rent that accompanies a sublease could quickly be erased by unexpected costs and obligations over the course of the sublease term.

Please contact Michael Corbett by email at mcorbett@reubenlaw.com for answers to any questions related to this update.

[1] Colliers International, Q1 2021 Office Market Report

[2] Id.

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

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

Reduce Exposure to Mechanics’ Liens

December 11, 2020 | Kaitlin Sheber

While contractors typically enjoy a 90-day period to file a Mechanic’s Lien once a project is completed, project owners in California can take steps to significantly shorten this deadline by recording a Notice of Completion (“Notice”). The Notice gives written notice that an entire project is completed. A Notice that is properly recorded and served benefits project owners in two main ways:

Reduced project risk because contractors and subcontractors have less time to record a Mechanic’s Lien – which can result in filing of a mechanic’s lien foreclosure action; and
Project owners can clear title more quickly, smoothing the way for post-construction loans and sales.

Mechanic’s Liens Can be Recorded as late as 90 Days After Project Completion:

Unless an owner records a Notice, contractors and subcontractors have 90 days to record a Mechanic’s Lien. But, if a Notice is properly recorded, that 90-day period is shortened to 60 or 30 days. The time period depends on whether a direct contractor performed the work:

A direct contractor has 60 days to file a Mechanic’s Lien after a project owner records a Notice of Completion.
Persons that are not direct contractors have 30 days to file a Mechanic’s Lien after a project owner records a Notice of Completion.

It is critical that a recorded Notice be served on each direct contractor, subcontractor, and material supplier who may have the right to record a mechanic’s lien against the project. The Notice will only be effective if timely and validly served, so we recommend service via certified mail with a proof of notice declaration to establish service in the event of any dispute.

When is a Project Completed?

The date a project is completed is the moment the clock begins to run to record a Mechanic’s Lien or Notice. Under the California Civil Code, a project is considered complete when any of the following occur:

Actual completion;
Labor stops and occupation or use by the owner occurs;
Labor stops for a continuous period of 60 days; or
Labor stops for a continuous period of 30 days, after which a notice of cessation is recorded.

Additionally, a project is considered completed at the time a public entity accepts the project.

In practice, the definition of actual completion has proved difficult to nail down. Ordinarily, “completion” means that the entire project has been completed. But this meaning does not give clear direction for the date a court would find a project legally completed.

Courts may also determine completion by looking at the substantiality of work performed after a project is presumed completed. Where a contractor performs additional work under the construction contract, courts will tend to find the project was not previously completed. Conversely, the project may be actually completed even if the contractor later corrects defects. Factors like an issuance of a Final Certificate of Occupancy can serve as evidence of completion, but are not definitive proof. Unfortunately, as the California Civil Code currently stands, the important definition of completion remains ambiguous.

Notice of Completion Timing

A Notice must be recorded and served within 15 days from the date a project is completed. Though the definition of completion is nebulous (as discussed above), a Notice is considered valid if recorded and served within 15 days of the true project completion, even if it includes an erroneous completion date.

Authored by Reuben, Junius & Rose, LLP Law Clerk Kaitlin Sheber.

Letter From DBI Interim Director

September 4, 2020September 4, 2020

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

New/Pending Local and State Rent Protections

April 30, 2020 | Chloe Angelis

San Francisco Rent Increase Moratorium:

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

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

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

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

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

Proposed Statewide Unlawful Detainer Moratorium – AB 828:

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

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

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

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

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

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

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

Supervisor Ronen Proposes to Remove Most Office Uses in UMU Districts

February 21, 2020February 21, 2020 | Tara Sullivan

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

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

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

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

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

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

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

SB 50 Revamp: The More HOMES Act Amended

January 9, 2020January 9, 2020 | Justin A. Zucker

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

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

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

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

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

Local Flexibility Plans

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

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

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

Priority Preference Program

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

Sensitive Communities

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

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

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

Authored by Reuben, Junius & Rose, LLP Attorney Justin A. Zucker

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

Trial Court Challenges to State Housing Laws

December 3, 2019December 6, 2019 | Jonathan Kathrein & Matthew Visick

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

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

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

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

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

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

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

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

SFBARF et al. City of San Mateo et al.

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

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

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

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

Conclusion

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

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

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

Statewide Rent Control & Eviction Protections Signed into Law

October 16, 2019November 5, 2019 | Sabrina Eshaghi

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

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

Rent Cap

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

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

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

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

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

Just Cause Eviction

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

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

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

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

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

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

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

COPA is Here – Now What?

October 2, 2019October 21, 2019 | Tuija Catalano

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

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

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

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

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

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

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

ALERT: Jobs Housing Linkage Fee on Offices Could Increase

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

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

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

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

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

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

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

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

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

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