​Those readers with a particular interest in CEQA may remember our previous updates on the inefficient CEQA appeal process currently in place in San Francisco.  CEQA – the state law mandating environmental review of projects requiring discretionary approval – requires that all environmental determinations (exemptions, negative declarations, EIRs) must be appealable to the Board of Supervisors.  Currently, city code is written so that there are no time limits for appeals of exemption determinations or negative declarations.  This has led some project opponents’ to abuse of this loophole, whereby they use a CEQA appeal simply as a way to continue to oppose a project (even if there are no valid issues with the environmental determination).  

The worst example of this abuse is when a categorically exempt project which requires no Planning Commission approval is taken to the Planning Commission on Discretionary Review.  After being approved by the Planning Commission, the project sponsor can spend months preparing detailed architectural and building plans.  Once the permit is issued, an appeal can be filed at the Board of Appeals.  Even if the Board upholds the permit, the project can still have its exemption determination appealed to the Board of Supervisors and overturned – potentially over a year after obtaining Planning Commission approval.

Legislation introduced last week by Supervisor Scott Wiener would fix the current situation, by simply enacting appeal periods for negative declarations and exemption determinations.  To appeal a negative declaration to the Board of Supervisors, the document must have already been appealed to the Planning Commission, and the Board appeal must be filed within 20 days after adoption by the Planning Commission.  To appeal an exemption determination, the appeal must be filed within 20 days of the granting of the first entitlement (such as a conditional use).  This appeal period would be shortened if the appeal period for the underlying entitlement is shorter than 20 days (such as approval of a permit that does not require Planning Commission approval, which is 15 days).  Importantly, the appeal period begins after the first entitlement – if a complex project requires more than one entitlement, the appeal period begins once the first entitlement is granted.  We do believe that the term “entitlement” should be more clearly defined to include any Planning Commission action, including a hearing before the Commission on Discretionary Review.

CEQA is intended to provide decision-makers with information regarding environmental effects caused by a project up front – so that they can make an informed decision weighing the benefits of the project versus any potential impacts it would cause.  As currently implemented in San Francisco, a CEQA exemption determination or negative declaration could be called into question at the very last moment of project approval – after months or years of approval and appeals hearings on the merits of a project.  By simply applying appeal periods to all CEQA documents, Supervisor Wiener’s legislation would make the process fairer, since project sponsors wouldn’t be at risk of getting a CEQA determination appealed and overturned months or years after it has first been relied upon.  It also better fulfills the intent of CEQA, which is to provide decision-makers with accurate environmental information up front.  It is wasted time and energy to continue through the many steps of the entitlement process if the initial environmental review is inadequate.

We commend Supervisor Wiener for taking on this common-sense reform of an important issue.  This is not the first attempt at this simple reform – an earlier effort by former Supervisor Alioto-Pier died at the end of the last Board of Supervisor’s session in 2011.  With the current pragmatic, get-things-done Board, this legislation should be a no-brainer.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​Please join Mayor Ed Lee, Reuben & Junius, Bob Nibbi and Nibbi Brothers for an evening reception and fundraiser in support of Proposition C, the Housing Trust Fund Initiative, on October 10, 2012, from 5:30-7 p.m. at Reuben & Junius’ office, One Bush Street, 6th Floor.  To RSVP, please contact Connie Addington at caddington@reubenlaw.com or (415) 567-9000. 

What is Proposition C?

Prop. C will roll back inclusionary requirements by 20 percent and create a more predictable environment for housing investment by restricting future increases in affordable housing exactions.

Mayor Lee was instrumental in bringing together both market-rate and affordable housing developers to craft Prop. C, the affordable “Housing Trust Fund Initiative” on this November’s ballot.  Prop. C will provide a stable source of funding to replace the loss of Redevelopment Agency financing.   The trust created by Prop. C will eventually result in a dedicated funding stream of $50.8 million per year for affordable housing. 

How will Proposition C reduce inclusionary requirements?

Prop. C requires the City to reduce by 20 percent the on-site inclusionary requirements, as they existed on July 1, 2012.  The reduced requirement will take effect on January 1, 2013.   For example, a project that now has an on-site requirement of 15 percent will only be required to make 12 percent of its units affordable.  Thus, a 100-unit project will only have to provide 12 on-site units rather than 15.   Assuming two-bedroom units, here’s how the finances might break down—conservatively—in a neighborhood like Hayes Valley.  If the units were to be “for sale” BMR units, the City mandated sales price would be about $295,000, the actual market price for that unit could be $780,000, resulting in a $485,000 difference between market rate and below market rate prices.  For a 100 unit project that will only have to provide 12 on-site units rather than 15, the savings in this hypothetical would be almost $1.5 million dollars.  There would also be savings under the rental BMR program.  A typical BMR rental price is $1,275 a month compared to $3,700 a month for a market rate rental.  This is a difference of $2,095 a month and on the same hypothetical 100 unit project would result in a monthly savings of $6,285.

Approved projects will qualify for the reduced inclusionary requirement, so long as they have not received their “first construction document” as of January 1, 2013.  First construction document means the first building permit issued for a development project or, in the case of a site permit, the first building permit addendum issued or other document that authorizes construction of the development project.  An addendum for demolition, grading, shoring, pile driving, or site preparation work is not considered a “first construction document.”  In order to receive the reduced inclusionary requirement, approved projects must:

1) Make a one-time application to the Planning Commission for a modification of conditions of approval to reduce the inclusionary requirement by 20 percent or change their election to provide on-site units; and

2) Demonstrate to the Commission that the reduction will enable the project to obtain financing and commence construction within one year.

If the previously approved project does not receive its first construction document within a year of the Planning Commission action, the reduced inclusionary requirement is rescinded, unless the Zoning Administrator determines at a public hearing that the sponsor made good-faith efforts but was unable to obtain the first construction document for reasons beyond its control. 

What projects are ineligible for a reduced inclusionary requirement under Prop C.?

Prop. C establishes a “basic on-site inclusionary requirement” of 12 percent.  No project can go below this basic level.  Right now, projects 120+ feet in height are subject to a general citywide requirement of 12  percent, so they aren’t eligible for a reduction under Prop. C.

Projects with a development agreement or subject to redevelopment requirements  are also ineligible for the reduction in inclusionary requirements, as are projects in which the City has a proprietary interest.

How does Prop. C restrict future increases in affordable housing exactions?

The cost burden of complying with the City’s inclusionary requirements has increased dramatically.  Fifteen years ago, there was no uniform affordable housing requirement.  Today, the average two-bedroom unit in a market-rate development is subject to a $67,000 fee to subsidize affordable housing.  Prop. C will cap future cost escalation by barring the City from adopting any land use legislation, administrative regulation, or imposing new conditions of approval on a permit that would increase a project sponsor’s cost of complying with the inclusionary requirement beyond levels existing on January 1, 2013.  This will lock in the reduced inclusionary obligations for the next 30 years, unless altered by the voters.  Prop. C will also prevent the City from adopting any new other affordable housing fees. 

There are some exceptions, however.  Inclusionary requirements can be increased when large areas or individual projects are rezoned or otherwise receive bonuses that significantly increase residential development potential.  As well, the restriction would not apply in redevelopment areas, infrastructure finance districts, or areas where tax increment can be used to fund affordable housing.  

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​The Board of Supervisors this week approved the first reading of legislation that will go a long way toward defining how the former San Francisco Redevelopment Agency (“SFRA”) will transition to, ultimately, its complete dissolution.  The legislation was introduced by Mayor Lee and sponsored by Supervisors Kim, Cohen and Olague.  The Board approved the legislation by a 10 to 1 vote, with Supervisor Campos opposing.

Under Assembly Bill 26 (“AB 26”) and the California Supreme Court’s decision upholding AB 26, all redevelopment agencies in the state, including the SFRA, were dissolved by operation of law as of February 1, 2012. Although the fact of dissolution was clear at that time, the nuts and bolts of how that dissolution would occur needed significant clarification.  Unanswered questions included:  whether redevelopment plans would still control development in existing project areas; who would approve new and ongoing projects in project areas; and whether the Planning Department would take over the functions of the SFRA staff.  The legislation approved by the Board of Supervisors this week answers many of these questions. 

The short answer is that a new, independent City agency, formally known as the Successor Agency to the Redevelopment Agency of the City and County of San Francisco (“Successor Agency”), will essentially step into the shoes of the former SFRA as to the management of “non-affordable” housing assets and obligations.  Just like the former SFRA, this new Successor Agency will have an Executive Director and will be staffed by former SFRA staffers, and will be governed by a five-member commission appointed by the Mayor (subject to confirmation by the Board of Supervisors) to serve four-year terms. 

The Successor Agency’s Executive Director could be quite powerful as the Successor Agency Commission is authorized to delegate to the Executive Director any of its duties it deems appropriate.  The Successor Agency will not have the power to collect tax increment financing or to create new redevelopment project areas, as its reason for existence is to wind down the affairs of the SFRA.  The Mayor’s Office of Housing (“MOH”) has been and will continue to manage the SFRA’s affordable housing assets and functions.

When redevelopment agencies were dissolved on February 1, AB 26 designated the City as the original successor agency as to non-affordable housing assets and obligations.  As required by AB 26, the City established a seven-member oversight board of the successor agency (“Oversight Board”). The Mayor appointed, and the Board of Supervisors confirmed, four members to the Oversight Board. The Bay Area Rapid Transit District, the Chancellor of the California Community Colleges, and the County Superintendent of Education each appointed one of the remaining three members of the Oversight Board.  Much of what the Successor Agency and Successor Agency Commission are now tasked with under the new legislation was previously within the jurisdiction of the Oversight Board.  The Oversight Board will continue to be responsible for the City’s semi-annual financial disclosures to the state Department of Finance.  These are referred to as Recognized Obligation Payment Schedules, or “ROPS.”

Pursuant to AB 1484, legislation adopted by the state Legislature in June 2012, the Board of Supervisors’ legislation will terminate the City’s responsibility as successor agency and now provides as follows: 

(1) the new Successor Agency is a separate public entity from the public agency that provides for its governance (the City) and the two entities shall not merge;

(2) the Successor Agency has its own name and the capacity to sue and be sued;

(3) the Successor Agency shall be substituted for the SFRA in all litigation to which the SFRA is a party;

(4) the Successor Agency succeeds to the organizational status of the SFRA but without any legal authority to participate in redevelopment activities except to complete the work related to an approved enforceable obligation;  

(5) the Successor Agency is a local entity for purposes of the Brown Act;  

(6) the Successor Agency is now distinct from the City but is still subject to the governance of the City acting through its legislative capacity; and

(7) the Successor Agency may retain, as it deems appropriate, the City Attorney for legal advice and representation.

Under the Board’s new legislation, the Successor Agency and the Successor Agency Commission will act in place of the SFRA to implement, modify, enforce and complete the surviving redevelopment projects.  These include, without limitation, the “Major Approved Development Projects” (Mission Bay, Hunter’s Point and the Transbay Transit Center), and all other enforceable obligations, except for those enforceable obligations for affordable housing that have been transferred to MOH.

The Successor Agency and the Successor Agency Commission also will approve all contracts and actions related to the assets transferred to or retained by the Successor Agency, including, without limitation, the authority to exercise land use, development and design approval authority for the Major Approved Development Projects and other surviving redevelopment projects, and the approval of amendments to redevelopment plans as allowed under AB 26 and AB 1484, and subject to adoption of such plan amendments by the Board of Supervisors and any required approval by the Oversight Board.

The Board of Supervisors is anticipated to approve the second reading of this legislation next week at its regular meeting (October 2), and then the Mayor will have 30 days to sign it into law.  Nevertheless, Successor Agency staff already is effectively in place and operational as authorized by the new legislation.  Please contact the author if you have any questions or would like additional information on this topic.

Clarification Regarding Gross Receipts Tax Proposal

In our last update, we discussed the San Francisco gross receipts tax proposal that will be on the November.  Our summary of the tax rates did not include a final change that was made before the legislation was approved for the ballot.  The final version has the following rates, which are slightly lower than previously proposed:

               Gross Receipts        Tax Rate

               Under $5M                0.285%

               Over $5M                  0.3%

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​In prior updates, we informed you about pending legislation and regulations that would impact the real estate industry.  A few of these laws and regulations are now being implemented or will be voted on in November.

San Francisco Gross Receipts Tax

The San Francisco Gross Receipts Tax will be on the November 2012 ballot.  If passed by San Francisco voters, the existing payroll tax will be phased out over the next 5 years and replaced with a progressive tax based on the annual gross income received by the taxpayer.  The tax rate is determined by the type of business generating income. The tax is intended to be revenue neutral, as a whole, but will have a disproportionate impact on the real estate industry.  The following is a summary of the tax rates for real estate leasing and related services.

0.3%      Gross Receipts between $0 and $1,000,000

0.325%  Gross Receipts between $1,000,001 and $25,000,000

0.4%      Gross Receipts over $25,000,000

And for other industries, the range of tax rates is:

Retail:  0.075% to 0.175%

Food and Manufacturing:  0.125% to 0.45%

Hotels:  0.3% to 0.4%

Construction:  0.3% to 0.45%

Professional/Financial/Tech:  0.4% to 0.55%

Private Education/Health:  0.525% to 0.65%

In our previous update of July 12, 2012, we summarized the proposed tax in more detail, but a few clarifications to the legislation are important, including: Gross Receipts do not include distributions to “pass through” entities; Rental receipts are taxed only for San Francisco properties; and Special tax rate of 1.5% of total payroll is imposed in lieu of gross receipts tax for businesses that are primarily “administrative offices” (limited to companies with more than 1,000 employees and income over $1,000,000,000, so only large companies are benefitted by this exception.)

              

Commercial Energy Disclosures

Beginning January 1, 2013, any property owner that sells,ground leases, or finances a commercial building over 50,000 square feet must disclose certain data regarding the building’s energy consumption.  This information can only be obtained by registering the building with the EPA’s Energy Start Portfolio Manager website and opening an account.  The disclosures will include a statement of the building’s energy performance, the property’s physical and operating characteristics, and a comparison of energy use to national averages.  As of July 1, 2013, the requirements will apply to buildings above 10,000 square feet.  All buildings with at least 5,000 square feet must comply as of January 1, 2014.

It is interesting to consider that the owner’s only means of compliance with the regulations is to register the building with an agency of the Federal Government. 

On the bright side, according to the State of California Energy Commission, the EPA’s Portfolio Manager system is free to use, and allows building managers to efficiently track energy consumption in a secure, online environment, which could help owners identify the inefficient use of energy resources.   Owners that plan to sell in the coming years should prepare to meet these disclosure obligations.

Changes to Condo Laws Adopted

We previously wrote about the proposed overhaul of California law regarding condominiums and other common interest developments.  This bill was passed on August 17, 2012 and takes effect on January 1, 2014, giving condominium projects and consultants over a year to digest the new rules.  Our update of February 24, 2012 (available on our website in the archived articles) summarizes the key changes.  Property managers, boards, and condominium developers should update their documents and procedures to account for these changes.

Split Property Tax Roll

The proposed initiative to amend Proposition 13 to create a split tax roll and reassess commercial properties every three years failed to qualify for the November 2012 ballot.  It appears that the sponsors did not actively pursue the necessary signatures.  Perhaps they felt that the initiative would have been too much to take on this year, given Governor Brown’s proposed initiative to increase the sales tax and personal income tax (Proposition 30).  Nonetheless, some commentators feel that it is only a matter of time before commercial property is reassessed more frequently to catch more tax dollars for governments that desperately need the money.

 

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​Revamp of Transit Impact Development Fee (TIDF) Proposed

Significant changes to the Transit Impact Development Fee (“TIDF”) may be coming our way soon.  The TIDF is a per-square-foot impact fee that applies to non-residential developments proposing new construction and changes in use of existing buildings.  A broad coalition including Mayor Lee, Supervisor Wiener and Supervisor Olague have introduced the amendments, which gives the legislation good odds of passing at this point.  Note, however, that the previously-proposed expansion of the TIDF to apply to residential uses is not proposed as part of this legislation (nor is the broader Transportation Sustainability Fee (“TSF”), which we reported on back in May 2012 and would add the benefit of eliminating the need for CEQA transportation studies).

Among the changes proposed, we see two as having the most impact on development in the city. First, the threshold for triggering the TIDF would be reduced from 3,000 square feet to 800 square feet.  It was not uncommon for projects to avoid the TIDF by limiting non-residential uses – say a ground floor retail space in a residential building – to below 3,000 square feet.  Now, with an 800 square foot trigger, most non-residential projects, or components of projects, will trigger the fee.

The other major change is that the fee rates are being changed.  This is not unique in itself – the fee rates increase on an annual basis – but the legislation increases the disparity between the office fee rate and the industrial fee rate significantly.  The office fee rate will increase from $12.06 to $12.64 and the industrial fee rate will be reduced from $9.65 to $6.80.  The real impact of this will be felt in projects converting old industrial buildings into office.  Since the TIDF provides for a fee credit based on the fee rate of the current use and the fee rate of the proposed use, the credit for a change from industrial to office would decrease from roughly 80% to 54%.  Essentially, a reduction in the industrial fee rate helps few projects (as there are few industrial developments these days in the city) but will significantly decrease the credit available for an industrial to office conversion.

There are some other goodies in the legislation, including additional fee credits for policy reasons, such as a reduction in the fee for businesses occupying a space of less than 5,000 square feet and for projects that do not maximize the amount of parking permitted.  However, in the end, the legislation ends up making the TIDF a larger exaction on projects – especially those office conversions that are so popular these days.

Residential Parking Tax Reform Measure Proposed

A new residential parking tax reform measure has also been introduced by Supervisor Wiener that could bring residential parking operators into the light – but there’s a catch! Currently, the same parking tax collection and registration rules apply to owners of major commercial parking garages downtown and to owners of parking spaces at a residential building being rented out to residents who do not live in the building.  These significant rules include obtaining an annual parking permit, making monthly tax prepayments, paying associated fees, and maintaining certain levels of insurance.  According to the city itself, these rules have led to likely thousands of owners of residential parking spaces who are not complying with the parking tax ordinance. Taxes due even on a single space can add up over time, and including penalties for failure to pay the tax on time, and can create a major cost that hang over many residential parking space owners’ heads.  

Supervisor Wiener’s legislation would create a “carve out” for certain residential parking operations. For parking operations consisting of 5 or less spaces rented to non-residents may be eligible for a significantly streamlined parking tax.  The spaces must be rented on at least a monthly basis and the total gross receipts must not exceed $4,000 quarterly and $15,000 annually.  If eligible, a residential parking operation would be exempted from the commercial parking permit requirement, from the monthly prepayment requirement, and from the revenue control equipment fee.  The residential parking owner must still file quarterly parking tax returns. 

While the first part of the legislation will be important for new owners of residential parking spaces, those who have owned residential parking spaces for many years without paying the parking tax face significant tax liability and penalties, and would have little incentive to come clean now.  For these owners, the legislation attempts to entice them into the new program by providing amnesty for taxes, fees, and penalties not paid up until April 1, 2011.  That may not be enough to bring existing residential parking owners into the open.  First, the amnesty does not provide protection for unpaid taxes between April 1, 2011 and today – which could be significant when penalties are added.  Also, as we have seen with the Planning Department’s legitimization program, the “amnesty” provision may not be as forgiving as it sounds, and residential parking owners could run the risk of exposing themselves to the city, and subsequently being denied eligibility for the amnesty program.

Supervisor Wiener’s legislation is a common sense attempt to distinguish residential owners who rent a small amount of parking spaces from major downtown commercial parking garage owners.  While the “amnesty” provisions may not be enough to bring the thousands of existing residential parking owners into the light, it will certainly make the parking tax work better moving 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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​Mayor Ed Lee has proposed an ordinance to initiate amendments to the Planning Code’s Affordable Housing Requirements for new residential construction to apply only to projects of 10 units or more, in place of the existing trigger of 5 units. The Affordable Housing Program requires housing developers to provide a fixed amount of subsidized housing at each project, or to pay an in-lieu fee to the City.

The purpose of the Mayor’s proposal is to stimulate production of smaller scale

residential projects on infill sites. 

Construction of new housing from 5 to 9 units has waned in recent years,

partially as a result of the high burden of the affordable housing program,

also known as the below market rate housing program, on smaller scale projects.  Mayor Lee’s proposed ordinance will take

effect on January 1, 2013 if adopted by the Board of Supervisors. 

Pre-Condition for Operation

of the Proposed Ordinance

The

increase in the threshold for application of the affordable housing

requirements to projects of 10 units or more, rather than 5 units or more, would

be dependent on the voters’ adoption of the Housing Trust Fund Charter

Amendment that will appear on the November 6, 2012 election ballot.  The Housing Trust Fund would dedicate a

certain portion of the General Fund each year, for the next 30 years, to provide

financing for affordable housing.  The

Housing Trust Fund Charter Amendment also proposes to lower the requirements

for the provision of on-site below market rate units.  The Housing Trust Fund is intended to replace

the former Redevelopment Agency, which was recently eliminated by the

Legislature, as a source of financing for affordable housing in San

Francisco.  The proposal for the Housing

Trust Fund was placed on the ballot for the November 6, 2012 elections by the

Board of Supervisors on July 24, 2012.

 The Housing Trust Fund

is comprised of three major components, as follows:

 1.    

Dedicate

an annual contribution from the General Fund to the Housing Trust Fund for the

next 30 years.  The first year

contribution would be $20 million, plus an additional $2.8 million each year,

until $50.8 million per year is reached.

 2.    

Lower

the existing on-site inclusionary housing requirement by 20%, with a minimum of

12% of units in any project provided for below market rate, or payment of a

corresponding in-lieu fee to the City. 

This would represent a reduction from the current requirement of 15% of

the total number of units in any project.

 3.    

Prohibit

future increases to the Planning Code’s inclusionary housing requirements with

certain exceptions. 

 In

essence, the proposed ordinance would revert the threshold for inclusionary housing

requirements to that which was in place before the Board of Supervisors’ legislative

amendments in 2006.

 It is

projected that over the next 30 years, the Housing Trust Fund would provide

approximately $1.2 billion for affordable housing production in San Francisco.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​Failed Land Use Bills at State Legislature Provide Insight into Future Planning Policies

Today marks the last day of the California Legislature’s session.  It also marks the end of the biennial rush of last minute legislating:  flurries of bills – not of insignificant importance – being passed in the waning days of the session by a legislature that can never be sure about the result of the upcoming election season.  While the major public pension and workers’ compensation reform measures – expected for passage today – have been getting most of the headlines, a pair of significant land use reform measures that did not ultimately get passed provide a window into potential future reforms.

California’s landmark environmental law, CEQA, has been pelted with criticism and ripe for reform for decades now.  We in the Bay Area are well aware of CEQA’s many ironies.  You can’t get a “greener” land use and planning policy than high-density, urban infill projects near public transit.  To have these projects be held up with countless studies, unsubstantiated CEQA appeals from neighbors, and potential litigation, seems to be in direct conflict with promoting environmental protection.  The most egregious example of CEQA’s unintended consequences were the air quality guidelines handed down by the Bay Area Air Quality Management District a few years back that triggered full EIRs for mid-sized housing developments in San Francisco.

Last week, in a bit of legislative sleight-of-hand, Senator Michael Rubio was considering amending a bill he had already introduced by removing all of its text, and inserting his CEQA reform measure in its place.  Language of the CEQA reform measure was never released, but a two-page overview was released by the CEQA working group (a group of industry leaders working to modernize the 40-year-old law).  Mainly, the reform measure would improve CEQA by coordinating and integrating various environmental and planning laws.  CEQA lawsuits would be barred to challenge new measures that would enhance environmental standards.  Lawsuits would be limited when a project is consistent with a general plan or area plan, so long as the project is incorporating mitigation measures from the adopted plan.  Public disclosure and reporting would be enhanced, by requiring projects to issue annual reports of compliance with mitigation measures on a new public website.  

While the State Senate ultimately decided not to take up the reform measure in this term, citing the lack of public hearings and outreach, Senate President Darrell Steinberg did state his commitment to future CEQA reform similar to the Rubio measure:  “We’re going to take it on, and we’re going to take it on in a big way, [but]…in the only way good things really get done around here – and that is to sit down over the course of weeks and months and grind through the tough issues and make the fair compromises.”

Another measure that was expected to pass but was ultimately killed was Berkeley Assemblywoman Nancy Skinner’s bill that would restrict the ability of localities to require parking in high-transit areas.  Considering the fact that San Francisco no longer requires parking downtown and in other public transit neighborhoods, the impacts of the bill would have been limited here.  But the bill would have established a statewide maximum required parking standard in these areas of two spaces per 1,000 square feet for smaller non-residential projects and one space per unit in market-rate housing developments.  The bill was championed by the California Infill Builders Federation, but was ultimately killed by a coalition of Central Valley cities and the American Planning Association, which believed the bill did not provide cities enough discretion to account for unique circumstances.  

While these reform measures did not make the cut in the 2011/2012 legislative session, they are likely beacons of what is to come in the near future with respect to land use reform in California.  We will especially be keeping our eyes on CEQA reform – both locally and in Sacramento – as changes are likely on their way.

Real Estate Tax Appeal Deadlines are Looming

Property owners in San Francisco, Alameda, and Santa Clara Counties have only until September 15, 2012 to file real estate tax appeals concerning the 2012-2013 assessed property value.   Contra Costa County’s deadline is November 30, 2012.  These deadlines are absolute.  If missed, the taxpayer waives any right to file an appeal for this tax year.  If you need any assistance filing an appeal, please contact Kevin Rose at krose@reubenlaw.com. 

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​This month’s SPUR (San Francisco Planning + Urban Research) newsletter looked at what San Francisco can learn from Los Angeles’ success in growing or reinvigorating walkable, transit-oriented districts in a city known for its auto-centric sprawl.  Since SPUR has already interrupted our San Francisco navel gazing, we’ll expand on the theme to look at Los Angeles’ recent “Multiple Approvals Ordinance”, which streamlines the approval process for projects requiring multiple development approvals.  

Like San Francisco’s Planning Code, Los Angeles’ Zoning Code started as a slender document, with 67 pages and “only a handful of discretionary approval processes…with simple and clear decision-maker and appeal hierarchies.”  Over time, the Zoning Code swelled to 600 pages.  The number of required approvals grew and authority to grant them diffused among multiple city bodies and officials.  The requirement to seek multiple, independent approvals, each with its own appeal process created an unnecessarily protracted review process that was burdensome for applicants, confusing to the public, and a drain on staff resources.  

The Multiple Approvals Ordinance’s remedies for the situation are modest:  they do not lower the bar for approvals, reduce public notice requirements, or cut off opportunities for appeal.  Instead, they streamline the process by consolidating approvals with the highest-level official or body with authority over a project.  For example, if a project requires approval by the Zoning Administrator and the Planning Commission, the Planning Commission is empowered to grant all approvals at a single hearing.  This change greatly simplifies the appeal process as well.  With project approvals granted on one date, appeal periods can run concurrently and appeal hearings can similarly be consolidated for hearing before a single authority.  

Because new regulations are often adopted piecemeal, reforms such as the Multiple Approvals Ordinance seem like a logical bit of housekeeping that cities should undertake now and then.  They create a safer and more transparent process for all participants in the development process and allow planners to spend less time pushing paper and more time focused on project merits and planning goals.  They also save cities money.  

In San Francisco, even small projects can face the possibility of six or more approval and appeal hearings before all is said and done.  A project requiring a variance from the Zoning Administrator, a conditional use from the Planning Commission, and an approval from the Historic Preservation Commission would have to go to at least two and possibly three hearings.  These, in turn, could be followed by three separate appeals, one at the Board of Supervisors and the other two at the Board of Appeals.  There could also be independent CEQA or subdivision map appeals at the Planning Commission and the Board of Supervisors.  

With such a notoriously convoluted approval process and a Planning Code that numbers some 1,900 pages, San Francisco seems ripe for reform.  However, reform is hard to achieve over the opposition of those who relish the power to inflict death by a thousand hearings, or who perceive a plot at work behind even the most commonsense reform.  For example, former supervisor Fiona Ma’s efforts to establish clear time frames for CEQA appeals died on the vine.  Years later, there is still no meaningful time limit for categorical exemption appeals. They can come shortly after a Commission approval, which is when they should be decided.  Then again, they can be delayed until a building permit is issued, when the consequences for builders can be dire.  

Change certainly did not come easily in LA.  The Multiple Approvals Ordinance was the product of a multiple-years-long effort, with numerous stakeholder meetings and compromises along the way.  It is but one component of a more far-reaching effort to streamline, modernize and make sense of regulations that have accreted over time.  These types of changes do not come cheaply: the price tag for the Multiple Approvals Ordinance and other zoning reforms will run into the millions.  But LA’s leaders have been willing to invest public funds and political capital to, in the words of LA’s Planning Department, make their city a place where people “are not afraid to invest in new development to better the built environment and grow the local economy.”  

In San Francisco, past efforts to improve process have generally been piecemealed, i.e., they have been focused on single issues brought to the fore by individual supervisors or the Planning Department.  Some have been successful:  Supervisor Wiener’s recent amendments to the City’s preservation rules are an example.  The Planning Department’s efforts to streamline CEQA in certain master-planned areas are another.  Other initiatives, notably discretionary review and CEQA reform, have fallen short of the mark.  

If there is a lesson to be learned from Los Angeles—or from past experience here—it is this:  Delivering meaningful reform of the development process is an all-hands-on-deck exercise that requires an investment of public funds and political leadership that clearly understands and articulates the benefit of curtailing excessive bureaucracy.  Mayor Lee and the Board of Supervisors have been much more focused on economic growth than in the recent past, but for the time being, it seems that development rules are still the third rail of San Francisco politics.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​

In a long-awaited decision, the California Supreme Court issued its ruling yesterday in Pinnacle Museum Tower Association v. Pinnacle

Market Development (US), LLC, S186149.  The Pinnacle case

involves a condominium homeowners association’s claims against the project

developer for construction defects.  The project CC&Rs require such

claims to be submitted to binding arbitration, rather than jury trial. 

The Court held that the arbitration provisions for construction defect claims

against the developer are enforceable against the homeowners association,

unless proven unreasonable.  The Court’s decision in Pinnacle

reversed the Court of Appeal’s decision from 2010 which found such arbitration

clauses to be invalid.

The Court’s rationale for upholding the CC&Rs

arbitration clause includes:

·       

CC&Rs constitute a contract between the

developer and the homeowners association and its members.

·       

Under governing law in California for

condominium projects, the Davis-Stirling Act, the homeowners association and

its members have either expressly consented or are deemed by law to have agreed

to the terms of the CC&Rs.  Justice Baxter, writing for the Court,

explained that “…the covenants and terms in the recorded declaration…reflect

written promises and agreements that are subject to enforcement against the

Association.”

·       

Notwithstanding previous appellate court

decisions to the contrary, the CC&Rs arbitration clause is consistent with

the Davis-Stirling Act and is not unconscionable.

·       

The Federal Arbitration Act, the California

Arbitration Act and the Davis-Stirling Act express a strong public policy

favoring arbitration as a speedy and relatively inexpensive means of dispute

resolution.

 

The Pinnacle decision is a victory for condominium

project developers who desire to resolve such claims through the more

streamlined and, in some cases, less expensive process of arbitration, rather

than a jury trial.  Also important is that the Court’s decision provides

some level of certainty concerning the enforceability of arbitration clauses in

CC&Rs for construction defect claims, where trial and appellate courts have

been issuing inconsistent decisions for several years.  The Supreme

Court’s ruling in Pinnacle should serve to resolve such inconsistencies,

and provide guidance to developers in drafting CC&Rs for condominium

projects.

 

We expect that the California Department of Real Estate may

issue updated arbitration guidelines in light of the Pinnacle decision.

 

Should you have any questions regarding the Pinnacle

decision or alternative dispute resolution provisions in condominium project

CC&Rs, please contact Kevin Rose or Jay Drake.

 

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, 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. Copyright 2012 Reuben & Junius, LLP. All

rights reserved.

​The recent California Court of Appeal decision William L. Lyon & Associates, Inc. v. Superior Court ((2102) 204 Cal.App.4^th 1294) may have a large impact on the application of liability limitation provisions in broker agreements.   In Lyon, the buyers sued their residential broker (Lyon) almost three years after the closing for breach of contract,

breach of fiduciary duty, negligence and fraud.  The buyer-broker agreement had a limitation

provision requiring any related claim be brought within two years after

representation.  The broker, who

represented both seller and buyer in the transaction, argued that the claims

were time-barred both by statute and the contract.  The Court of Appeal held that the statute of

limitations for all of the claims had not expired despite the expiration of the

agreement’s time limit of liability.

The buyers’ claims arose because the broker allegedly failed

to disclose that the sellers had intentionally covered up defects in the

house.  Lyon argued that the claims were not

timely raised pursuant to Civil Code Sections 2079 and 2079.4.  Those statutes provide that a seller’s broker

can be held liable to the buyer for up to two years after the closing for failing

to disclose facts related to a reasonably diligent inspection of residential

property.  Since the claims were filed almost

three years after the closing, Lyon argued that the claims were not timely.  The Court of Appeal decided that this statutory

provision did not apply because these issues arose out of the broker’s

obligation to buyer as its own broker, not as the seller’s broker.

The breach of contract claim was based on the allegation

that Lyon failed to conduct an adequate inspection prior to the sale.  The statute of limitations for a contract

claim is normally four years, but parties may contract around this, provided

the timeframe is deemed reasonable as a matter of law.  Although there was a reasonable two year

timeframe in the agreement, the buyers argued that they did not discover this

latent defect until later due to the other parties’ fraud so the two year term

of liability should not be triggered until such discovery was made.  Generally, a cause of action arises when the

wrongful act is committed, not when it is discovered by the plaintiff.  However, in certain cases the courts will

apply the “discovery rule”, in which the statute of limitations does not start

running until the breach is discovered.  In

this case, the Court of Appeal held that because the buyers were unable to see

or appreciate the breach when it occurred (as it was a latent defect), the two

year time period was tolled until the discovery of the breach was made.  The court also mentioned that the application

of the “discovery rule” was appropriate here as the relationship between the

parties was that of a special trust.

Finally, Lyon argued that the remaining “tort” claims like

breach of fiduciary duty and negligence were not timely filed due to the

two-year contractual limitation.  As the

buyers’ broker, Lyon owed a fiduciary duty to the buyers requiring the highest

good faith and undivided service and loyalty. 

The court highlighted that even if the buyer-broker agreement had not

been signed, Lyon would still owe such a common law duty to the buyers.  As a result, the Court of Appeal held that

the contractual limitations time period in the buyer-broker agreement did not

apply to the breach of fiduciary duty claims, like fraud, negligence and

negligent misrepresentation.  As those

remaining claims have longer statute of limitation periods (for example, breach

of fiduciary duty not amounting to fraud is four years) the statute of

limitations had also not elapsed on those claims.

Lyon illustrates that although parties may contract around

statute of limitation periods for certain claims, the courts will consider the

type of breach in determining whether the “discovery rule” should be applied to

possibly extend the timeframe.  Further,

buyers, sellers and brokers should be aware that claims based on fiduciary

duties are not usually governed by contractual limitations set forth in a

contract.  Therefore, all parties should

be cognizant of statute of limitation timeframes for those particular causes of

action.

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, 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. Copyright 2012

Reuben & Junius, LLP. All rights reserved.