The Davis-Stirling Common Interest Development Act (the “Act”) has governed the creation and operation of common interest developments (mostly condominiums) since its passage in 1985. Through the years, the Act has been amended and supplemented a number of times. This has contributed to an unwieldy combination of different provisions that were not logically organized. Other provisions are outdated or contradictory. After a four year study, the California Law Revision Commission recommended that the Act be rewritten in a more user friendly format. Assembly Bill 805 (Torres) is intended to accomplish this goal. According to the Assembly Committee on Housing and Community Development, AB 805 would group the provisions of the Act in a more logical order, provide for consistent terminology, restate long and complex sections into simpler and shorter provisions, and standardize certain procedures. After reviewing the draft bill, it is clear that AB 805 greatly improves the organization and readability of the Act. One significant improvement is that particular issues, like use restrictions and annual disclosure requirements, are all grouped in one location. This makes the Act much easier to navigate, especially for the members of homeowners associations.

There are also some substantive changes to the Act, but none that are controversial. The legislation has broad support (there have not been any “no” votes in any legislative committees). Based on the Assembly Committee’s report, some of these changes include:

• a Board of Directors may amend provisions of the condominium declaration (CC&Rs) that are intended to protect the Declarant during the construction and sales process, without a vote of the members or consent of the Declarant, so long as that phase of construction or sales is completed;

• confirmation that a non-owner occupant has the same protections as an owner with respect to physical access;

• addition of some minor exceptions to the provision that requires a 67% vote of the members to grant an owner additional exclusive use common area rights. These include: correction of engineering errors or construction encroachments, granting of an exclusive use that is consistent with the original plan of a phased development approved by the Department of Real Estate, to comply with laws, to accommodate a disability, or to transfer management or maintenance of an area that is not in general use by the membership at large;

• standardizes delivery requirements for notices, including clarification of use of email and electronic notices; and

• provides for exemptions for commercial condominiums, including certain elections and assessment requirements.

AB 805 has no known opposition and is expected to pass. If so, it will become operative January 1, 2014. We will keep you updated on this change to condominium laws. If you have any questions, or if you would like a copy of the proposed legislation, please contact Kevin Rose.

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.

Cindy Wu Confirmed as Newest Member of Planning Commission

After having been nominated by Mayor Lee to fill the seat on the Planning Commission vacated by Christina Olague, Cindy Wu was confirmed to the position at last weeks Board of Supervisor’s meeting and joins the Commission today.

Wu’s credentials are impressive: she holds a bachelor’s degree in architecture from Berkeley and a master’s degree in city planning from MIT. She works for the Chinatown Community Development Center, and has recently been involved with the Central Subway project. Wu’s background suggests support for job growth and development in the city.

This could be a year of change at the Planning Commission: Commissioner’s Ron Miguel and Mike Antonini’s terms expire on July 1. We will be watching closely to see if and how the Commission will change in the near future.

Status of CEQA Air Quality Thresholds in San Francisco in Flux

Many of you may have already heard that last month, an Alameda Superior Court judge threw out the Bay Area Air Quality Management District’s (“BAAQMD”) recently-adopted air quality thresholds, which are used by local governments to determine whether a project needs heightened environmental review for effects on air quality. The thresholds have been decried by industry and environmental groups alike, citing the strict thresholds create more cost and time for urban infill projects that are designed to place workers closer to jobs and thereby reduce automobile trips.

As an example of the effect this is having on projects, our office is processing environmental review for a 4-story, 12-unit residential building with two parking spaces. Under the new thresholds, it is required to undergo an additional 6 months of air quality analysis, at of cost of over $10,000. Clearly, these thresholds will not be encouraging in-fill development – otherwise known as “smart growth.”

The California Building Industry Association brought the suit challenging the thresholds. In throwing out the new thresholds, the court held that BAAQMD failed to conduct necessary environmental review under CEQA.

For now, the San Francisco Planning Department has decided to continue using the air quality thresholds until the case is resolved and new thresholds are established. This is not good news for projects in the short term. Any new thresholds will likely have to undergo environmental review, thereby extending the time it will take for new ones to be established.

New Regulations Being Considered to Improve Accessibility at Public Accommodations

An ordinance is making its way through the legislative process that would place new requirements on certain commercial landlords who lease space to restaurants, bars, retail establishments, professional services or other businesses open to the public. If enacted, the ordinance would require a commercial landlord leasing 5,000 square feet of space or less to these types of tenants to remove certain architectural barriers to disability access. The landlord would also be required to include in the lease with the tenant the obligations each would have towards providing such accessibility upgrades.

The legislation has likely been introduced in response to a rash of lawsuits filed against small businesses in San Francisco claiming failure to comply with the Americans with Disabilities Act – notably, long-time favorite spot Video Café in the Richmond was forced to close a year ago after 25 years in business. The legislation could help protect future businesses from being hit with these lawsuits, but landlords and businesses should certainly be aware that they will now be required to take care of these issues before the doors open to the public.

The ordinance received the Planning Commission’s recommendation in December. We will keep you posted on future developments of the legislation.

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 Eastern Neighborhoods Legitimization Program adopted by the Board of Supervisors in December 2008 required applications for legitimization to be submitted to the Planning Department no later than January 19, 2011. Proposed legislation is in the works to potentially extend the period for filing applications for an additional period of time, the length of which is yet to be determined. If such legislation is adopted, owners of property in the Eastern Neighborhoods who missed the original filing deadline would have another opportunity to participate in the program. We are hearing the program would be extended anywhere from three to six months.

Our office has successfully obtained permits to legitimize office uses in the Eastern Neighborhoods plan area that would not be permitted under the current zoning.

Generally, to be eligible for this program, a use to be legitimized must have been a permitted use under the old zoning (pre-April 17, 2008) when it was established and either:

• regularly operating on a continuous basis in the same location from at least January 19, 2007 to the present, or
• regularly operating on a continuous basis in the same location from at least April 17, 2008 to the present, and be associated with a business or enterprise which was also in the same location prior to January 19, 2007.

Up to a year of vacancy during this period will not disqualify the building or space from legitimization, so long as the building owner can provide evidence that the space was marketed for new tenants during that time.  The Zoning Administrator makes the call on whether a property is eligible to participate in the program. If the legitimization application is accepted and approved, all current development fees must be paid as if the property was first entitled today (minus any housing and transit fees that were paid when the current use was established). The use would then become a legal non-conforming use within the new zoning district, and is for the most part allowed to continue indefinitely.

Based on our experience, the two scenarios that are the most likely to benefit from the legitimization program are:

(1) Buildings in former industrial districts (M) that are now zoned Production, Distribution and Repair (PDR); and

(2) Buildings originally permitted for non-office uses that now more closely resemble office uses.

We have spent many hours analyzing the legitimization program and discussing its implementation with Planning Department’s staff. We are available to determine your eligibility for the program and to guide you through the process if you could benefit from it. Please contact David Silverman if you would like to talk about whether this program may be right for you.

We will keep you posted as the proposed extension of time for filing legitimization applications proceeds through the legislative process.

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.

As just about everyone in the real estate business knows, the California Supreme Court recently upheld AB 26, the law dissolving redevelopment agencies statewide. In the same decision, it overturned AB 27, a companion measure that would have allowed agencies to continue operating if they made payments to the state. Over the past month, prognostication about the broad impact of redevelopment’s demise has abounded in the press. Affordable housing production will slump, economic development will suffer, schools will get desperately needed funding, and so on.

Much less attention has been devoted to the nuts and bolts that have kept many developers up at night over the past month. Will the Planning Department take over the functions of the San Francisco Redevelopment Agency (“Agency”)? Will redevelopment plans still determine what gets built? Who will approve new projects in redevelopment areas? AB 26 created a bare-bones framework, providing for successor agencies to wind down existing redevelopment obligations. However, the creation of successor entities and details of implementation are left for local governments to implement. In this update, we cover San Francisco’s succession planning, which answers some, but by no means all, of these questions.

A Primer on AB 26.

AB 26 was passed in June of last year and provided for the dissolution of redevelopment agencies on October 1, 2011. The Supreme Court stayed dissolution, until it had time to hear a challenge to the law brought by the California Redevelopment Association. Because many of the statutory deadlines had passed by the time the Supreme Court upheld AB 26 in California Redevelopment Assn. v. Matasantos, it extended most of them by four months. Hence, all 400+ redevelopment agencies in the state will now cease to exist on Wednesday of next week.

While the agencies themselves will close up shop, AB 26 provides for existing obligations and assets to be taken over by successor agencies, in most cases the city or county that created the redevelopment agency. These successor agencies are to continue to make payments and perform existing obligations. Agency funds, including proceeds from the sale of agency assets, are to be transferred to the county auditor-controller and distributed to other government entities, including school districts, according to state funding formulas. Tax increment monies are to be deposited in county-administered trust funds, which will first be used to pay existing obligations with the surplus distributed as above.

AB 26 also provides for the creation of oversight boards to oversee the fiscal management of successor agencies. The oversight boards are to ensure that funds are properly allocated between existing obligations and the entities entitled to any excess redevelopment funds. In most jurisdictions, power on the oversight boards will be diffused among representatives from municipalities, counties, school boards, community colleges and special district.

However, AB 26 includes special rules for oversight boards in consolidated city-counties, of which there is only one in the state: San Francisco. Here, the mayor will have a total of four appointees. Three are unrestricted; the fourth must represent the employees of the San Francisco Redevelopment Agency. All mayoral appointees are subject to confirmation by the Board of Supervisors. The remaining three oversight board members are to be appointed by the Superintendent of Schools, the Chancellor of the California Community Colleges, and BART.

San Francisco’s Implementation of AB 26.

With just more than a month between the Matasantos decision and the dissolution of redevelopment agencies on February 1, the City has had little time to prepare for the post-redevelopment era. That said, it has acted quickly to make the transition as orderly as possible under the circumstances. The succession framework is being put into place, and the mayor’s appointments to the oversight board moved quickly through the confirmation process. While many details will take months to work out, we report here on those aspects of succession that are most likely to be of interest to private sector developers.

San Francisco’s Oversight Board

Earlier this month, Mayor Lee nominated his four appointees to the oversight board. These are: John Rahaim (Director, Planning Department), Olson Lee (Director, Mayor’s Office of Housing), Nadia Sesay (Director, Mayor’s Office of Public Finance), and Bob Muscat, Director, IFTPE Local 21, the union representing many Redevelopment Agency employees.) On Tuesday, the Board of Supervisors unanimously confirmed all four mayoral nominees.

At the same hearing, the Board of Supervisors passed a resolution (“Resolution”) sponsored by the Mayor and Supervisors Cohen, Kim, and Olague. The Resolution establishes the City as the successor to the Redevelopment Agency, provides for the transfer of Agency assets, and establishes the roles and responsibilities of various City departments in overseeing the wind-down of the Agency’s obligations.

For many with projects in active redevelopment areas, one of the first questions raised is what rules will govern their projects and who will approve them. Will projects now have to be approved by the Planning Commission? Will redevelopment land use controls be superseded by the Planning Code? Will redevelopment agreements with builders be revisited by the successor entity? According to the Resolution, the answer to all three questions is no. AB 26 itself provides defines “existing obligations” to “include any legally binding and enforcement agreement or contract.” These include the disposition and development agreements, owner participation agreements, and other agreements by which the Agency approved projects. The Resolution provides for the rights under these existing agreements to be placed under the jurisdiction of the City’s Department of Administrative Services, which will continue to implement them.

For projects that have yet to be approved, the land use controls in redevelopment plans and related documents will continue to govern development decisions in active project areas, as will the procedures established by the Agency. In the Mission Bay, Hunters Point Shipyard/Candlestick Point Redevelopment Areas, as well as portions of the Transbay Redevelopment Area, the oversight board will be vested with the power to grant approvals for projects, to modify existing land use controls and financing plans, and enter into new agreements to carry out the objectives of the redevelopment plans. However, the oversight board’s authority is circumscribed by state law. It cannot approve any changes that would increase the amount of tax increment revenue pledged to completion of these projects.

Of course, redevelopment plans are more than just zoning. They are comprehensive plans to create desirable neighborhoods with public amenities, infrastructure and affordable housing. While individual buildings can be built by private or non-profit developers under the rules set out in current plans, the public sector may not be able deliver supporting infrastructure where funding commitments have not already been made. This is likely to be less problematic in Mission Bay, where agreements with a master developer have been in place for some time. In others-the Transbay is a notable example-where such agreements are lacking, it is unclear how unfunded public open space, affordable housing, and streetscape improvements will get built. Plans may have to be scaled back, or, as it often does, the City may turn to increased impact fees to fill the gap.

In addition to the assurances it gives to private sector developers, the Resolution also announces the City’s intention to carry out its commitments to the Transbay Joint Powers Authority (“TJPA”), the agency overseeing the construction of the $4.1 billion Transit Center. Under prior agreements, the Agency pledged to deliver the tax increment generated from the sale and development of several prime development sites in the Transbay Redevelopment Area. The Resolution calls for all of the Agency’s obligations under these agreements to be transferred to the TJPA, a move that will require future approval from the Oversight Board.

Of course, we have touched on only on a few limited aspects of a situation that is rife with complexity. The City has clearly committed itself to make the transition to a post-redevelopment world as smooth as possible. However, many of the short- and long-term consequences of AB 26 simply aren’t known and can’t be predicted with any certainty. Best intentions aside, it will be a long and bumpy ride.

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 California Teacher’s Association recently submitted a proposed initiative to create a “split roll” which would reassess all commercial real property at its current market value, with reassessments to occur once every three years. However, it is unclear if the CTA will actually pursue obtaining the approximately 800,000 signatures necessary to put the initiative on the November 2012 ballot. These signatures are due by June 28, 2012. The law firm that submitted the initiative to the California Attorney General’s Office was unable to comment on the status, and the CTA website contains no information about this initiative. It is possible that the CTA is considering whether to pursue this initiative, or other strategies, as there are a number of tax and budget related initiatives that have been filed with the Attorney General’s Office.

For years, certain interest groups have pursued amending Proposition 13, the landmark California constitutional amendment that capped annual property tax increases at 2% per year, based on the assessed value of the property, except when the property changes ownership or undergoes substantial renovation. A simple “google” search reveals scores of proposed pieces of legislation on this topic. Now, given the critical status of California’s budget, such proposals may receive more support from California voters. The CTA’s proposed initiative would only apply to commercial real estate. Residential real property would not be subject to these increases. Business real estate would no longer have the certainty of limited tax increases over time, and properties held for a number of years could face dramatic tax increases. Below is a closer look at some of the key provisions.

The initiative defines commercial real estate as any real property other than a single family or multifamily intended to be used primarily as a permanent residence, and nonresidential property used for commercial agricultural production. Other exemptions currently in place under California law would remain. Under this definition, apartment buildings would be exempt from reassessment, even though apartments are typically owned for “commercial” purposes. It appears that the drafters want to avoid any pass through of real estate tax increases on to renters, presumably to protect individual taxpayers and gather additional political support. Left uncertain is if “second” homes or vacation homes would be subject to the reassessment since they are not used primarily as a permanent residence.

If passed, the amendment would be implemented starting in fiscal year 2014-2015, at which time each county assessor would be required to assess commercial real property, as defined in the legislation, to its then current “full cash value”. According to the Legislative Analyst’s Office, counties are directed to begin with those properties that have not changed ownership for the longest period of time, with the remainder to be phased in over three years. Then, every three years, all commercial real property would be reassessed to its current fair market value. There would most certainly be a period of confusion and uncertainty as the County Assessors work out the reassessment procedures. Interestingly enough, depending on whether the commercial real estate market fully recovers, some property owners could realize a decline in value. For the most part, it is expected that revenues to the state would significantly increase, by about $4 Billion dollars. (California Legislative Analyst Office, January 4, 2012 Analysis).

The Legislative Analyst points out that the initiative could negatively impact state tax revenues due to loss of after-tax income and potential reduction in business activity due to less investment, fewer business expansions, reduced operations, and increased costs to customers. The business of real estate would change in that the comfort of knowing the amount of real estate taxes upon acquisition of property would no longer apply. Real estate owners would be subject not only to the ups and downs of the market, increases in the taxation rate due to other initiatives or statutes, but also to each county assessor’s methods and practices. The definition of “full cash value” or “fair market value” is often subjective, and cannot be easily pinned down without a sale of the subject property. Real estate tax appeals would certainly increase if the proposal is passed. Any new taxes would often be passed along to commercial tenants, which could also impact the market’s recovery.

The CTA has made the strategic decision of protecting residential property tax rates, at the expense of businesses. In fact, the name of the initiative, “Protect Homeowners and Close Corporate Tax Loopholes Act”, clearly highlights the marketing strategy. Other goodies are made available to homeowners, including increasing the homeowners exemption by 100% to $14,000 per year, and providing additional tax deductions for renters.

In exchange for the increased real estate taxes, businesses are given an exclusion of up to $1,000,000 for personal property taxes. This could help ease the tax burden on businesses in some cases. However, for most real estate owners, personal property taxes are a small part of the tax bill. This exemption is likely more helpful for businesses that lease space, rather than own their property. Also, the exclusion does not allow this benefit for boats and airplanes, unless used in day to day operations of a business.

It will be interesting to see how the real estate community reacts to the proposed initiative, if it in fact qualifies for the ballot. It is likely that there will be competing tax measures on the November 2012 ballot, so the upcoming election season will be exciting.
Special Thanks to Mark Ong, of Independent Tax Representatives, LLC, for providing some of the background information referred to above.

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.

On Monday this week (1/9/12), Mayor Ed Lee named Planning Commissioner Christina Olague to replace Ross Mirkarimi on the Board of Supervisors, who has moved on to become Sheriff. Ms. Olague’s seat was scheduled to expire on July 1st of this year, and will be filled by the Board of Supervisors. Two other Commissioners’ terms, Ron Miguel and Mike Antonini, are scheduled to expire this July 1st. Both Mr. Miguel and Mr. Antonini were appointed by the Mayor. We will continue to keep readers informed about all three of these appointments as information becomes available.

At the Planning Commission today the Planning Department Staff is scheduled to present to the Commission a draft proposal for the Department’s work program priorities for the next two fiscal years (FY12-13 and FY13-14). According to the Department’s January 12 Staff Report for the Commission, the following activities are expected to be key components of the work program:

• In coordination with the Department of Building Inspection, the Planning Department is currently in the implementation phase of the new Permit and Project Tracking System (PPTS). The Department anticipates allocating 8.15 and 2.80 full-time equivalent positions of existing staff in FY12-13 and FY13-14, respectively, in order to ensure the PPTS system is designed, tested, and implemented effectively.

• Preservation staff will initiate new survey and community outreach work funded by a Certified Local Government (CLG) Grant, and will continue to provide review of historic survey work conducted by community groups.

• The Department will focus on strengthening the City’s neighborhoods through neighborhood improvement initiatives that are not expected to result in new area plans or zoning changes. The Better Neighborhoods Program: Strengthening Existing Neighborhoods proposes to initiate a dialogue with neighborhoods that are seeking to strengthen their communities through policy, public realm and economic development improvements.

• The Department will begin work on the EIR for the Transportation Sustainability Program (TSP), which will enable new development to alleviate its burden on citywide transit performance by funding categories of transportation projects shown to directly offset the impacts of growth from new development.

According to the Staff Report, constrained resources mean that many of the City’s long-range planning needs cannot be addressed by this work program. Staffing to improve pedestrian quality and safety, through participation in the Pedestrian Master Plan and the Mayor’s pedestrian safety initiatives, is needed. Additional public realm projects would support pedestrian goals, particularly a public realm plan for the South of Market and Mission Bay neighborhoods and expanded funding to fully address public realm needs in the Civic Center Sustainable Resource District Plan. The City’s General Plan requires updating beyond individual elements, calling for a fresh look at how it is developed, used and applied. The growing demand for the City’s Pavement to Parks Program indicates the need for additional resources to expand open space opportunities. Additional resources allocated to long range planning would enable the Department to keep abreast of these growing areas of need.

With respect to the Environmental Planning (EP) division, EP’s ongoing major EIRs include the Transit Center District Plan plus several associated private projects, the Central Subway Corridor Plan, CPMC’s five campuses, MTA’s Transit Effectiveness Project, Academy of Art, Mexican Museum, MOMA Expansion, Harrison Gardens, Natural Areas Management Plan, Bayview Transportation Improvement Project, and the Western SOMA Plan. Two high priority EIRs that are expected to begin in FY11-12, the Health Care Services Master Plan and Better Market Street Plan, will continue in FY12-13. Negative Declarations are expected to be completed for the following major public and private projects: Better Streets Plan, Alexandria Theatre retail and housing, Mission Streetscape Plan, Fisherman’s Wharf Plan, and the Recreational & Open Space Element (ROSE).

Staff hopes to finalize the Department’s budget and work program, and have the Final Appropriation Ordinance adopted, by the end of July 2012.

CORRECTION: The R&J Update of last week misspelled the Plaintiff and Appellant’s name in the case. The correct case name is Frittelli, Inc. v. 350 North Canon Drive, LP, et al. (2011 WL 6358528 (Cal.App. 2 Dist.)). Our apologies on the error.

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.

Commercial landlords and tenants could be materially impacted by a case recently decided by the Court of Appeal. In Frattelli v. 350 North Canon Drive, LP, the Tenant (Frattelli) brought numerous claims against the Landlord (350 North Canon Drive LP) based on Frattelli’s allegations that the Landlord’s shopping center renovations made it impossible for Frattelli to operate its business in the leased premises. The Court of Appeal found for the Landlord and upheld the lower court decision that an exculpatory clause in a commercial lease protected the Landlord from liability even if the Landlord acted negligently under the lease. (2011 WL 6358528).

Frattelli argued that Landlord failed to exercise reasonable care in remodeling the shopping center, which not only contravened the covenant of quiet enjoyment, but that such conduct was also grossly negligent and/or negligent. The lease at issue between Tenant and Landlord was a commercial “net” lease which had two clauses that the Court of Appeal rested its decision of finding for the Landlord in this case. One, and most importantly, an exculpatory provision providing that Landlord would not incur any liability due to a breach of lease or negligence (and Tenant’s sole remedy for any such damages was a claim through Tenant’s insurance), and two, a more specific provision which limited Landlord’s liability in the case of doing renovations at the building.

A commercial lease may limit the covenant of quiet enjoyment, whether express or implied. However, an exculpatory clause which purports to shield a landlord from liability for negligence must be strictly construed. The Court reasoned that the plain language of the lease provided that Landlord had no liability under any circumstances and the provision effectively protected Landlord from any liability due to negligence or breach of the lease. This was further bolstered by the specific provision limiting Landlord’s liability due to renovations.

Frattelli also alleged that the exculpatory clause was unenforceable because it was not sufficiently conspicuous within the lease as a whole, including the fact that it was printed in the same font size as the other provisions in the lease and not set off separately. Generally, when a party relies on an exculpatory clause which exempts itself from negligence, words clearly and explicitly expressing that intent of the parties are required. The Court held that there is a lower standard when finding a release valid in a commercial lease, especially a “net” lease which signals that it contains significant provisions regarding a tenant’s responsibilities. Therefore, in light of the lower standard, and since the exculpatory clause was not hidden or disguised, the release was enforceable against Tenant.

Finally, Frattelli maintained that even if the exculpatory clause protected Landlord’s negligence, Landlord’s actions were grossly negligent. A landlord cannot exempt itself from its own gross negligence in a lease provision. To constitute “gross negligence”, misconduct must either demonstrate a “want of scant care” or “an extreme departure from the ordinary standard of conduct”. Here, Landlord met with the tenants prior to the remodeling project, made attempts to address their concerns throughout the process and abated their rent. Although Landlord’s work ultimately took one year rather than six months, the Court of Appeal found that the foregoing mitigating measures meant that their conduct did not rise to the level of gross negligence.

The Frattelli decision is beneficial to commercial landlords as it shows that the courts will uphold provisions in commercial leases which limit landlord’s liability from negligence or breach of the lease, and covenants such as quiet enjoyment. This is especially true when the commercial lease is a “net” lease in which the Tenant takes on the major burdens of ownership of the property over the life of the lease. Finally, although an exculpatory provision would not absolve a Landlord for its gross negligence, this decision also highlights that if a landlord takes reasonable precautions, then gross negligence will be difficult to prove.

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 2011 Reuben & Junius, LLP. All rights reserved.

Back in July we reported that Governor Brown signed bills ABX1 26 and 27 into law, which required Redevelopment agencies to make “voluntary” contributions to the state or else be eliminated. The California Redevelopment Association (CRA) challenged, and the matter went to the California Supreme Court. For those that haven’t seen the news on the internet today (and that will be in tomorrow’s paper), in a devastating loss for state Redevelopment Agencies, the Supreme Court ruled that AB 26 is legal (i.e. the legislature can eliminate Redevelopment Agencies) and that AB 27 is illegal (i.e. legislation cannot take redevelopment for non-redevelopment purposes). The ruling that AB 27 is illegal is likely the end of the road for redevelopment agencies in California. The case is California Redevelopment Association vs. Ana Matosantos (S194861) and is available on the court’s website at http://www.courts.ca.gov/opinions-slip.htm.
The court extended some of the deadlines set forth in AB 26 that deal with winding down Redevelopment Agency affairs. We will be updating you in the near future as to how local implementation of this ruling will be handled.

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 2011 Reuben & Junius, LLP. All rights reserved.

While most project sponsors breathe a sigh of relief after obtaining Planning Commission approval for their project and surviving any appeals, a recent project we entitled reminds us that such approval may be just one milestone in a longer fight. Recently a small historic renovation project on Russian Hill designed to rehabilitate and restore four small landmark cottages survived a challenge in Superior Court. The case was Friends of the Landmark Filbert Street Cottages, et al vs. City and County of San Francisco (Case No. CPF-11-511263). The case upheld several important legal determinations that many projects rely on every day in the City: that building permits issued pursuant to a Conditional Use authorization are not subject to appeal to the Board of Appeals and that categorical exemptions under the California Environmental Quality Act (“CEQA”) are legally sufficient and appropriate for many preservation cases.

The project site, on Filbert Street between Polk and Larkin, contains four historic cottages that were built in 1907 and designated in 2001 as a San Francisco Landmark. The cottages have sat vacant for almost a decade and were in serious disrepair when the project sponsor purchased them and began what turned out to be a long and rigorous entitlement process. Over the next four years, the project sponsor and team worked through a myriad of complex preservation, environmental and planning issues in order to obtain entitlements in early 2010. These entitlements consisted of a Certificate of Appropriateness granted by the Historic Preservation Commission, a conditional use (“CU”) authorization granted by the Planning Commission, and a variance granted by the Zoning Administrator. There was virtually unanimous support for the project in the neighborhood (with of course one exception). As it seems with too many preservation projects, the adage “no good deed goes unpunished” certainly applies here. While the project was strongly supported by the community, including the Russian Hill Neighbors, all it takes is one holdout to cause significant delay and run up project costs. Even though none of the entitlements were ever challenged at the local level, a single project opponent hired an attorney a filed a lawsuit well after all the appeal periods and statutes of limitations had run.

One of the more interesting elements of the challenge was an attempt by the opponent to appeal the building permits which had been issued by the Department of Building Inspection (“DBI”) after the Planning Commission, HPC and ZA had all approved the project. These permits, pursuant to San Francisco Charter Section 4.106 are not appealable to the Board of Appeals because the project had received a CU. For CU projects, opponents must appeal the CU; they cannot appeal the building permits.

This seemingly clear rule was challenged and debated at length over two hearings at the Board of Appeals. The project opponent claimed that the CU did not consider the geotechnical and CEQA issues that were raised by the technical details of the building permits. The project opponent even had a geotechnical engineer produce a letter questioning the validity of the geotechnical report that was produced for the project (even though the project of course had a geotech report prepared that was never commented on during the process). Ultimately, the Board did find that the building permits issued by DBI did “match” the plans that were approved by the Planning Commission under the CU. The Superior Court agreed.

The lawsuit also focused on a related CEQA issue: were there any changes in the project following the CU approval that were reflected in the building permits that would trigger new CEQA review? First, if there was a significant enough change between the CU authorization and the building permits, the building permits would not have been issued in the first place. The same logic holds true with CEQA: if there is a significant change in the project after it is approved, new CEQA review may be required. That is a well understood CEQA rule, and the determination by the local agency or the judge becomes a factual one.

That was certainly not the case here. After comparing the plans approved by the Planning Commission with those approved by DBI, both the Board of Appeals and the Superior Court found that no changes had occurred that would trigger additional CEQA review.

We were very pleased to have had the opportunity to represent the owners and project team of 1338 Filbert Street through this long and arduous process. This case is a good example of the fact that project sponsors facing any opposition need to be prepared for an entitlement process that includes a challenge in Superior Court. Even if the challenge is frivolous, this requires careful preparation of the case and attention to the administrative record to make sure that, in the event of a lawsuit, the project not only gets approved but can survive a legal challenge.

The Update will be taking a holdiday break and will return the first week of January.  Happy Holidays.

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 2011 Reuben & Junius, LLP. All rights reserved.

As most developers and builders would agree, complying with the California Environmental Quality Act (CEQA) can be complicated. This Fall, Governor Brown has signed into law three pieces of legislation that attempt to reduce some of CEQA’s complexities and streamline the CEQA process. Many times, when the Legislature and Governor attempt to “simplify” and “streamline” CEQA, they end up achieving just the opposite. The goals of the new legislation signed into law this Fall certainly are laudable. Whether or not they achieve those goals, however, remains to be seen.

SB 226

SB 226 (Simitian (D-Palo Alto)) seeks to streamline the CEQA process in several different ways.

SB 226 provides that a project’s greenhouse gas emissions shall not, by themselves, cause a project to be ineligible for a categorical exemption from CEQA review. As readers may know, even though a project may meet the basic qualifications for a categorical exemption, the local agency still must evaluate the project to determine whether it might result in a significant environmental impact or a cumulatively considerable impact. It is possible that a project could meet the basic qualifications for a categorical exemption, yet CEQA review is nevertheless required. Under this new law, a project’s greenhouse gas emissions shall not, by themselves, be the cause for CEQA review where the project otherwise qualifies for a categorical exemption.

The installation of a solar energy system on the roof of an existing building or at an existing parking lot under certain conditions is now statutorily exempt from CEQA review. This means that, unlike a categorical exemption, no CEQA review would be required under any circumstances.

Under the new law, the Office of Planning and Research must, by July 1, 2012, develop CEQA guidelines that expedite environmental review of certain urban infill development projects by allowing that review to “tier” off of previous EIRs under certain conditions. Requires the Secretary of the Natural Resources Agency to certify and adopt the guidelines by January 1, 2013.

AB 900

AB 900 (Buchanan (D-San Ramon) and Steinberg (D-Sacramento)) expedites the judicial review of projects designated by the Governor and the Legislature as “environmental leadership development projects,” if they are legally challenged. To qualify as an environmental leadership development project, the project must be large ($100 million investment upon completion of construction) and fall into one of three categories:

(1) LEED silver or better “infill” projects (residential, commercial, sports, cultural, mixed use, etc.) that reduce vehicle trips by 10 percent as compared to similar existing projects;
(2) Clean, renewable energy projects that generate electricity exclusively through wind or solar, but not including waste incineration or conversion; or
(3) Clean energy manufacturing projects that manufacture products, equipment or components used for renewable energy generation, energy efficiency, or for the production of clean alternative fuel vehicles.

Project applicants must undergo a certification process with the Governor and Legislature in order to qualify as an environmental leadership development project.
The bill expedites judicial review by requiring any CEQA lawsuit challenging a public agency’s approval of an environmental leadership development project be filed directly in the applicable Court of Appeal, thereby skipping the local Superior Court. Moreover, the Court of Appeal must issue its decision in the case within 175 days of the filing of the lawsuit, unless the Court finds good cause for an extension (“good cause” is not defined). The Court may appoint a special master to assist the Court in managing and processing the case, and the project applicant is responsible for the costs of the special master.

SB 292

SB 292 (Padilla (D-Pacoima)) streamlines the EIR preparation process, provides for expedited judicial review (similar to that of AB 900), and requires implementation of specific traffic and air quality mitigation measures for a proposed downtown Los Angles football stadium and convention center project.

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 2011 Reuben & Junius, LLP. All rights reserved.