On September 15^th, the California Legislature passed Senate Bill 35 (SB 35) which, if signed by the Governor, will streamline the approval process for multi-family residential projects that include affordable housing in many urbanized cities and counties.  SB 35 is part of a large package of bills the Legislature passed this term that seeks to incentivize the construction of affordable housing throughout the state, including a controversial new fee on certain real estate transactions that would fund affordable housing projects.  Given that these measures were negotiated with the Governor’s office, many in the Capitol expect the Governor will sign them into law.

The Current State of the Law

For decades, state law has required every city and county to plan for how it will meet its share of regional housing needs, but there were few consequences for a city or county if that planning did not result in actual housing construction.   Beginning in 1969, state law required each city and county to adopt a Housing Element as part of its General Plan which would set forth how that city or county would meet housing needs within its community for people at all income levels.  In the 1980’s, the state Department of Housing and Community Development began assigning housing goals to each region in the state which resulted in a Regional Housing Needs Allocation (RHNA) for each city or county.  Each city and county was then required to include in its Housing Element a plan for how it would accommodate its RHNA, including a designation of specific sites that could accommodate the needed residential development.  However, in many communities, this planning did not result in sufficient projects being built.

SB 35 Would Streamline the Entitlement Process for Certain Multi-Family Residential Projects

SB 35 would provide consequences for cities and counties in urbanized or partially-urbanized areas that fail to meet their RHNA goals.  If a city or county does not issue sufficient building permits to meet its RHNA goals, multi-family residential projects that would contribute to meeting those RHNA goals would receive a streamlined review that would be limited to whether the project meets objective planning criteria and design review (i.e., no conditional use permit may be required).   A city or county would have between 60 and 90 days, depending on the number of units included in the project, to provide the project sponsor with a written explanation as to how the project conflicts with any objective criteria and an explanation of the conflicts.  If the city or county fails to meet this timeline, the project would be deemed to meet the objective criteria.  A city or county would also have between 90 and 180 days, depending on the number of units in the project, to conduct any required design review of the project, which must also be based on objective and generally applicable design criteria and “shall not in any way inhibit, chill, or preclude the ministerial approval” of the project.  SB 35 would also limit a city or county’s ability to impose parking requirements on a qualifying project, and provide that entitlements for certain projects with 50% or more affordable units will not expire.

The streamlined review SB 35 would provide is limited to projects that meet a long list of criteria, including: (1) the project must dedicate between 10-50% of the units to households making below 80% of the area median income, with the percentage of units depending on the type of affordable housing the city or county has failed to permit; (2) the project must be located in a city or county that includes some urbanized area; (3) at least 75% of the perimeter of the project site must adjoin parcels developed with urban uses; (4) the site must be zoned for residential development, or mixed-use development with at least 2/3 of the square footage devoted to residential use; (5) any price- or rent-restricted units must be subject to recorded durational restrictions of 45-years for rental units and 55–years for ownership units; (6) the project would not require demolition of specified types of rental housing or historic structures; and (7) for projects with more than 10 units, the project is subject to prevailing wage requirements and, in certain situations, other labor standards.

In addition, SB 35 would not apply to projects that are: (1) within the Coastal Zone; (2) on prime farmland or farmland of statewide importance; (3) within a wetland; (4) within a very high fire zone; (5) on a hazardous waste site; (6) within a delineated earthquake fault zone; (7) within a floodplain; (8) on lands identified for conservation in an adopted natural resources protection plan; or (9) on land subject to a conservation easement.

Nothing Good Lasts Forever

The streamlined review provided by SB 35 would significantly constrain cities and counties’ ability to deny qualifying housing projects, and may well spur development that will help ease the state’s housing crisis.  Assuming that the Governor signs it, project sponsors will want to act quickly to take advantage of it.  The streamlined review provisions in SB 35 will expire on January 1, 2026.

Authored by Reuben, Junius & Rose, LLP Partner – Matthew Visick

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

On November 9, 2016, California voters approved (by a 56-44% margin) Proposition 64, the Adult Use of Marijuana Act (AUMA), which allows adults to possess and cultivate marijuana for recreational purposes. Municipalities were given until January 1, 2018 to plan for regulation of the industry, at which time recreational retail use will begin and additional State-wide regulations will be imposed. Like other California municipalities, San Francisco has been struggling to implement regulation of recreational marijuana. Mayor Ed Lee has directed the Department of Public Health and the Planning Department to work on creation of a regulatory scheme, but it is not yet clear how existing regulations on medical marijuana will be revised to allow for recreational use. Many on the Board of Supervisors have expressed concern about a “proliferation” of Medical Cannabis Dispensary (MCD) applications, with recreational legalization on the horizon.

This week, the Board’s Land Use and Transportation Committee heard and referred to the full Board an interim moratorium on MCDs that would remain in place for 45 days unless: (1) extended by ordinance; or (2) permanent controls are adopted to address the proliferation of MCDs and the regulation of non-medical cannabis outlets. The moratorium does not apply to MCDs that have already been approved or are scheduled for a hearing before the Planning Commission as of September 11, 2017. We do not yet know how long the moratorium will be in place, but it is clear that the City has significant work to do to establish regulations for this industry at the intersection of zoning, public health and safety.

At the same time this week, the San Diego City Council voted on cannabis regulations allowing cultivation, manufacturing, and testing of marijuana (supply chain businesses) with conditional use approval. While a major step forward for San Diego’s recreational cannabis industry, the regulation also imposes land use controls on the businesses, including capping the total number of marijuana supply chain businesses at 40 and limiting them to industrially zoned areas. San Diego has boosted taxes on the industry to capitalize on what is sure to be a lucrative expanding industry. It will be interesting to compare how California’s cities work to implement Prop 64.

Stay tuned for an upcoming article about cannabis regulation by Reuben, Junius and Rose’s Tom Tunny in the September edition of the View, the quarterly Bay Area publication by Commercial Real Estate Women (CREW). In the article, Tom will explore the implementation of Prop 64, including the Mayor’s Directive, the intersection of medical and recreational cannabis regulation, and how cannabis may impact the culinary and hospitality industries in San Francisco.

Authored by Reuben, Junius & Rose, LLP Associate –  Jody Knight 

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

 

In late July, the Board of Supervisors finally passed—and the Mayor signed—the compromise inclusionary affordable housing ordinance. We discussed the near-final legislation in our June 23 update, which you can access here. The broad strokes of that legislation are now law: partially grandfathered rates passed in June 2016 remain in place but most if not all will eventually sunset; new projects are subject to higher rates across the board but with tranches of affordability levels for BMR units; and on-site and off-site percentages will increase each calendar year until they reach a cap. The final legislation also includes a minimum citywide dwelling unit mix requirement for new projects.

Coming in at 46 pages, it surely sets a record for word count in a city or county’s inclusionary ordinance. This week’s update is going to focus on some of the details buried deep in the ordinance that could be important to housing projects, starting with the new minimum dwelling unit mix.

New citywide dwelling unit mix

Before this legislation, a number of zoning districts had minimum unit mix requirements, the most common being the 40% 2-bedroom and 30% 3-bedroom unit mix in Eastern Neighborhoods mixed use districts such as UMU. The new requirement applies to all projects adding 10 or more units anywhere residential use is allowed that did not previously have a minimum unit mix. At least 25% of units must be 2-bedroom and at least 10% 3-bedroom.

Some kinds of projects are exempt, including group housing, some student housing, SRO housing, HOME-SF projects, and affordable projects. Projects proposed before January 12, 2016 or approved before June 15, 2017 also do not need to comply. And the Planning Commission can grant an exception if the project will serve a “unique population” or there are physical constraints that make compliance unreasonable.

Rate frozen in year “complete” environmental application is submitted

To some, one of the most frustrating aspects of recent changes to the inclusionary program since last year was ongoing uncertainty: projects were proposed (and often financed) under one set of rules and assumptions, but by the time a project was up for entitlements or ready to start construction the rules had changed—sometimes more than once.

The new legislation addresses this problem by freezing a proposed non-grandfathered project’s inclusionary rates on the day a complete environmental evaluation application is submitted. But there is a catch: a building permit or site permit to construct the project needs to be pulled within two and a half years of the project’s approval. If not, the project is subject to the inclusionary rates in place when the permit is pulled.

Increased interim rates for Mission, North of Market SUD, and SOMA NCT

In the Mission planning area, the North of Market Special Use District Subareas 1 and 2, and SOMA NCT zoning district, the city is studying affordability requirements on a neighborhood level. Until those studies are finalized and new affordability requirements adopted, the fee and off-site percentage is set at 30%, and onsite is set at 25% for rental and 27% for ownership.

Additional fee on density bonus units

California’s density bonus law allows qualifying projects to receive up to a 35% density bonus on top of a principally-permitted project. In the past, the City has not applied the inclusionary housing program to the density bonus aspect of the project. The compromise legislation requires density bonus projects proposed after January 1, 2016 to pay the inclusionary fee on all density bonus units.

Interestingly, California State Assemblymember Phil Ting is trying to get a bill passed that amends the density bonus law to essentially do the same thing. Specific to San Francisco, the bill would apply the City’s inclusionary housing ordinance to the total number of units in a project—including the density bonus units. But San Francisco’s default method of compliance with its local inclusionary requirement—the fee—now already applies to the density bonus aspect of a project. To be fair, Assemblymember Ting’s bill was proposed before City’s ordinance was finalized, so maybe he will not pursue it any longer if he thinks the compromise ordinance’s additional fee on density bonus units can stand on its own. And his bill would also allow sponsors to do additional on-site or off-site units instead of just paying the fee. But the fact that he proposed the bill at all makes the additional fee on density bonus units a noteworthy requirement to follow.

Fee or replacements for eliminated BMR or rent-controlled units

Taking a page from the density bonus law, in addition to minimum affordability requirements, San Francisco now requires projects that demolish rent-controlled units or deed-restricted below market rate units to replace the eliminated units for projects doing on-site or off-site BMRs, or pay a fee on the replacement units for projects that are feeing out. For example, a 50-unit rental project doing on-site affordable units that demolishes two rent-controlled units will need to provide 11 affordable units in total, 9 for the 18% affordability requirement and 2 replacement BMRs.

This update contains just a brief discussion of some of the details in the new program; it is not meant to be comprehensive. There are other aspects of the program that will inevitably raise questions as a project makes its way through the entitlement and approval process.  We will continue to engage with city stakeholders to ensure that the inclusionary program is as clear and understandable for our clients as possible.

 

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

On Monday June 19, the Land Use Committee of the Board of Supervisors introduced a revised version of the compromise Inclusionary Affordable Housing legislation that Supervisors Breed, Kim, Peskin, Safai, and Tang introduced in May. We expect the legislation to be heard again, likely for the final time, at the Land Use Committee on July 10th. Any additional clarifications and/or potential amendments should be addressed prior to or at the July 10th hearing, before the Committee forwards the legislation on to the full Board of Supervisors for a vote, possibly as early as July 11.

After Prop. C passed in June 2016, the Board of Supervisors adopted trailing legislation (Ord. 76-16) updating the affordable housing requirements, which resulted in the current Citywide affordable housing scheme—with a 25% on-site requirement or a 33% fee/off-site requirement for projects with 25+ units, and a lower 12% on-site or 20% fee/off-site requirements for projects with 10-24 units. Prop. C also called for the City Controller’s Office to prepare an analysis to determine the maximum feasible inclusionary housing requirements. The Controller presented its preliminary findings in the fall of 2016 and final recommendations in February 2017.

Over the last few months the Planning Commission and Board of Supervisors have heard two competing versions of updated affordable housing legislation—the Peskin-Kim proposal and the Safai-Breed-Tang proposal. Last month, compromise legislation was introduced by the five Supervisors, and that version of the legislation was further amended at the Land Use Committee meeting on June 19. The Compromise legislation is pending under BOS File no. 161351 (and is available here: https://sfgov.legistar.com/View.ashx?M= F&ID=5243 881&GUID=CFA3750B-25F3-4C15-9C57-20E691DE66A2).

Under the current version of the legislation, projects that have submitted an Environmental Evaluation Application (“EE Application”) before January 1, 2013 are subject to the old 12% on-site/20% fee and off-site rates. For projects that submit an EE Application between January 1, 2013 and January 12, 2016, the existing grandfathered rates apply, set forth in Planning Code Section 415.3(b).[1]

Notably, the amended legislation adds a requirement that a project sponsor obtain a building or site permit within 30 months of project approval. Projects that fail to procure a permit within that timeframe would be subject to the inclusionary affordable housing requirements applicable at the time such permit is obtained.

Affordable Housing In Lieu Fee:

As currently proposed, for 10-24 unit projects, a 20% in-lieu fee requirement applies. Projects with 25 or more units that wish to pay the fee are subject to an amount equivalent to 33% if ownership units or 30% if rental units. Each year, by January 1, the City (via the Mayor’s Office of Housing and Community Development (MOHCD)) would be required “to adjust the fee based on the cost of constructing housing.”

The affordable housing fee would also be imposed on any additional units or square footage authorized pursuant to the State Density Bonus Law (excluding projects that filed a complete EE Application by January 1, 2016).

Affordable On-Site Unit Option:

10-24 unit projects would continue to be subject to a 12% on-site requirement, with sales prices at 80% AMI or less. Rental units would need to be offered at a rent set at 55% AMI or less. Starting on January 1, 2018, the City (via MOHCD) would increase the on-site requirements by 0.5% each year, until the requirement maxes out at 15%.

Projects with 25 units or more would be subject to the following requirements:

• On-Site Ownership Units: 20%, of which:
  • 10% to be affordable to low income households (price set at 80% AMI or less);
  • 5% to be affordable to moderate income households (price set at 105% AMI or less);
  • 5% to be affordable to middle-income households (price set at 130% AMI or less); and
  • Ownership units to be offered at 130% AMI or above may not be studio units.

• On-Site Rental Units: 18%, of which:
  • 10% to be affordable to low income households (rent set at 55% AMI or less);
  • 4% to be affordable to moderate income households (rent set at 80% AMI or less);
  • 4% to be affordable to middle income households (rent set at 110% AMI or less); and
  • Rental units to be offered at 110% AMI or above may not be studio units.

Regardless of these rates, the maximum affordable rent or sales price may not be higher than 20% below the median rental or sales price for the neighborhood in which the project is located, defined in accordance with the American Community Survey Neighborhood Profile Boundaries Map.

For Projects with at least 25 units, the on-site requirement will increase by 1% each year for two consecutive years, beginning on January 1, 2018. Starting January 1, 2020, the required on-site requirement will increase by 0.5% each year, until the requirement reaches 26% for ownership units and 24% for rental units.

The amended legislation further requires the Planning Department and Controller to do a study of areas where an Area Plan, Special Use District, or other re-zoning is being considered or has been adopted after January 1, 2015, in order to determine whether a higher on-site requirement is feasible on sites that have received a 20% or greater increase in developable residential gross floor area or a 35% or greater increase in residential density.

Affordable Off-Site Option:

10-24 unit projects would be subject to a 20% off-site requirement, with the sales prices at 80% AMI or less. Rental units would need to be offered at a rent set at 55% AMI or less.

Projects with 25 units or more would be subject to the following requirements:

• Off-Site Ownership Units: 33%, of which:
  • 18% to be affordable to low income households (price set at 80% AMI or less);
  • 8% to be affordable to moderate income households (price set at 105% AMI or less);
  • 7% to be affordable to middle-income households (price set at 130% AMI or less); and
  • Ownership units offered at 100% AMI or above may not be studio units.

• Off-Site Rental Units: 30%, of which:
  • 18% to be affordable to low income households (rent set at 55% AMI or less);
  • 6% to be affordable to moderate income households (rent set at 80% AMI or less);
  • 6% to be affordable to middle income households (rent set at 110% AMI or less); and
  • Rental units offered at 100% AMI or above may not be studio units.

If a project is located within the Eastern Neighborhoods-Mission Plan Area, the North of Market Residential Special Use District Subarea 1 or Subarea 2, or the SOMA NCT (Neighborhood Commercial Transit) District, then the project is subject to the following requirements:

• Fee or Off-Site: 30%
• On-Site Rental: 25% (with 15% affordable to low-income households, 5% affordable to moderate-income households and 5% affordable to middle-income households)
• On-Site Ownership: 27% (with 15% of the on-site affordable units affordable to low-income households, 6% affordable to moderate-income households, and 6% affordable to middle-income households)

Dwelling Unit Mix:

The amended legislation also proposes a new Planning Code Section 207.7 aimed at creating additional family-sized housing. The new provision would apply to projects proposing at least 10 new units, and would require that 25% of the units contain at least 2 bedrooms and 10% of the units contain at least 3 bedrooms. Additionally, no more than 30% of the units may be studios.

These dwelling unit mix requirements may be waived or modified with Conditional Use Authorization or pursuant to a Large Project Authorization. They would not apply in RTO, RCD, NCT, DTR, Eastern Neighborhoods Mixed Use Districts, or in an area or Special Use District with higher specific bedroom mix requirements. The requirements would also not apply to projects where 100% of the units are affordable units pursuant to Section 206.3, group housing units, BMR units pursuant to Section 406(b)(1), SRO units, units for seniors or people with disabilities, or student housing projects affiliated with an institution with an institutional master plan on file with the City. Section 207.7 would also not apply to any project that submitted a complete EE Application by January 12, 2016, or which has received project approval by June 15, 2017.

We expect the version of the legislation with the new Section 207.7 to be heard by the Planning Commission on July 6 and by the Land Use Committee on July 10, before being sent to the full Board of Supervisors for approval.

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[1] The current version of the legislation amends the fee/off-site grandfathered requirement to provide that: “for projects proposing buildings over 120 feet in height . . . except for buildings up to 130 feet in height located both within a special use district and within a height and bulk district that allows a maximum building height of 130 feet, such development projects shall pay a fee or provide off-site housing in an amount equivalent to 30% [rather than 33%] of the number of units constructed on-site.”

 

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

 

Sneak Peek at Affordable Housing Compromise

The San Francisco development community has been waiting for Board of Supervisors action on affordable housing requirements.  As last reported in our April 26 update, competing affordable housing legislation has been working its way through the Land Use and Transportation Committee and the Planning Commission. It is now being reported that compromise legislation may soon be adopted that would set rental projects at 18% affordable and for sale projects at 20% affordable, and would include a mix of low and middle income housing.

We do not yet know the specifics of grandfathering under the legislation, a major concern for projects in the pipeline, or unit mix requirements. The matter is set to be heard by the Land Use and Transportation Committee today, and then heard by the full Board tomorrow, so stay tuned for more information.

New Online Resource for San Francisco Street Trees

It is spring in San Francisco and time for an update on trees. In March, the City completed its first comprehensive census of San Francisco Street trees, EveryTreeSF. This is part of the City’s Urban Forest plan, which seeks to create a more green San Francisco, starting with a focus on thriving street trees, and then directing efforts at parks and open space and buildings and private property. The City, in collaboration with Friends of the Urban Forest (FUF), has created an online resource http://urbanforestmap.org/, which allows users to look up exact location, species and current condition of every street tree.

The City will formally take over maintenance responsibility for street trees on July 1. Proposition E, passed in November 2016, transferred responsibility for street trees to the Department of Public Works and provided $19 million in funding for maintenance. The proposition was a reaction to the poor condition of many street trees, caused in part by confusion about maintenance responsibility and lack of resources for maintenance.

It is frequently difficult to obtain Public Works approval for removal of street trees, even where removal would greatly aid construction logistics and where a greater number of trees are proposed for planting. Although the City initiative focuses on maintenance of street trees, it is possible that transfer of responsibility to the City will make it easier to obtain a permit to remove trees that pose maintenance challenges, such as ficus trees, which are prone to instability and often cause sidewalk damage. The City has already moved towards allowing ficus removal where the trees are co-dominant (split in two) or otherwise pose a risk of falling limbs. It remains to be seen whether the resources provided to Public Works after Proposition E are sufficient to dramatically improve the health of street trees 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 & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

 

Planning’s Retooled Approach to Residential Projects in RH Districts – The Large Home Program

Last week, the Planning Department unveiled its revamped approach to residential expansions and new ground-up construction in the RH zoning districts: the Large Home Application. The name of the program is derived from the Eastern Neighborhoods’ primary entitlement document, the Large Project Authorization, and the concept is also similar. For most projects in RH districts creating units over a certain threshold, (1) a Planning Commission hearing would be required, and (2) the Commission will have a clear set of design guidelines to apply against the project when considering authorization.

The program would replace the “tantamount to demolition” approach to certain expansions, which can result in oddly constructed units and is often criticized for not accomplishing the purposes of the Planning Code’s restrictions on removing dwelling units.

The threshold that would automatically trigger a Commission hearing is based on the floor-area ratio of the unit/home, and not size. The Planning Department had initially proposed a 3,000 square foot size threshold; this retooled approach is meant to respond to community feedback and Commission direction for a more refined metric. Planning’s proposed per-unit size thresholds, by district:

In short, subject to a few narrow exceptions, if a single family home or any unit in a multifamily building exceeds this FAR, it would automatically trigger a hearing. Planning’s logic makes a lot of sense: owners, sponsors, and architects can know with certainty what size home or unit would automatically trigger a Commission hearing. Unfortunately, the Program will not replace the Discretionary Review process, so uncertainty about timing will still persist for all residential projects. Even if a project is below the Large Home Application FAR threshold, it could still end up at the Planning Commission if a Discretionary Review application is filed.

That being said, Planning staff did explain that many recent residential expansion or new construction projects that ended up on the Discretionary Review calendar would have automatically required a Large Home Application if the program had been in place. And instead of the somewhat vague “exceptional and extraordinary circumstances” standard of review on DR, staff is proposing a set of specific criteria to guide the Commission’s decision making.

Those criteria are: (1) high quality architectural design; (2) contextual and compatible with regards to factors such as siting, orientation, massing, and scale; (3) compatible with surrounding unit density; (4) family-friendly amenities; (5) for projects reconfiguring units, quality and family-friendly redesign; and (6) access to and quality of open space for each unit.

Some other interesting details of the proposal:

• It would eliminate Section 317 exemptions from Planning Commission hearings for demolitions of RH-1 homes that are demonstrably not affordable or that are unsound. Soundness and affordability will remain criteria for the Commission to consider, but they would no longer be sufficient in and of themselves to avoid a Commission hearing.
• For multifamily projects that are subject to the program, a minimum unit size of 1,000 square feet is proposed. Staff explained that they are open to other suggestions for maintaining housing equity, and that the idea with this control is to prevent remodels or new construction where one unit is significantly smaller than the others.
• There would be exemptions for minor expansions and some ADUs. Existing units that already exceed the FAR threshold would be allowed a 10% addition before a hearing is triggered. Consistent with San Francisco’s current rules and state law, certain ADUs would also be exempt—specifically ADUs that are 25% of a unit size or 750 square feet, whichever is smaller.
• Section 317 approval criteria for mergers, conversions, and demolitions would stay in place. The Large Home criteria would be an additional set of substantive criteria for Section 317 projects to meet if the FAR threshold is triggered.

Staff is making a presentation at the Planning Commission on June 1. We will continue to follow this proposal as it makes its way through the City approval 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 & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

The Right to Repair Act or SB 800 (“Act”) provides for certain rights and procedures for homeowners and builders with respect to construction defect claims.  The Act requires certain pre-litigation notice and cure obligations between the parties before a suit may be filed by the homeowner.  A recent case entitled “Blanchette v. Superior Court” interpreted and clarified certain notice and time requirements of the Act (8 Cal.App.5^th 521 (2017)).  In brief, the Act requires that, before initiating litigation, construction defect claimants must give the affected builder notice of an alleged defect and if the builder wishes, an opportunity to inspect and repair the noticed defects.  The claimant’s notice should set forth the defects “in reasonable detail” sufficient to determine the nature and location of the alleged defects.  After receiving the notice, a builder has 14 days in which to acknowledge receipt of the claim, and 14 additional days in which, if the builder wishes, to inspect the premises.  If an inspection is completed, a builder may thereafter make an offer to repair the claimed defects within 30 days.  The Blanchette case confirms that, as long as the homeowner’s notice includes general information to put the builder on notice of a construction defect claim covered by the Act, the 14-day clock for the builder to respond is triggered, even if the notice does not set forth the alleged defects “in reasonable detail”.

In Blanchette, Mr. Blanchette bought one of 28 homes constructed by GHA Enterprises, Inc. (“GHA”).  Mr. Blanchette served GHA with a notice setting forth a number of general construction defects in the 28 homes and a list of the affected homeowners, both required conditions of the homeowner’s notice under the Act.  However, his claim did not set forth the defects “in reasonable detail” sufficient to determine the nature and location of the alleged defects, also required by the Act.  GHA did not respond within the required 14 days and Mr. Blanchette asserted its response was untimely and excused him from any further obligations under the Act.  He thereafter filed suit against GHA for construction defect claims.  GHA moved to stay the litigation until Mr. Blanchette satisfied the pre-litigation requirements of the Act, specifically by providing a new notice to GHA which included the required “reasonable detail”.  The trial court agreed and held that Mr. Blanchette would need to serve a new notice of claims on GHA which (i) identified each individual claimant by address, (ii) provided a defect list for each subject property, (iii) listed the location, nature and severity of each alleged defect, and (iv) identified the code section(s) the claimants contend each alleged defect violates, as required by the Act.  Mr. Blanchette challenged the trial court’s order.

The Court of Appeal analyzed the issue under the framework of the Act’s intention to “promote resolution of a homeowner’s construction defect claim in an expeditious and non-adversarial manner”.  The Court found that Mr. Blanchette fulfilled the requirements of the Act in his original notice by listing the names of the owners of the affected homes and stating the general defects, even though he did not specifically meet the other condition of providing “reasonable detail” of the alleged defects.  The Court determined that the requirement of providing “reasonable detail” is subjective and could vary according to the factual situation.  However, they considered the Act’s requirement to respond within 14 days after receipt of claimant’s notice to be clear and not subject to interpretation.  As such, they held that the builder must respond to a homeowner’s notice within the 14-day period, even if it is to ask them to clarify their original notice and provide more specificity.  If the builder fails to do so, the homeowner can be excused from further pre-litigation procedures required under the Act and may directly proceed with litigation.  The Court theorized that allowing GHA to ignore the original notice in this case due to a lack of specificity would discourage the expeditious and non-adversarial resolution of claims.  By requiring a timely response from the builder, even if to lodge an objection with the homeowner for lack of specificity, the parties could resolve the issue in a more timely manner and before litigation is commenced.

The Blanchette case provides more clarity as to the pre-litigation notice procedures between a builder and homeowner under the Act.  It also highlights that it would be prudent for a builder to respond to each general claim of construction defect by a homeowner within 14 days, if only to ask for clarity from the homeowner or to object to its contents.  If that does not occur, a builder could waive its rights under the Right to Repair Act and a homeowner could properly bring an immediate suit for construction defects.

 

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

City policy-makers have been busy addressing the City housing issues, and this week we discuss recent developments in two areas of housing policy:  affordable housing and accessory dwelling units.

Affordable Housing

In previous updates, we have reported on legislation proposed by members of the Board of Supervisors that amends the City’s affordable housing requirements.  Two competing measures, one proposed by Supervisors Peskin and Kim, and one proposed by Supervisors Safai, Breed and Tang are now coming into focus and being considered by the Planning Commission.  Following an informational presentation at the Planning Commission on March 16, 2017, the Planning Commission is now scheduled to consider the measures again and adopt a recommendation to the Board of Supervisors this Thursday, April 27.

Planning Department staff has released its recommendations to the Planning Commission concerning the two proposals, which recommendations largely support the Safai proposal.  Of particular note is the recommendation discussed below concerning the grandfathering of existing projects.

In general, Planning Department staff recommends that the Planning Commission support the following:

• Providing affordable units on-site: Adopting Safai proposal (18% for rental projects; 20% for ownership projects)
• Providing affordable units off-site/in-lieu fee alternatives: Adopting Safai proposal (23% for rental; 28% for ownership)
• Schedule of annual increases: Amending legislation to require rate increases of 1% every 2 years, until a maximum requirement is met (on-site: 23%/25% rental/owner; off-site or fee: 28%/33% rental/owner)
• Applicability of affordability requirements: Requirements to be set at time of Environmental Application filing, but reset to current rates if a project has not received its first construction document within 3 years of entitlement.
• In-lieu fee: Adopt Safai proposal to: (1) revise method of calculation to apply the fee on a per gross square foot basis; (2) calculate fee to match actual costs to City to construct affordable units.
• Income levels of qualifying households for affordable units: Adopt Safai proposal with modifications:

Smaller Projects (10-24 units):
Rental: 80% Area Median Income (“AMI”)
Owner: 110% AMI

Larger Projects (25+ units):
Rental: tiers at 55, 80,and 110% AMI
Owner: tiers at 90, 110, and 140% AMI

• Unit mix: Set unit mix requirements that would not exceed 40% total large unit requirement already in place in Plan Areas; require a mix of 2- and 3-bedroom units.
• Grandfathering: Adopt Safai proposal to retain grandfathering for projects that provide affordable units on-site, but eliminate it for projects that choose to pay the in-lieu fee, provide affordable units off-site, or are located in the UMU (Urban Mixed-Use) Zoning District.  For most in-lieu fee/off-site pipeline projects, this would result in applying the proposed 23%/28% requirements. However, higher rates applicable under Section 419 for projects in the UMU District would continue to apply. The Department also recommends that final legislation include an express statement that grandfathering, where applicable, applies only to percentage requirements, and all other Section 415 provisions would continue to apply to pipeline projects.

Accessory Dwelling Units
This week the Board of Supervisors approved the first reading of an ordinance bringing the requirements for Accessory Dwelling Units (ADUs) in single-family homes into conformity with new mandates of state law. Under the proposed legislation, the Planning Department must approve an ADU if it, among other technical requirements: (1) is contained within the existing space of a single-family residence or accessory structure that is in an RH-1, RH-1(S), or multifamily residential zone; (2) does not require a waiver of rear yard, open space or dwelling unit exposure requirements; (3) has independent exterior access from the existing residence; and (4) has side and rear setbacks sufficient for fire safety.

The Planning Commission and Board of Supervisors are considering additional changes to existing ADU controls that have been proposed by Supervisors Farrell and Sheehy. We will monitor and report on these amendments as they are further developed.

 

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

Real estate brokers, and the licensees who work under their supervision, owe fiduciary and other duties to their clients. Can those duties be fulfilled in the context of dual agency?  The potential conflicts of interest that may arise when brokers undertake the representation of more than one party to a real estate transaction are again before California lawmakers, in the wake of the California Supreme Court’s November 2016 decision in Horiike v. Coldwell Banker Residential Brokerage Company (2016) 1 Cal.5th 1024.

Among the duties owed by a real estate licensee is a “fiduciary duty of utmost care, integrity, honesty, and loyalty” in dealings with her own client.  A licensee’s duties to both parties in a transaction include (a) a duty to exercise reasonable care and skill, (b) a duty of good faith and fair dealing, and (c) a duty to disclose facts that are known to her and which materially affect the value or desirability of the property and which are not within the diligent attention and observation of one or both parties.

“Dual agency” arises when a single real estate brokerage represents both parties to a transaction.  Often, two real estate salespersons represent the different parties, but they are both supervised by the same broker or corporate brokerage.  Continued consolidation in the brokerage industry had made dual agency increasingly common.

In most cases of dual agency, each party interacts exclusively with her own salesperson, rather than with the supervising broker.  Nonetheless, the Real Estate Law considers the client’s relationship to be with the broker.  Principles of agency create concerns about how the broker – who acts through the licensed salespersons he supervises – can fulfill his fiduciary duties to both of the adverse parties to a real estate transaction, while maintaining the confidences of one party to the exclusion of the other.

In 1986, California enacted legislation that addressed, to some extent, the practice of dual agency.  Rather than prohibiting dual agency or reconciling the conflicts of interest inherent to dual agency, however, California focused on disclosure: dual agency was permitted, if the broker obtained the informed consent of both clients.  With one exception, the Real Estate Law left intact the duties – including fiduciary duties – that a broker owes to his clients.  Notwithstanding their fiduciary duties, the broker and his associate licensees were required to maintain the confidence of the parties’ respective positions regarding price.

The dual agency legislation initially applied only to residential transactions, but in 2015 it was extended to commercial real estate brokers.

The Supreme Court’s decision in Horiike significantly changes the legal landscape.  The Court there determined that when a real estate brokerage serves as a dual agent in a residential real estate transaction – albeit through salespersons who each have a relationship with only one of the parties – the brokerage’s fiduciary duties to both parties are imputed to the listing agent.  The practical import of the decision is that the listing agent, who was historically viewed as having fiduciary duties only to the seller, is now held to have fiduciary duties to both the seller and the buyer.  The Court held that the listing agent has a fiduciary duty to the buyer to learn about and disclose all facts that materially affect the value and desirability of the property.  In some contexts, doing so could require the listing agent to work against the interests of its client, the seller.

The facts of Horiike limit its application to residential transactions.  How the decision will impact on dual agency in the commercial real estate context is not yet clear.  However, two pieces of legislation were proposed in response to Horiike, each of which bears consideration.

Assembly Bill No. 1059 would completely prohibit real estate brokers or their associated licensees from representing both the seller and buyer in any commercial real estate transaction, i.e., “any negotiation regarding an agreement or the consummation of an agreement to lease, purchase, or sell commercial real estate. . . .”  Assembly Bill No. 1059 is pending before the Assembly Judicial Committee, and is set for further hearing on May 2, 2017.

Assembly Bill No. 1626 is expressly drafted to clarify the duties of real estate licensees in the wake of the Horiike decision.  Rather than prohibiting dual agency, Assembly Bill No. 1626 would maintain the current focus on informed consent, and would require modification of the statutorily-required disclosures.  The legislation would provide some protection to licensees in that the fiduciary duties of a dual agent would be considerably more limited than those imposed on a licensee who exclusively represents the buyer.  The dual agent’s duty to “learn about and disclose all facts that materially affect the value and desirability of the property” will be limited to disclosure of facts that are actually known to her, or which could have been learned by “a reasonably competent visual inspection” of the property [emphasis added]. Assembly Bill No. 1626 is set for hearing on April 25, 2017 before the Assembly Judicial Committee.

Time will tell whether dual agency survives in California, or to what extent legislation will scale back or eliminate the fiduciary duties that real estate brokers who serve as dual agents owe the parties to commercial real estate transactions.

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

Back in December 2015, Supervisor Breed introduced legislation that would eliminate the Affordable Housing Program grandfathering provisions of Proposition C and impose increased affordable housing rates for certain properties in the Divisadero and Fillmore Neighborhood Commercial Transit (NCT) Districts. The higher requirements would apply to sites in those two districts that received at least a 50% increase in development potential as a result of the rezoning of those two districts in 2015. After stalling last summer, an updated version of the ordinance was substituted and assigned to the Land Use and Transportation Committee on March 21, 2017.

The legislation follows the August 2015 rezoning of the Divisadero and Fillmore Street corridors. Ordinance No. 127-15 rezoned the area along Divisadero Street between Haight and O’Farrell Streets to become the Divisadero Street NCT, and Ordinance No. 126-15 rezoned the area along Fillmore Street between Bush and McAllister Streets to become the Fillmore Street NCT. The rezoning eliminated any previously applicable residential density limits based on lot area. Meaning that after the rezoning, sites within the new NCTs could add any number of residential dwelling units permitted by the physical envelope controls like height, bulk, and setback requirements—affording greater development potential on certain sites within those districts.

Since the legislation was introduced at the end of 2015, San Francisco voters passed Proposition C in June 2016—which, as everyone knows, made a number of changes to the Affordable Housing Program, including raising the affordable housing requirements for on-site affordable housing, off-site affordable housing, and the in-lieu fee. The current city-wide affordable housing requirements (excluding UMU districts) are as follows:

Ordinances proposed by Supervisors Safai, Breed, and Tang (available here) and by Supervisors Kim and Peskin (available here) would amend these city-wide requirements.

In the meantime, the increased affordable housing requirement proposed by Supervisor Breed’s legislation would apply to any property in either the Divisadero Street NCT or Fillmore Street NCT that received at least a 50% increase in density from the 2015 rezoning of those districts (previously the Divisadero Street Neighborhood Commercial District and Fillmore Street Neighborhood Commercial District, respectively). The density limit in the previously existing Divisadero Street NCD was 1 unit per each 800 square feet of lot area and the density limit in the previously existing Fillmore Street NCD was 1 unit per each 600 square feet of lot area—with a few exceptions for certain parcels previously zoned RH-3, RM-4, and RM-3. The rezoning eliminated those density limits, allowing any number of units to be constructed, with building sizes restricted instead by applicable building envelope controls.

For sites covered by the ordinance, the otherwise applicable citywide affordable housing requirements would apply, except that the grandfathered rates available to projects that submitted an Environmental Evaluation Application by January 12, 2016, would not be available. Instead, the following requirements would apply:

• Affordable Housing Fee: 30%Off-Site Housing: 30%
• Off-Site Housing: 30%
• On-Site Housing: 23%—with 6% of the units affordable to households earning up to 55% AMI, 8% of the units affordable to households earning up to 120% AMI, and 9% of the units affordable to households earning up to 140% AMI.

Notably, the legislation includes a provision stating that if the Board of Supervisors adopts citywide affordable housing requirements higher than those imposed by this ordinance, the higher requirements will apply.

The legislation is scheduled to be heard by the Land Use Committee on Monday, April 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 & Rose, LLP is a full-service real estate law firm.  We specialize in land use, development, and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision, and condominium work.