Governor Signs Commercial Density Bonus Law

​Last month, Governor Brown signed into law legislation creating a temporary density bonus program for commercial developments (“Commercial Bonus Law”) that includes an affordable housing component.   Sponsored by Assembly member Santiago (D-Los Angeles), the new law will remain in effect until January 1, 2022.

For qualifying projects, development bonuses must be mutually agreed upon by the local government and developer.  The bonuses available include:

* Up to a 20% increase in maximum floor area ratio, general plan intensity, and height;

* Up to a 20% reduction in minimum parking requirements;

* Use of limited-use/limited application elevators for upper floor accessibility; and

* Other exceptions to a zoning ordinance or other land use regulation.

To qualify under the Commercial Bonus Law, a commercial developer would have to enter into an “agreement for partnered housing” with a housing developer, identifying how the commercial developer will contribute to affordable housing.  The housing component of a commercial bonus project would not have to be 100 percent affordable.  Rather, a minimum of 15 percent of total units would have to be set aside for very low-income households or 30 percent for low-income households.

The Commercial Bonus Law allows for flexibility in the manner and location in which the affordable housing is provided.  A commercial developer may directly build the units, donate a portion of the site for housing, donate property elsewhere, or make a cash payment to fund the cost of an affordable housing project.  The affordable housing must either be on the site of the commercial project or within the boundaries of the local government of the commercial project, in “close proximity to public amenities including schools and employment centers,” and within one-half mile of a “major transit stop.”  Most of San Francisco is within one-half mile of a major transit stop.

The Commercial Bonus Law does not specify that some minimum number of housing units must be created to qualify for the bonus.  Presumably, that amount of housing produced would be the subject of negotiation between the developers and the local government.

This highlights an important–and unfortunate–distinction between the new Commercial Bonus law and the longstanding density bonus laws for residential projects (“Residential Bonus Law”).  The Residential Bonus Law contains clear, mandatory standards requiring local governments to give density bonuses and waive development standards that preclude construction of bonus units.  As well, developers are not required to seek changes in zoning laws or special approvals for the density bonus units and related waivers and concessions. They are simply entitled to them as a matter of law.

In contrast, the Commercial Bonus Law lacks straightforward, mandatory directives.  For example, though it states that localities “shall grant” bonuses to qualifying projects, implying a mandate, it then goes on to say that bonuses need to be “mutually agreed upon by the developer and the jurisdiction.”  It also does not specifically provide that zoning changes or other special approvals are not required to achieve the Commercial Bonus.  This means that individual projects trying to use the law may need to enter into development agreements or seek other special approvals.  This could, unfortunately, limit the utility of the new law in jurisdictions where development bonuses are controversial.

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.