Even before COVID-19’s devastating economic impacts, the process of opening a small business in San Francisco was often difficult, lengthy, and expensive. Between high rents and operating costs and the shift to online shopping and food ordering, many small business have been forced to close. Retail vacancies have risen with many potential new businesses deterred by San Francisco’s bureaucratic, drawn-out process to get the necessary approvals. Closures, occupancy restrictions, and declining sales volumes due to COVID-19 have dramatically accelerated these long-term trends, with the Golden Gate Restaurant Association estimating that 50 percent of restaurants may fold as a result.
In response, Mayor London Breed recently introduced a new ballot measure for the November 2020 election—the Save our Small Businesses initiative—that focuses on two main goals: (1) streamlining the permitting and inspection process for new businesses and (2) relaxing zoning in all of the City’s neighborhood commercial (“NCD”) and neighborhood transit (“NCT”) zoning districts. The ballot measure was submitted by the Mayor directly to the voters and requires a simple majority of the votes to pass.
According to a 2019 report that is cited in the ballot measure, building permit applications for commercial uses took an average of 172 days to be issued, during which time small businesses were forced to pay rent without any income while waiting for permit issuance. In addition, many businesses must provide neighborhood notification when changing from one use to another, even if that use is principally permitted in the zoning district. This encourages appeals that can further delay new businesses for 4-6 months and introduce a high degree of risk. However, perhaps the most difficult are uses that require a Conditional Use Authorization (“CU”) from the Planning Commission. The same 2019 report found that it took an average of 332 days for CUs to be approved between 2015 and 2017. In all, the process of obtaining the necessary permits and inspections to open a commercial business in San Francisco can take over a year and a half, imposing extreme financial hardships on new small businesses. Combined with the anticipated rise in vacancies due to COVID-19, these standard operating procedures practically guarantee long-term vacancies on neighborhood shopping streets and long-term declines in sales tax revenues to the city.
Permit and Inspection Streamlining
First, the ballot measure proposes a 30-day time limit to review permit applications for commercial uses that are principally permitted in NCD and NCT zoning districts. One of the biggest factors contributing to the lengthy permitting process is the need for permits to be reviewed by many City agencies, including the Planning Department, Department of Building Inspection, Fire Department, Department of Public Works, and Health Department. Currently, the multi-agency review is completed sequentially. However, the ballot measure would instead allow “parallel cross-department review” of applications, during which the applicable City agencies would collectively have to complete their reviews within the allotted 30-day period for qualifying projects. If permit review is not completed within 30 days of submitting a complete application, the applicant would be provided with an explanation detailing why a longer review is necessary (e.g. additional information is needed from the applicant).
In addition, scheduling and completing necessary pre-approval inspections further delays new businesses from opening. The ballot measure would require City agencies to coordinate their inspections and schedule them within two weeks of an inspection request for principally permitted commercial uses in NCD and NCT districts. The inspection itself would be limited to compliance with an objective checklist adopted by the agency. Alternatively, an applicant would be able to submit an inspection report from a qualified entity to comply with inspection requirements.
Zoning Code Changes
The Mayor’s ballot measure also proposes overhauling the zoning in almost 50 NCD and NCT zoning districts. By principally permitting more commercial uses in these districts, it would allow businesses to qualify for streamlined review and thereby enable new small businesses to open quicker and at a lower cost.
The following uses would generally be principally permitted on all floors in all NCD and NCT zoning districts:
• Arts activities;
• Movie theaters;
• Community facilities;
• Public facilities;
• Social service or philanthropic facilities; and
• Retail professional services.
In addition, animal hospitals, general entertainment, restaurants, and limited restaurants would generally be principally permitted on the first and second floors only in NCD and NCT zoning districts. Note that formula retail restaurants and limited restaurants would not permitted in certain districts. Finally, non-retail professional services (most office uses) would be principally permitted on the second floor in all NCD and NCT districts; restrictions on other floors would vary by district.
The ballot measure would also help address the mandated reduced capacity in restaurants and limited restaurants in compliance with COVID-19 social distancing. First, the measure would permit food services in “parklets.” Parklets refer to on-street parking spaces that have been converted into sidewalk extensions with publicly accessible seating, landscaping, bike parking, and art. The measure would also make it easier to obtain permits for outdoor dining on back patio areas in NCD and NCT zoning districts. Eligible outdoor activity areas must: (1) be located on the ground floor; (2) operate only between the hours of 9am and 10pm; (3) not be associated with a bar use; and (4) only include seated areas for restaurant and limited restaurant uses. Outdoor dining areas that do not meet all of these conditions would need a CU.
Finally, the measure would allow businesses to diversify their services and products by permitting certain types of co-working uses as “retail workspaces.” Retail workspaces may rent space on a daily or hourly basis as an accessory use to eating and drinking establishments, such as restaurants and cafes. To qualify, the eating and drinking use must face the street and occupy at least one-third of the total gross floor area. (Unlike most other accessory uses, retail workspaces can occupy up to two-thirds of total area as accessory.) In addition, the accessory retail space must be open to the general public and would be limited to operating between 9am and 5pm; the eating and drinking establishment must also be open for business to the general public on the same days the retail space is open.
After deferring business registration fees and taxes, instituting a moratorium on commercial evictions, and as referenced in an earlier Reuben, Junius & Rose, LLP E-Update, delaying the implementation of the commercial vacancy tax, the Mayor’s ballot measure is yet another potential tool to help fill the many vacancies along commercial corridors that will only increase as a result of the COVID-19 crisis.
Authored by Reuben, Junius & Rose, LLP Attorney Tiffany Kats.
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.