State Law Would Limit HOA Assessments for Affordable Units

| Jay Drake
affordable unit

Assembly Bill 572, introduced by Assembly Member Matt Haney of San Francisco, would place a cap on assessment increases a condominium homeowners association (HOA) could impose on a deed-restricted affordable unit, subject to certain exceptions.  AB 572 would amend California Civil Code 5605, part of the Davis-Stirling Common Interest Development Act, to prohibit an increase of the HOA regular assessment for a deed-restricted affordable unit that is more than 5% greater than the preceding year’s regular assessment, or that is greater than the annual percentage change in cost of living, whichever is larger.  The maximum increase for a deed-restricted affordable unit would be 10% greater than the preceding year’s regular assessment.  The “percentage change in the cost of living” would be determined using the Consumer Price Index for the region where the project is located.  The limitation would not apply to a development where 30% or more of the units are deed-restricted affordable units.

Civil Code Section 5605 already provides that an HOA board of directors may not impose a regular assessment that is more than 20% greater than the regular assessment for the HOA’s preceding fiscal year without the approval of a certain number of the HOA members.  The proposed amendment to Section 5605 would extend this existing rule by further limiting such increases as applied to deed-restricted affordable units.

Under current state law, there is no difference between the assessments paid by affordable and market-rate units.  Having one group of owners pay more and subsidize another group of owners who receive the same benefits and services is not allowed.

It may be well-intentioned, but AB 572 is somewhat controversial and opposed by some industry groups for a few reasons.

This new law could result in the affordable units paying less than the market-rate units for the same services and benefits.  This disparate treatment could breed resentment from the market-rate owners, who were not part of the original approval of the project and imposition of affordable housing requirements, yet could be burdened with the responsibility of paying a disproportionate share of assessments and subsidizing the affordable units in the project.  This could be viewed as unfair to the market-rate unit owners.

This new law is also seen by some as designating affordable unit owners as a separate class of homeowners, which could create inequities and sow division among the residents of the community.

There is also concern that in order to avoid any controversy, an HOA might decide to cap all increases in HOA assessments at an artificially low amount in order to keep the assessments the same for all units.  This could result in an HOA reducing services and deferring necessary maintenance, and could also result in large special assessments down the road to make up for insufficient HOA funds.

AB 572 is currently processing in the State legislature. We will continue to monitor and report back if the bill passes and becomes law.

 

Authored by Reuben, Junius & Rose, LLP Partner Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & 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.

SB 1085 Emerges from Crucial Committee Vote

| Matthew D. Visick
Affordable Housing

SB 1085 Clarifies that Affordable Housing Fees Do Not Apply to Affordable or Density Bonus Units

When Senator Nancy Skinner introduced Senate Bill 1085 (SB 1085) in February, the bill proposed numerous revisions to the state Density Bonus Law. Many were geared toward incentivizing the development of moderate-income rental housing, including a 35% density bonus for projects that provide at least 20% of the units affordable to moderate-income families, concessions, and reduced parking requirements. The bill also limited cities’ ability to deny requested concessions, limited parking ratios for certain senior housing projects, and allowed concessions for student housing projects. Of particular interest to developers with projects in San Francisco, SB 1085 clarified that “[a]ffordable housing impact fees, including inclusionary zoning fees, in-lieu fees, and public benefit fees, shall not be imposed on a housing development’s affordable units or bonus units.”

SB 1085 was passed by the full Senate in late June, after which it moved to the Assembly.

On July 30, the Assembly Committee on Housing and Community Development approved SB 1085 conditioned on Senator Skinner amending the bill to remove the incentives for development of moderate-income rental units. These amendments were encouraged by affordable housing advocacy groups that argued the incentives would cause a reduction in the supply of low-income and very-low income units. The prohibition on imposing Affordable Housing fees on affordable or Density Bonus units remains in the bill.

The City of San Francisco imposes an Affordable Housing Fee on Density Bonus units. Many practitioners believe that the imposition of these fees on Density Bonus units is fundamentally incompatible with the Density Bonus Law. In April 2019, Attorney General Xavier Becerra issued an Opinion that bolstered this view, concluding that the imposition of a “public benefit fee” on Density Bonus units reduced the benefits that the Density Bonus Law is intended to promote, and was therefore invalid. While the Attorney General’s Opinion addressed fees imposed only on the Density Bonus units, most practitioners understood its reasoning would also preclude generally-applicable Affordable Housing fees that were being applied to Density Bonus units. SB 1085 would make it explicit that Affordable Housing fees cannot be applied to Density Bonus or affordable units.

The Committee’s approval of SB 1085 with the language limiting fees could be interpreted as a promising sign, given that Assembly Member David Chiu, a former San Francisco Supervisor, chairs the Committee. The bill must be approved by the full Assembly and the full Senate by August 31 to make it to the Governor’s desk in 2020. The San Francisco Board of Supervisors remains opposed to the bill.

 

Authored by Reuben, Junius & Rose, LLP Attorney Matthew D. 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, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.