LA Court Weighs In on the Builder’s Remedy

| Sabrina Eshaghi
Builder's Remedy

Until now, the notorious “builder’s remedy” had not been tested in court, leaving developers with serious questions about how it works and whether it’s worth potential legal challenges from unamenable cities. Recently, however, a superior court in Los Angeles referenced the builder’s remedy in a ruling that implied the remedy is available in the City of La Cañada Flintridge. This case, and others that are still in the pipeline, will have significant implications for developers who have filed builder’s remedy projects, or are considering doing so, as well as for cities across the state.

Builder’s Remedy

According to the HCD’s Housing Element Review and Compliance Report (as of 7/24/23), only 33 out of 109 Bay Area jurisdictions have adopted fully compliant Housing Elements. As discussed in our previous e-update, the deadline for Bay Area cities and counties to revise housing elements has passed, and those that remain noncompliant have opened themselves up to builder’s remedy projects.

The builder’s remedy is a mechanism in the Housing Accountability Act that prohibits any city that has not adopted a compliant housing element by the required deadline from applying its general plan and zoning standards to reject certain housing development projects. To qualify for the builder’s remedy, a project must provide either 20% of the units as affordable to 80% AMI households (low-income), or 100% of the units as affordable to 120% AMI households (moderate-income).

Because the builder’s remedy has never been tested in court, there is uncertainty about how the builder’s remedy applies in practice and how cities will process these projects. Many cities that failed to adopt compliant housing elements have openly defied state law by stating that the builder’s remedy doesn’t apply to them or by passing an ordinance banning builder’s remedy projects.

La Cañada Flintridge Case

Southern California jurisdictions were required to adopt their updated Housing Element by October 15, 2021. The City of La Cañada Flintridge adopted its Housing Element on October 4, 2022, which was determined to be inadequate by HCD. On February 21, 2023, the city adopted an amended Housing Element, which HCD again found to not be in substantial compliance with state law.

While stopping short of confirming HCD’s finding and determining whether the substance of the city’s Housing Element complied with state law, the court found that the Housing Element is not in compliance with state law because the city missed mandatory deadlines. Specifically, the city failed to adopt a Housing Element within 120 days of the deadline and was therefore subject to the penalty requiring it to complete its rezoning within one year of the statutory deadline-i.e., by October 15, 2022- instead of the three years otherwise permitted. Because the city’s challenged Housing Element was not adopted until February 21, 2023, and the Housing Element had still not been certified by HCD, the court was required to find that the city’s Housing Element will not be in substantial compliance with the Housing Element Law until the required rezoning is complete. This appears to put to rest the idea that a city can avoid all the consequences of failing to obtain HCD certification by “self-certifying” its own Housing Element.

Although the city argued that the timelines under the Housing Element Law are purely directory, the court disagreed and confirmed that the timelines are mandatory. In making that finding, the court looked to the penalties that apply for missing the deadlines and confirmed “there are at least two significant penalties for failing to timely adopt a housing element. First, there is the rezoning penalty…that is the subject of this litigation…Second, the HAA contains [the] builder’s remedy that limits a city’s ability to deny a development for low-cost housing unless its housing element…is in substantial compliance with the Housing Element Law.” To our knowledge, this is the first time a court has opined on or directly referenced the builder’s remedy by name.

The court did not issue an explicit declaration that the builder’s remedy applies in the city because the organization that filed the lawsuit, Californians for Homeownership, did not have legal standing without a pending project. Nevertheless, the judge seemed to signal that a developer with a pending project may be able to obtain such a declaration.

The court’s acknowledgment of the builder’s remedy is a positive sign for those with a pending builder’s remedy project. According to the Real Deal, the president of the California Association of Realtors said in a statement, “For far too long, certain cities and counties have treated compliance with state housing laws as optional. This decision sends a clear message: complying with these laws is not optional.”

As discussed in our previous e-update, other housing advocacy groups have also filed lawsuits against jurisdictions that are out of compliance with the Housing Element Law. We will continue to keep you updated as decisions are issued in these cases.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi.

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.

Details on San Francisco’s Proposed Housing Production Ordinance

| Mark Loper
ordinance

Recently, Mayor London Breed and Supervisor Joel Engardio introduced an ordinance removing some of the Planning Code’s regulatory barriers to housing. A major implementing measure of San Francisco’s recent Housing Element, it is rich in detail and nuance and proposes a range of common-sense changes to increase housing production. Below, we summarize some of the major aspects of the proposal captured in the first draft of the ordinance, broken up into two sections: process streamlining, and relief from certain building design and density restrictions.

Process Streamlining

  • Eliminating conditional use requirement for certain developments. Automatic conditional use (“CU”) approvals for developments on certain “large lots” in neighborhood commercial districts would be eliminated. Similarly, CU requirements for buildings taller than 40-50 feet in RH, RM, RC, and Broadway NC districts would be eliminated, as would buildings taller than 50 feet along the Van Ness Special Use District. This would unlock the development potential of many sites where the height limit is comfortably above the 40-50 foot CU threshold.
  • HOME–SF. HOME-SF would be modified to allow projects on sites where a single-family home exists and is proposed to be demolished, and to remove a requirement that the Planning Department’s Environmental Review Officer determine the project will not have any adverse wind, shadow, or preservation impacts.
  • Dwelling unit demolitions. Outside of the “priority equity” areas of San Francisco—which are neighborhoods with a higher density of vulnerable populations; see the map at the bottom of this alert—some residential demolition projects will not require a CU. The project cannot remove more than two residential units; the units to be demolished cannot be tenant occupied or have a history of evictions within the last 5 years; the building cannot be an historic resource; the project needs to add at least one more unit than is proposed for demolition; and the unit needs to comply with the Housing Accountability Act’s protections for replacement units and recent tenants.

Design and Density Regulation Changes

  • Increased residential density in RH districts. The ordinance would eliminate the need for a conditional use (“CU”) to exceed the one- to three-unit base density in RH districts. And, it would principally permit one unit per 3,000 square feet of lot area in the three RH-1 districts; one unit per 1,500 square feet of lot area in RH-2; and 1 unit per 1,000 square feet of lot area in RH-3, exclusive of any ADUs. Also, residential projects in RH zones that meet certain eligibility criteria currently can have up to six units on corner lots, and up to four units on non-corner lots. The ordinance would add group housing to this potential density bonus on RH-1 zoned lots and eliminate an owner occupancy requirement, opening up the number of sites that could qualify for this density increase.
  • Making senior housing easier and more widespread. Currently, senior housing—which generally allows increased residential density—is only permitted within ¼ mile of an NC-2 zoning district or higher. The ordinance would eliminate this restriction, opening a wider area of the city for this much-needed type of housing. It would also eliminate an automatic CU requirement for senior housing in RH and RM districts that are not close to neighborhood commercial districts.
  • Minimum lot width and area. The City’s minimum lot width would be reduced from 25 feet in most districts to 20, and lot area reduced from 2,500 square feet to 1,200. This would allow more residential density on some larger lots.
  • Reducing rear yard requirement. San Francisco’s rear yard requirements are notoriously complicated and a regulation that often requires exceptions or limits the development potential of a property. The ordinance would make the rear yard requirement 25% of lot depth or 15 feet in most zoning districts. In certain “R” districts, the requirement would be 30% or 15 feet. It also includes a common-sense option for corner lot developments to provide an interior corner open area, saving the need for a variance or other entitlement.

We should note that the legislative digest flags a few aspects of the residential streamlining proposal that do not appear to be included in the first draft of the ordinance. These may be added to subsequent versions of the legislation, and it could be amended as it is brought to the Planning Commission and eventually the Board of Supervisors. We will continue to track this important ordinance as it moves forward. We will also track other legislation that seeks to further implement the Housing Element.

 

Authored by Reuben, Junius & Rose, LLP Attorney Mark Loper.

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.

 

West Side Story: Proposed Legislation May Remove Barriers for Small Projects

| Chloe Angelis
legislation

Supervisor Myrna Melgar has introduced legislation that aims to incentivize much-needed family-sized housing on the west side of the city. While clearly in line with the City’s housing production goals, it includes some requirements that could make it inapplicable to most of the west side properties it aims to cover.

The draft legislation would create the Family Housing Opportunity Special Use District, which shares a boundary with the Well-Resourced Neighborhoods Map included in the draft 2023-2031 Housing Element. The map covers the entire west side of the city, plus the Marina, Cow Hollow, and parts of North Beach. As drafted, the ordinance would expire eight years after it becomes effective.

The proposed ordinance encourages the construction of two-to-four-unit projects that provide at least two 2-bedroom units within the new special use district. Qualifying projects would be exempt from an otherwise-required conditional use authorization (“CU”), including CUs that typically apply to the demolition of an existing residential unit. Eligible projects would also be exempt from Section 311 notice and the discretionary review process. Obtaining approval of a CU or having a project sent to the Planning Commission by a neighbor via discretionary review creates uncertainty and can add many months to a project’s approval timeline. Taking both CU requirements and Section 311/discretionary review off the table are meaningful incentives.

The legislation does not automatically exempt these projects from CEQA—but small new construction projects should be eligible for Class 3 (new construction of small structures) categorical exemptions.

Specifically, the new rules would apply to projects that construct two-unit buildings (including a two unit building with a third standalone unit outside the proposed building envelope) and three-unit buildings (including a three unit building with a fourth standalone unit outside the proposed building envelope). At least two of the units in a qualifying project must have at least two bedrooms.

Projects must consist of ground-up new construction, and while they would be exempt from the otherwise-applicable density limit (up to four units per lot and not including any permitted accessory dwelling units), projects would not be exempt from the otherwise-applicable height limit for the property in question.

As drafted, the legislation includes several other restrictions that will limit its potential impact:

Qualifying projects cannot demolish a historic resource and must comply with the Residential Design Guidelines and the Planning Code, except for lot-based dwelling unit density limits. While requiring Code compliance in exchange for bypassing Planning Commission review is reasonable, the Residential Design Guidelines are not entirely objective, which will make it difficult for sponsors to assess whether Planning Staff will deem a particular project in compliance with the guidelines. It’s also difficult to imagine how a third or fourth unit constructed outside the main building envelope could comply with the Planning Code’s rear yard and obstruction controls.

Additionally, projects cannot propose the demolition of any of the following:

  • Units that are or were subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of lower or very low income within the past five years;
  • Units that are or were subject to the Residential Rent Stabilization and Arbitration Ordinance (Chapter 37 of the Administrative Code) within the past five years;
  • Units that are or were occupied by lower or very low income households within the past five years; or
  • Units that were withdrawn from the rental market pursuant to the Ellis Act within the past 10 years.

The requirement related to the Rent Stabilization and Arbitration Ordinance (i.e., the “Rent Ordinance”) is very limiting as drafted. Most residential units in San Francisco are subject to the Rent Ordinance, which has a rent control component and an eviction protection component.

Units built after June 13, 1979, most single-family homes and condos, and units that have undergone substantial rehabilitation are subject to the Rent Ordinance, but only to the eviction controls (not the rent increase limitations that apply to other units). If the legislation intends to exclude these units and older units subject to rent control limits, there will be nothing left for redevelopment pursuant to the proposed Family Housing Opportunity Special Use District. Protecting affordable units from demolition is a logical policy choice, but hopefully the legislation will be amended to limit this restriction only to units subject to the Rent Ordinance’s rent control protections.

Supervisor Melgar’s proposal has the potential to be an impactful piece of legislation to spur development on the west side of the city and we’ll be keeping an eye on its progress through the legislative process.

 

Authored by Reuben, Junius & Rose, LLP Attorney Chloe Angelis.

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.

Housing Element Fallout: From Noncompliance to Lawsuits

| Daniel J. Turner
Noncompliance

The January 31, 2023 deadline for Bay Area cities and counties to revise and update their Housing Elements has passed, and only four of the Bay Area’s 109 local jurisdictions – San Francisco, City of Alameda, Emeryville, and San Leandro – have adopted fully compliant Housing Elements so far. While many of the Bay Area’s other jurisdictions have made substantial progress toward updating their Housing Elements, others have shown little effort in meeting their obligations under the state’s Housing Element Law. State law imposes a number of potential enforcement penalties and consequences on jurisdictions that fail to comply with the Housing Element Law, including the oft-discussed “Builder’s Remedy”, and housing advocacy groups have started turning to the courts to enforce these provisions against noncompliant jurisdictions.

Background

California’s Housing Element Law was enacted in 1969 and is intended to encourage housing development by requiring cities and counties to adopt Housing Elements as part of their General Plans. A Housing Element is a jurisdiction’s detailed plan for the development of housing within its borders, and it must meet various statutory requirements, such as identifying adequate development sites to meet the jurisdiction’s allocated housing need, creating programs to incentivize the production of affordable housing units, and describing the necessary measures to implement the plan. To achieve compliance with the law, the Housing Element must also receive certification from the California Department of Housing and Community Development (HCD) before the jurisdiction’s statutorily determined deadline. A jurisdiction that fails to do so is considered out of compliance and is exposed to certain penalties and other enforcement mechanisms until it adopts a compliant Housing Element.

Penalties for Non-Compliance

Among the potential consequence for noncompliance is the notorious Builder’s Remedy. Under the Builder’s Remedy, a jurisdiction is prohibited from denying an affordable housing project based on the project’s noncompliance with the jurisdiction’s General Plan or Zoning Ordinance. It effectively frees such projects from all local zoning and development controls, unless the jurisdiction can justify project modifications or disapproval by articulating specific, adverse impacts to health or safety. To qualify for the Builder’s Remedy, a project must provide either 20% of units as affordable to ≤80% AMI households (low-income), or 100% of units as affordable to ≤120% AMI households (moderate-income). While potentially very powerful, it should be noted that the Builder’s Remedy has had minimal real-world testing, with sparingly few examples of successfully entitled projects.

Beyond the Builder’s Remedy, a noncompliant jurisdiction can experience a variety of other consequences. For example, a jurisdiction that does not become compliant within 120 days of missing its deadline is subject to tighter implementation and rezoning timelines once it does adopt a compliant Housing Element. Further, as long as a jurisdiction remains noncompliant, it may be subject to other statutory or judicial losses of zoning and permitting authority, it may be liable for court-imposed fines, and it may have reduced access to state funding and grants for housing, infrastructure, and municipal operations.

Current Status of Bay Area Jurisdictions

The 105 remaining Bay Area jurisdictions – beyond those four listed above – are in various states of noncompliance with the Housing Element Law. These jurisdictions range from those that have made substantial progress toward compliance and are undergoing review and certification by the HCD, to those jurisdictions that have barely begun preliminary drafts.

Oakland, the Bay Area’s third-largest city, is among those jurisdictions that did not achieve compliance by the deadline after its Housing Element was denied certification on February 3rd. Despite having already undergone multiple revisions since it was first submitted in December 2022, a number of technical deficiencies were identified in Oakland’s Housing Element and HCD requested further edits. HCD’s denial letter to Oakland also commended the city’s overall efforts in completing the process. Oakland resubmitted its Housing Element on February 13th, and it is currently pending review.

According to the HCD’s Housing Element Review and Compliance Report (as of 2/14/23), approximately 34 Bay Area jurisdictions are in a similar situation to Oakland’s, with an adopted Housing Element that is currently awaiting review and certification by the HCD. About three-fourths of these jurisdictions submitted their Housing Elements on or within a few days of the January 31st deadline, and given this large influx, the HCD’s review timeline is uncertain. While technically out of compliance, these jurisdictions are unlikely to experience the more severe enforcement consequences due to the substantial amount of progress they have already made and the high likelihood of achieving compliance within the next few months.

Based on the Compliance Report, another 59 jurisdictions have submitted an initial or subsequent draft Housing Element to HCD for review but have not yet adopted it. Because the adoption process includes environmental review, public participation, and multiple hearings, these jurisdictions have a longer road ahead of them (although it will vary greatly for each individual jurisdiction). A further 12 jurisdictions have not yet submitted anything to HCD and may not have even begun the drafting process.

Housing Advocacy Group Lawsuits

In response to the numerous jurisdictions that failed to meet the Housing Element deadline, housing advocacy groups, including YIMBY Law, California Housing Defense Fund, and Californians for Homeownership, have started filing lawsuits against those jurisdictions that are furthest out of compliance. These lawsuits are requesting that the court compel each jurisdiction to bring its respective Housing Element into compliance and are asking the court to impose additional sanctions available to the court under the Housing Element Law, which range from fines to removal of permitting authority. Further, each lawsuit is seeking a judgment declaration regarding the provisions of the Builder’s Remedy, with the apparent intent of laying the groundwork for developers to take advantage of it without having to face extraneous judicial challenges.

It is unknown whether these advocacy groups will expand their current litigation efforts, and it remains to be seen whether any developers will actually employ the Builder’s Remedy at risk of garnering the ire of local agencies for future projects. However, these lawsuits may provide helpful insight in how the courts – and the cities themselves – will respond to the various enforcement mechanisms enacted over the past few years.

 

Authored by Reuben, Junius & Rose, LLP Attorney Daniel J. Turner.

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.

SF Housing Element Certified by State, adopted by the Board on Jan. 31 deadline

| Kaitlin Sheber
law

Today, the San Francisco Board of Supervisors (the “Board”) unanimously voted to adopt an ordinance that amends San Francisco’s Housing Element as required under California law. Today was the last day for the City to meet its deadline to adopt an updated Housing Element that complies with a variety of new state laws.

The updated Housing Element plans for 82,069 new housing units in the next 8 years—nearly three times the units the City was expected and failed to construct over the past 8 years. Of the 82,069 new units, 32,881 units must be affordable to Low or Very Low Income households. To plan for the ambitious requirement and comply with new Housing Element Laws, the City has made extensive updates to its Housing Element, including the following:

  • Housing production is being shifted towards small and mid-rise housing across all neighborhoods, particularly along transit corridors and the west side of the City.
  • Programs and actions to affirmatively further fair housing have been added as newly required under state law.
  • The Housing Element has been updated to reflect the City’s commitment to advancing racial and social equity in San Francisco.
  • Environmental justice policies will address unique or compounded health risks in affected areas.

As many jurisdictions across the Bay Area work to ensure their updated Housing Elements comply with state law to avoid consequences such as loss of state funding, fines, and potentially loss of local control, the California Department of Housing and Community Development (“HCD”) issued a letter on January 20, 2023 deeming San Francisco’s Housing Element update will comply with State Housing Element Law when it is adopted, submitted to, and ultimately approved by HCD.

Now that the updated Housing Element has been adopted, the City will begin work on implementing its Housing Element to stay in compliance with State Housing Element Law. This will entail rezoning significant swaths of the west side of the City within the next 3 years to allow for more density, especially as HCD has indicated the City should pursue its most aggressive rezoning strategy. The City will also work to reduce governmental constraints in an effort to facilitate housing production under its new Housing Element.

 

Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber.

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.