Planning Commission Recommends Big Changes for Large Residence Legislation

Planning Commission

On September 23, 2021, the Planning Commission unanimously voted to disapprove Supervisor Mandelman’s updated proposed large residence legislation after a robust conversation on the potential sweeping effects it could have on homeowners throughout San Francisco. As we have discussed in prior updates on July 29th and March 31st of this year, the large residence legislation was originally introduced to discourage large residential homes over 2,500 square feet by generally requiring a conditional use authorization for any such new home, with some exceptions. The Planning Commission, in its disapproval, provided seven recommendations to significantly change the legislation ahead of its move to the Board of Supervisors.

The seven recommendations and some of the reasoning discussed by commissioners include:

  1. The legislation should focus on Noe Valley only. The legislation was designed with three particular neighborhoods in mind that are disproportionately affected by construction of large homes: Noe Valley, Dolores Heights, and Glen Park. As the legislation stands, the Planning Commission viewed the scope too broad with massive potential unforeseen effects if enacted citywide as proposed. The Planning Commission was supportive of testing modified regulations in Noe Valley before enacting broader legislation.
  2. Much more community outreach and input is needed in the particular areas of concern that would be affected by the legislation. Given the potential broad effects of the legislation, the City needs to make sure that it creates opportunities and spaces to hear from affected homeowners or future homeowners.
  3. The effective date of the legislation should be changed to the date of enactment with no grandfathering. Though the legislation has yet to take a clear form, the effective date of the current legislation is the date it was introduced, with only people who submitted applications earlier this year grandfathered from the effects.
  4. Appropriate limitations for home sizes should be form based rather than formula based. The formulas created to measure whether a home qualifies as a “monster home” seem arbitrary. Commissioners discussed alternatives, such as height limits, that have effectively limited home sizes.
  5. Tenant issues should be explored to ensure no tenants will be displaced or negatively affected by the legislation.
  6. The legislation should be crafted to ensure that areas within an existing home can be finished without running afoul of the legislation. As the legislation stands, a person could violate the legislation simply by making an area within the home’s existing envelope livable space. Commissioners were concerned with the legislation’s potential unintended effect of discouraging homeowners from making use of unfinished space within homes that are not considered “monster homes.”
  7. The legislation should find ways to encourage density. The current legislation discourages large homes through adding process. However, adding provisions to encourage density would help the City achieve more housing.

In addition to the seven recommendations, commissioners also noted several additional concerns including: life safety issues, lack of demolition discussion in the legislation, large ADU sizing requirements in the legislation, lack of design standards, and what should qualify as a monster home. Ultimately, some Planning Commissioners expressed hope, that with much more work, the legislation could be a starting point for future housing regulation in the City.

 

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.

San Francisco Housing Element Update

Housing Element

While the Bay Area works to recover from the impacts of COVID-19 on retail and hospitality, and digital nomads slowly return to the office, the pandemic has done nothing to slow escalating home prices. The California Association of Realtors reported this week that the Bay Area’s median single-family home price exceeded $1.3 million in April, with a median price of $1.8 million in San Francisco. The City saw an increase of 5.9% from last year and 2.6% from March.

As single-family homes become increasingly out of reach for many families, the City also continues to experience a shortfall in all housing types, resulting in ongoing debate about uneven development throughout the City and the introduction of legislation at the State and local level that takes aim at single-family zoning.

On March 18, 2021, Reuben, Junius and Rose’s Tuija Catalano updated you about the upcoming RHNA (Regional Housing Needs Assessment) cycle. The update explained how the draft allocation would significantly increase the identified need for housing units in the Bay Area compared with the last RHNA cycle. Under the draft, San Francisco would see an increase from 28,869 to 82,069 units.

San Francisco has begun the process of planning for those housing units. The City’s Housing Element 2022 Update began in May 2020. The Housing Element is a component of the General Plan that is updated every eight years.

The current update focuses on social and racial equity, while it looks at how to accommodate the creation of 82,000 housing units by 2031. The plan focuses on building in State identified High Opportunity Areas, which are mainly in the western part of the City. The Planning Department has a page dedicated to the process which provides information and allows for public input.

The first draft of the Goals, Policies and Actions of the Housing Element have been identified as follows:

  • recognize the right to housing as a foundation for health and social and economic stability;
  • repair the harms of historic racial, ethnic, and social discrimination for American Indian, Black, and other People of Color;
  • foster racially and socially inclusive neighborhoods through distinct community strategies;
  • increase housing production to improve affordability for the City’s current and future residents;
  • increase housing choices for the City’s diverse cultural lifestyles, abilities, family structures, and income; and
  • promote neighborhoods that are well-connected, healthy, and rich with community culture.

On April 22, 2021, the Planning Commission conducted an informational hearing on the Draft Housing Element. Planning Staff will be engaging in outreach to further refine the policies in the plan, with a second draft anticipated by Fall 2021. The Draft Environment Impact Report is anticipated in early 2022.

At the April 22, 2021 hearing, the Planning Commission also heard the 2020 Housing Inventory and Housing Balance Reports. The City saw a 1% increase in housing stock in 2020, with most new development in SoMa, the Mission and Downtown. While 2020 was a difficult year for development because of the pandemic, the Reports illustrate how far the City has to go to meet its RHNA target, particularly on housing affordable to lower income residents.

Given the already contentious environment surrounding housing equity and the geographic distribution of new units in the City, we expect this Housing Element update to generate significant debate. However, the Plan does not change allowable land uses, heights, or density, so meeting the City’s housing needs will depend on legislative changes. We will follow and report on both as the housing debate continues.

 

Authored by Reuben, Junius & Rose, LLP Attorney 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.

Legislative Updates: San Francisco

Use

With the end of the Covid-19 Health Emergency on the horizon, San Francisco is seeing an influx of land use legislation as City leaders set their sights on post-pandemic recovery. Below are two recent proposals to watch as they make their way through the approval process.

Small Business Recovery Act: Simplifying and Streamlining Small Business Approval

On March 16, 2021, Mayor London Breed introduced the Small Business Recovery Act (the “SBRA”), an ordinance proposing sweeping amendments to the Planning, Business and Tax Regulations, and Police Codes that are designed to stimulate and retain commercial and entertainment uses in the City.

After receiving a 4-3 approval at the April 22, 2021 Planning Commission hearing, Mayor Breed introduced a third version of the SBRA on May 11, 2021. The SBRA will need to go through further review before the Board of Supervisors ultimately votes on the ordinance.

The current version of the SBRA (as of May 13, 2021) would make the following changes:

  • Conditional Use Authorizations would no longer expire from abandonment as long as there is no intervening use. Currently, a Conditional Use Authorization expires after three years of disuse.
  • ADUs would be allowed in commercial spaces in Neighborhood Commercial Districts as long as the first 25 feet of lot depth is reserved for commercial use.
  • Neighborhood Notification would no longer be required for changes of use in the Eastern Neighborhoods, potentially removing the 30-day notification hold.
  • The eligibility for expedited 90-day processing for Conditional Use applications would be expanded to include Formula Retail uses with fewer than 20 locations, Bars, Nighttime Entertainment, Cannabis Dispensaries, non-retail sales and service uses, and any eligible use seeking to operate outside of principally permitted operating hours.
  • The Planning Department would be mandated to develop and use an abbreviated case report format to ensure the efficient processing of expedited Conditional Use applications.
  • Catering would be permitted as an accessory use in most Restaurants, subject to certain accessory use restrictions.
  • Additional code modifications would be implemented to give Entertainment Uses greater flexibility.

Elimination of Historic Preservation Commission Review and Appeals for Certain Alteration Permits

The SBRA would also eliminate the review and appeals period for Administrative Certificates of Appropriateness and Minor Alteration permits, which are required for certain projects involving landmarks or historic structures. Under current law, the Planning Department reviews and makes an administrative determination on these permits. After the Department makes a determination, anyone can appeal the decision to the Historic Preservation Commission (“HPC”) within 15 days. The HPC can also review any determination of its own volition within 20 days.

The SBRA would remove both the appeal and review periods, meaning the determination of the Department would be virtually final. This could significantly speed up certain projects by eliminating the ability of project opponents to contest approvals. However, it also means that project sponsors would lose a guaranteed avenue to quickly appeal a denial.

Removal of Life Science and Medical Special Use District

On May 4, 2021, District 10 Supervisor Shamann Walton introduced legislation to remove the Life Science and Medical Special Use District (“SUD”) in the Dogpatch Neighborhood.

The SUD was created 12 years ago to encourage Life Science and Medical uses that would benefit from the close proximity to UCSF Mission Bay, which opened directly to the north in 2003. The SUD covers about a third of the Dogpatch, and is concentrated on the blocks immediately south of UCSF Mission Bay, a thin corridor adjacent to I-280, and along 23rd Street. The SUD overlays the existing Urban Mixed-Use zoning and principally permits Life Science Office, Life Science Lab, and Medical Service uses and exempts them from certain size and PDR replacement controls.

In his proposal to remove the SUD, Supervisor Walton expressed dissatisfaction with the SUD and claimed it was operating contrary to Eastern Neighborhoods Plan by failing to provide a buffer around the Dogpatch and allowing encroachment of large office uses. The proposal claims that the SUD does not contribute to the neighborhood, and that placement of Life Science start-ups in the Dogpatch increases rents and pushes out vibrant and varied community-serving uses.

Under San Francisco’s 30-day rule, consideration of the proposed ordinance cannot take place until after June 3, 2021.

 

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

To Sublease Or Not To Sublease?

sublease

With overall rental rates having fallen nearly 30% and vacancy rates risen roughly 150% between Q4 of 2019 and Q1 of 2021[1], the leasing of office space in San Francisco undisputedly remains a tenant’s market. Of the approximately 20.2 million square feet of available office space in San Francisco, nearly 45% is comprised of sublease offerings.[2] For companies in the market for office space, special factors should be considered when evaluating sublease opportunities. The following outlines the primary benefits and potential risks of subleasing office space in San Francisco.

BENEFITS

  • Discounted Rental Rates. Sublease offerings traditionally undercut the prevailing market rates for direct deals with a master landlord and offer the greatest benefit to a sub-tenant. Sub-landlords are generally more inclined to provide a substantial period of rent abatement as compared to master landlords.
  • Flight to Quality. With discounted rental rates comes the opportunity for a sub-tenant to lease higher-quality space it otherwise would not be able to afford, enhancing the image of the sub-tenant company without paying the premium a master landlord would otherwise require.
  • Plug and Play. A sublease may provide the sub-tenant with the option of using – often at no additional charge – existing furnishings, fixtures and wiring within the sublet premises. Such “plug and play” opportunities are a benefit to a sub-tenant’s bottom line, and may allow for a more efficient, seamless relocation and/or opening.
  • Less Detailed Lease Negotiation. Sublease agreements are typically shorter in length and more simplified as compared to master leases.

RISKS

  • Master Landlord and/or Lender Consent. Proposed subleases generally require the consent of the Master Landlord, which poses a risk of uncertainty for both prospective sub-landlords and sub-tenants seeking to enter into a sublease agreement. Further, in instances where an approved sublease requires the sub-tenant to first obtain sub-landlord consent (e.g., making alterations to the premises), prior consent of the master landlord will also be necessary. Depending on the terms of the master lease, approval of master landlord’s lender may be required in certain instances.
  • Recapture and Termination Rights. Depending on the terms of the master lease, the master landlord may have the right to recapture the premises and/or terminate the master lease in the event a request to sublease is made.
  • Sub-Tenant is Subject to Master Lease. Sub-tenants are responsible for complying with the sublease agreement as well as the master lease. As a sub-tenant, it is important to review the master lease to avoid unexpected obligations and limitations (e.g., insurance requirements, operating expense pass throughs, relocation rights, requirements to restore the premises to original condition, burdensome indemnity provisions, etc.).
  • Less Opportunity for Improvements. Generally, sub-landlords are less inclined to offer a Tenant Improvement Allowance, requiring the sub-tenant to instead sublease the premises on an “as-is” basis.
  • Eviction and/or Attornment Issues. A breach of the master lease by sub-landlord may result in the sub-tenant being unexpectedly evicted (if master landlord terminates the master lease) or having to attorn to the master landlord (if required by the sublease and authorized by the master lease).
  • Potential Tax Pass-Through Obligations. Master landlords may pass through to the sub-landlord those taxes generated pursuant to San Francisco’s Early Childcare and Educational Commercial Rents Tax Ordinance and the Gross Receipts Tax Ordinance. Depending on the terms of the sublease agreement, sub-landlord may in turn pass through such costs to sub-tenant.
  • Increased Documentation. While the sublease agreement is usually less involved than a master lease, a review of the master lease is also necessary, and possibly a separate attornment and/or lender consent agreement.
  • No Direct Recourse Against Master Landlord. Because a sub-tenant is not in privity of contract with the master landlord, sub-tenants do not have any direct remedies against the master landlord. This can be especially problematic when there are poor or defective building conditions and/or service issues, as the sub-tenant finds itself at the mercy of the sub-landlord to seek recourse from master landlord on sub-tenant’s behalf.
  • Allocation of Expenses Disputes. Issues may arise regarding whether the sub-landlord or sub-tenant is responsible for paying certain operating costs passed through by the master landlord.

Companies considering a sublease in San Francisco should make clear in any such agreement which party will be responsible for what costs and understand how the terms of the master lease may impact their sub-tenancy. Without a meaningful evaluation of the above risk factors, the boon of discounted rent that accompanies a sublease could quickly be erased by unexpected costs and obligations over the course of the sublease term.

Please contact Michael Corbett by email at mcorbett@reubenlaw.com for answers to any questions related to this update.

[1] Colliers International, Q1 2021 Office Market Report

[2] Id.

 

Authored by Reuben, Junius & Rose, LLP Attorney Michael Corbett.

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.

Size Restrictions Proposed on San Francisco Homes

size

San Francisco policy-makers continue to scrutinize the size of dwellings in an attempt to manage affordability and housing stock.  Merits aside, policy-makers have expressed a consistent concern about demolitions, expansions, and new large-home construction.  The latest measure is an ordinance introduced last month by Supervisor Rafael Mandelman (District 8), whose district includes the Castro, Noe Valley, Glen Park, and Bernal Heights.

Planning Code Section 317 already requires a conditional use authorization for residential demolitions, mergers, and removals.  Supervisor Mandelman’s proposal would discourage residential units over 2,500 square feet by requiring, with some limited exceptions, a conditional use for them in RH (residential, house) zoning districts:

Expansions

  • On a developed lot where no existing dwelling unit exceeds 2,500 square feet of gross floor area, expansion of the residential use that would result in an increase of more than 50% of gross floor area to any dwelling unit or would result in a dwelling unit exceeding 2,500 square feet of gross floor area, except where the total increase of gross floor area of any existing dwelling unit is not more than 10%.
  • On a developed lot where any existing dwelling unit exceeds 2,500 square feet of gross floor area, expansion of the residential use that would result in an increase of more than 10% of gross floor area of any dwelling unit.

New Construction

  • Residential development on a vacant lot, or demolition and new construction, where the development would result in only one dwelling unit on the lot or would result in any dwelling unit with a gross floor area exceeding 2,500 square feet.

New Conditional Use Criteria

In addition to the standard conditional use criteria, the Planning Commission must consider the following new criteria:

  • the property’s historic preservation status;
  • whether additional dwelling units are added;
  • whether the proposed development preserves or enhances the existing neighborhood character by retaining existing design elements;
  • whether the development proposes to remove more than 50% of the existing front façade; and
  • whether the project removes rent control units.

Exceptions

The legislation would except developments from the new conditional use authorization requirement where a complete development application was submitted before February 2, 2021. The legislation would also except developments that increase the number of dwelling units on the lot provided that no dwelling unit exceeds 2,500 square feet of gross floor area as a result of the development, no proposed dwelling unit is less than one third the gross floor area of the largest dwelling unit resulting on the lot, and that neither the property or any existing structure on the property: (i) is listed on or formally eligible for listing in the California Register of Historic Resources; (ii) has been adopted as a local landmark or a contributor to a local historic district under Articles 10 or 11 of the Planning Code; or (iii) has been determined to appear eligible for listing in the California Register of Historic Resources.

The legislation has been referred to the Planning Department for review and consideration by the Planning Commission.  To date, there is no estimate of how many projects would be affected by this requirement in a typical year, how many hours of staff time it would take to process them, or how the volume of new conditional uses would affect backlogs for all projects. No hearing date has been set for the Commission to consider the legislation, but we will continue to monitor and keep readers informed.

 

Authored by Reuben, Junius & Rose, LLP Attorney Thomas P. Tunny.

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.

Impact Fee Update

Affordable Housing

San Francisco School Fees Expanded

On January 11, 2021, San Francisco issued the 2021 Impact Fee Schedule. One change of note is the calculation of the San Francisco Unified School District Fee (“School Fee”) as applied to multi-unit residential developments. The change would increase the fee on such developments by increasing the space in the building subject to the fee.

The School Fee applies to new residential developments and additions to existing residential properties of greater than 500 square feet. Although the School Fee is collected upon issuance of the first construction document along with the fees paid to the City and County of San Francisco, the School Fee is subject to its own calculation rules under California Government Code Section 65995(b)(1).

Currently, San Francisco applies the School Fee to “total habitable space,” defined as space in a structure used for living, sleeping, eating or cooking. The calculation excludes bathrooms, toilet compartments, closets, halls, storage or utility space, and similar areas.

Effective February 1, 2021, the assessable space for calculation of the School Fee for any new residential development will include all of the square footage within the perimeter of the structure. Space still excluded from the Fee calculation includes any carport, covered or uncovered walkway, garage, overhang, patio, enclosed patio, detached accessory structure, or similar area.

The change is based on a 2018 appeals court decision that settled the long-contested question of whether school district fees should be assessed on interior common areas. 901 First Street Owner, LLC v. Tustin Unified School District held that interior space outside of individual units, such as interior hallways, storage rooms, mechanical rooms, fitness centers, lounges, and other interior common areas should be included in the fee calculation under the language of Government Code Section 65995(b)(1). Based on this, the School Fee was expanded, which could lead to a significant increase in fees for projects anticipating paying the fee on the square-footage of the units only.

Oakland Eyes Increased Affordable Housing Fees

Oakland is currently undertaking a mandatory five-year review of its impact fee program. The focus of the review for many is impact fees for affordable housing. Currently, affordable housing fees are tiered depending on the type of housing proposed and the location of the property in one of three regions of the city based on the level of demand for development in that region. There is debate about whether the tiered system should be eliminated, as well as whether fees should be increased over the tiers.

Affordable housing advocates believe that fees should already have been increased to fund construction of affordable housing during the last several years of strong development. Developers have expressed concern that higher impact fees could stifle further development.

Officials and advocates are also looking at other aspects of the implementation of affordable housing requirements. Discussion is underway about how affordable housing is best produced, whether through construction of on-site affordable units or through funding construction of affordable units with impact fees. Also under review is the policy of collecting 50% of the affordable housing fee at permit issuance and 50% only after a certificate of occupancy is issued.

We will continue to watch the Oakland impact fee review process as it unfolds in 2021. We will also watch for earlier changes to fees spurred by the current debate.

 

Authored by Reuben, Junius & Rose, LLP Attorney 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.