More Formula Retail (Out of) Controls

Formula retail controls are once again in the news.  This time, it is Supervisor Jane Kim’s introduction this week of interim zoning controls regulating formula retail in the Mid-Market district, on Market Street from 6th Street to Van Ness Avenue.  Interim zoning controls are important to understand because they are enacted quickly (typically within 60 days), and are subject to limited public process.  Whereas land use controls generally are submitted to the Planning Commission and the Planning Department for review and public hearings, no such process is allowed for interim zoning controls.  Interim zoning controls remain in place for 18 months or until permanent legislation is enacted, whichever occurs first, and can be extended for an additional 6 months.

Formula retail is defined as a retail sales activity or establishment that has eleven or more other retail sales establishments located in the United States.  In addition to the eleven establishments, the business maintains two or more of the following features: a standardized array of merchandise, a standardized facade, a standardized decor and color scheme, uniform apparel, standardized signage, a trademark or a servicemark.  Supervisor Kim’s proposal would require formula retail uses to obtain conditional use authorization from the Planning Commission in the manner presently required under the Planning Code, but would add a new requirement that the Planning Commission consider the “economic and fiscal impact of the proposed formula retail use in the area.”  The applicant must provide the Planning Department with an economic impact analysis of the proposed use, prepared by an independent licensed professional.  

These new controls are of great import to developers in the Mid-Market district.  Just as exciting development begins to take hold in this long-neglected neighborhood, these formula retail controls represent a new impediment that could slow that growth.  We will continue to monitor the progress of Supervisor Kim’s legislation and will keep readers posted.


The Board of Supervisors was scheduled to consider the CEQA reform measures introduced by Supervisor Wiener and Supervisor Kim this week, but continued the matter for another week.  CEQA reform always has been, and continues to be, a frustratingly slow process.  In Sacramento, the Legislature is considering its own version of CEQA reform (SB 731 – Senate President Pro Tem Darrell Steinberg).  The bill originally was quite ambitious.  Yet, as is typically the case with CEQA reform, the bill became watered down to appease the various interested parties.  The Senate recently passed the bill 39-0, and it is likely to be passed by the Assembly and signed into law by the Governor.  Interestingly, the bill is named the CEQA Modernization Act of 2013, replacing the idea of reform with modernization, in an attempt to gain wider support.

Among the bill’s provisions are the following:

  • Aesthetic impacts would be eliminated as a potential environmental impact and no longer reviewable under CEQA;
  • The Natural Resources Agency would develop statewide significance thresholds for parking, transportation and noise.  While this latter provision initially seems promising, the bill allows localities to impose more stringent significance thresholds for these impacts.

Enterprise Zones Being Zoned Out

Enterprise zones are not widely known but have been in existence in California for almost 30 years.  The enterprise zones program provides tax credits to businesses that create new jobs for low-income employees who perform services directly related to their particular enterprise zone.  San Francisco has the largest enterprise zone program in the state, with enterprise zones located in Bayview Hunters Point, Chinatown, the Mission, Mission Bay, Potrero Hill, North Beach, and the Financial District.  Recently, the widely respected Public Policy Institute of California published a study that proved enterprise zones to be largely ineffective.  This prompted the Legislature to pass legislation introduced by Governor Brown that would eliminate enterprise zones and replace them with more targeted tax credits.  We will continue to monitor this legislation and can assist local business in identifying the new tax credits that may be available to them in place of the enterprise zone credits.

CBIA Huffs and Puffs but Doesn’t Blow Inclusionary Housing Down

As any residential developer in San Francisco knows all too well, inclusionary housing requirements impose a significant cost on development.  Whether it is the payment of the in-lieu fee or the provision of affordable units (on-site or off-site), this requirement is usually the most expensive one imposed on development.  

The California Building Industry Association (CBIA) has led the charge around the state in challenging the legality of local inclusionary housing ordinances.  A major recent victory for CBIA came in the Patterson case in 2009 (Building Industry Association of Central California v. City of Patterson (2009) 171 Cal.App.4th 886).  In that case, the court struck down the city’s inclusionary housing requirements imposed on a particular project because the city could not meet its burden of showing that the inclusionary requirements were “reasonably related” to the impacts of the development.

Trying to build off the Patterson victory, CBIA recently lost an inclusionary housing battle in San Jose.  (California Building Industry Association v. City of San Jose, 2013 Cal. App. LEXIS 447, 2013 WL 2449204 (Cal. App. 6th Dist. June 6, 2013).)  In the San Jose case, CBIA brought a facial challenge to San Jose’s inclusionary housing ordinance in its entirety, rather than its applicability to a particular project.  This facial challenge, ruled the court, meant that the burden was on CBIA, rather than the city, as in the Patterson case.  Moreover, CBIA had to show that the inclusionary housing ordinance was an improper exercise of the city’s police power.  The court sent the case back to the trial court for a determination whether CBIA could make this showing.

We will continue to monitor the progress of this important litigation.  

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.