New Housing

A Carrot and a Stick for New Housing

| Mark Loper

Last week, Mayor London Breed proposed an initiative that would exempt San Francisco housing projects that comply with zoning and volunteer additional on-site affordable units from the arduous and sometimes frustrating discretionary entitlement process. A few days later, Supervisor Hillary Ronen announced plans to further restrict office projects in the UMU zoning district, with the aim to encourage property owners into residential redevelopment instead of commercial. They show different approaches—a carrot and a stick, perhaps—to encourage the production of new housing. According to a campaign website, Mayor Breed’s latest effort to provide more housing would amend the San Francisco Charter to provide a “streamlined” six-month approval process for all 100% affordable housing projects, and for any code-compliant mixed-income project that provided 15% more affordable housing units on-site than required by code.  In exchange, it would get approvals and start construction months if not years earlier. The ballot measure is not yet publicly available, but a San Francisco Chronicle article suggested qualifying projects will not require any hearings at the Planning Commission. Other details to track in the initiative include AMI levels for the additional affordable units; the degree of design flexibility regarding certain Code requirements such as unit exposure and rear yard size; workforce and prevailing wage requirements; how the streamlined process will interface with the realities of each project’s CEQA processing; and the amount of design input afforded to City staff. Supervisor Ronen’s proposed legislation—which is also not yet publicly available—would ban new upper-story office space in parts of the Mission District, Potrero Hill, and Dogpatch that are zoned UMU. Instead of upper floor office, the Supervisor hopes her legislation will spur property owners and project sponsors to consider residential developments instead. UMU zoning is meant to encourage a mix of uses including but not limited to office, residential, light manufacturing, institutional, arts activities, and retail. Office use is already limited by building height in UMU. It generally cannot be located on the ground floor, promoting retail and other non-office uses in the pedestrian realm. Buildings with 2-4 stories are permitted one floor of above-ground office; 5-7 story buildings can have up to two; and buildings with 8 or more floors can have up to three. So under current zoning any property owner or project sponsor that builds to the height limit already cannot do a 100% office project. Interestingly, Planning Department data shows that residential development in the Eastern Neighborhoods over the last 10 years outpaced what was anticipated, and less office and other commercial development occurred. If passed, Supervisor Ronen’s legislation could further that trend. We will continue to track each piece of legislation. Check back for updates.   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.

units and intermediate length rentals

Updates to the Proposed Intermediate Length Rental Regulations

| Jody Knight

Medium-term, furnished rentals have been a part of San Francisco’s housing stock for many years. According to the Corporate Housing Providers Association, roughly 3,000 dwelling units in San Francisco – less than one percent of the City’s total housing – are used as intermediate length rentals. These types of rentals serve workers in higher education, healthcare, theater, and other industries, who are in town too long to stay in a traditional hotel but don’t need a full one-year lease. They also provide housing for long-term family visitors – grandparents helping with a newborn or relatives caring for a sick family member. However, many affordable housing advocates, who view these rentals as competing with long-term housing for San Francisco residents, lined up at the Planning Commission last fall to protest them. Shortly after, Supervisor Aaron Peskin introduced legislation targeted at  rental properties that require tenants to stay for at least 30 days in order to avoid short term rental regulations (See our prior coverage, New Legislation Aims to Limit “Intermediate Length” Rentals). The legislation would amend the Planning Code to create a new Intermediate Length Occupancy (“ILO”) Residential Use Characteristic for dwelling units offered for occupancy of greater than 30 days but less than one year. It would also add a new Planning Code Section 202.10 to regulate those units. On January 14, 2020, substitute legislation was introduced which makes several changes to the original proposal. The substitute ordinance is available here. While the original legislation allowed ILO units only in new construction of projects with at least 10 dwelling units, the substitute legislation would allow existing units to be eligible to be classified as ILO units unless the units are below market rate units built under the City’s Inclusionary Housing regulations or are subject to the Rent Control Ordinance. For buildings with nine or fewer units, requests to establish ILO use would be principally permitted so long as no more than 25% of the units in the building are classified as ILO. For buildings with 10 or more dwelling units, ILO units would require conditional use authorization, and no more than 20% of the units could be classified as ILO. The substitute legislation further clarified that while ILO units could be offered for occupancy of one year or greater without losing the ILO use characteristic, ILO status would be considered abandoned if otherwise defined as abandoned under the Planning Code. Finally, the revised legislation provides owners and operators of ILO units 24 months from the effective date of the ordinance to submit a complete application to establish the ILO use. The total number of ILO units Citywide would be capped at 1,000 – an increase above the 500-unit cap in the earlier legislation. While not labeled as interim controls, the intent of the legislation is to put in place a policy to regulate corporate housing while the data to be collected under the program is evaluated by the Controller’s Office. The legislation does not address grandfathering of existing ILO units, of which there are approximately 2,000 more than would be permitted by the 1,000 unit cap, but the 24 month compliance period established by the Ordinance indicates that existing units may not be grandfathered or exempt from the new ILO controls.”. Residential hotels and student housing would still be exempt from Section 202.10 under the substitute legislation. Furthermore, the Rent Ordinance Amendments proposed in the original legislation would remain, except that the prohibition on non-tenant use, including use for a corporate entity’s own employees or licensees, and the requirement that online listings for units disclose that they are subject to the Rent Ordinance, would be effective April 1, 2020 instead of February 1, 2020. The Planning Commission voted to recommend adoption of the substitute ordinance on January 30, 2020. We will continue to follow the evolution of these regulations as they move towards adoption by the Board of Supervisors and implementation by the Planning Department and Planning Commission.   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.

Proposition C

Prop C – SF’s Early Care and Education Ordinance

| Michael Corbett

Despite voter passage of Proposition C in 2018, and San Francisco’s resulting Early Care and Education Commercial Rents Tax Ordinance (the “Ordinance”) becoming operative January 1, 2019, questions still abound with respect to what is excepted/exempted from the Ordinance and what its impact is on a commercial landlord’s ability to pass-through certain operating costs. The following addresses these two areas of interest concerning the Ordinance, which is codified at Article 21 of the San Francisco Business and Tax Regulations Code (the “Tax Code”). New Gross Receipts Tax Rates The Ordinance creates a new gross receipts tax on rents collected from leases (including subleases) of 3.5% for most commercial spaces and 1.0% for rents from most warehouse spaces. These new taxes are in addition to all other taxes imposed by the City of San Francisco (the “City”), including the gross receipts tax presently imposed by Article 12-A-1 of the Tax Code. Exemptions, Exclusions, and Credits The following are either exempted or excluded from the additional gross receipts taxes imposed under the Ordinance: Certain nonprofits; Receipts from the leasing of commercial space to certain nonprofits, and to federal, state or local governments; Commercial landlords with less than $1,000,000 in gross receipts for the preceding year; Rents paid from Arts Activities, as defined in Section 102 of the Planning Code; Industrial Uses as defined in Section 102 of the Planning Code; Rents Paid from Retail Sales or Service Activities or Retail Sales or Service Establishments, as defined in Section 303.1(c) of the Planning Code; Any person who the City is “prohibited under the Constitution or laws of the State of California or the Constitution or laws of the United States” from imposing the gross receipts tax of under the Ordinance; and Gross receipts from the lease of most commercial space subject to the tax imposed under Articles 7 (Tax on Transient Occupancy of Hotel Rooms) or 9 (Tax on Occupancy of Parking Space in Parking Stations) of the Tax Code, or rent that is otherwise exempt from taxation under Articles 7 or  9. Additionally, the Ordinance allows commercial landlords that lease or provide commercial space in the City for a Qualifying Child Care Facility[1] that operates for more than six months in a tax year to receive a credit against taxes under the Ordinance for that tax year. This credit expires by operation of law on December 31, 2023. Impact on Pass-Through Expenses A common question among commercial landlords in the City is what pass-throughs, if any, will be taxed as gross receipts under the Ordinance. The impact of the broad language in both the Ordinance and the applicable definition of “Gross Receipts” results in, with the exception of taxes, gross receipts encompassing essentially all pass-throughs, including those for ordinary operating expenses. The Tax Code defines “Gross Receipts” as meaning, in part, the total amounts received or accrued by a taxpayer from “whatever source derived,” including, without limitation, rent. Gross receipts include all amounts constituting gross income for federal income tax purposes, as well as payment for any services that are part of the lease.  With respect to any lease or rental, gross receipts include payment for any services that are part of a lease or rental, whether received in money or otherwise, that is paid to, on behalf of, or for the benefit of, the lessor, and all receipts, cash, credits, property of any kind or character and the fair market value of services paid or rendered by the lessee. It therefore appears that pass-throughs for operating expenses would be included in the determination of gross receipts. Finally, Regulation 2019-1, adopted by the City in 2019 after the Ordinance became operative, resolved a conflict between the Ordinance and an earlier-proposed City regulation that would have sought to provide no exemption for local, state or federal taxes. Regulation 2019-1 resolved this discrepancy in favor of commercial owners, stating that no local, state or federal taxes would be exempt from gross receipts “to the extent the amount claimed as a reimbursement exceeds the actual amount of the tax paid or payable to the applicable local, state or federal housing authority.” In other words, actual taxes paid or payable are exempt. It is therefore advisable to include clear language in commercial leases relating to the pass-through of gross receipts, including those for local, state and federal taxes. References [1] “Qualifying Child Care Facility” means a facility that is licensed by the California Department of Social Services, or any successor agency, to provide non-medical care to Infants, Toddlers, Preschool-Age Children, or any combination thereof in need of personal services, supervision, or assistance essential for sustaining the activities of daily living or for the protection of the individual on less than a 24-hour basis in a group setting. (Tax Code, § 2106.1(c)(1))   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.

California Tells Cities to “Approve Housing and Don’t Delay”

| Jonathan Kathrein

The Housing Crisis Act will dramatically reduce the ability of cities and counties across California to obstruct or deny housing by removing the main tools used by housing opponents – unpredictability, subjectivity and delay. To deny a housing project application, cities and counties will now have to make an objective determination and make it more quickly. The Housing Accountability Act already limits a jurisdiction’s ability to disapprove or conditionally approve a residential housing project for lower and moderate-income residents (up to 120% of the area’s median income level) if the project is consistent with the local zoning and general plan and it meets objective standards. The Housing Crisis Act of 2019, also known as SB 330, continues to move State housing law toward objectivity and predictability. It applies to urbanized jurisdictions as will be determined by the Department of Housing and Community Development by July 2020 based on US Census data. We expect urbanized jurisdictions to include San Francisco and much of the Bay Area, Los Angeles area, San Diego area, and the Highway 99 corridor through the Central Valley. The new law went into effect on January 1, 2020 and will sunset on January 1, 2025. An urbanized jurisdiction may not rezone or “downzone” properties where housing was allowed in 2018 in a way that would discourage residential development without “upzoning” elsewhere within the jurisdiction. This includes changes in height, density, FAR, minimum lot size, minimum frontage, and moratoriums or caps on housing approvals. Similarly, an urbanized jurisdiction no longer can adopt subjective design standards or apply those adopted after January 1, 2020 to proposed housing projects. In an urbanized jurisdiction, residential units cannot be removed from the market. Any project that proposes to demolish protected residential units, including below market rate, rent controlled, or Section 8 units, must replace those units at similar affordability levels. A project applicant must also provide relocation assistance and an opportunity for those tenants to rent the new units. An applicant can lock the then-current land use controls in an urbanized jurisdiction by filing a preliminary application. A full application must be made within 180 days of the preliminary application and the applicant has 30 months to begin construction. This does not limit existing fees with automatic annual adjustments. Local planning departments are going to have to plan their hearing calendar carefully for these housing projects. Once a housing development project application is deemed complete (for an entirely residential project or a mixed-use project on land zoned to require at least 2/3 residential), a jurisdiction may only hold five hearings on the project. Workshops and continuances count toward the five-hearing limit. An appeal hearing also appears to count toward the five-hearing total. The number of hearings may not be extended by the applicant. Permit Streamlining Act timelines limit a jurisdiction’s ability to delay the five hearings. A project applicant, a qualified potential resident, or a housing organization may bring an action to compel an urbanized jurisdiction to comply with these requirements. A court must take action within 60 days and the burden of proof is on the local jurisdiction to show that they complied. Cities like San Francisco are already taking seriously these new changes. Other jurisdictions are likely waiting for HCD’s official determination later this year. The determination could be a pivotal moment for communities that are on the cusp of urbanization and use discretionary tools to slowly kill housing projects. We will be watching closely. Please keep in mind that there are many subtleties to both new and existing law. Please contact Reuben, Junius & Rose, LLP for more information.   Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein. 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 50 Housing

SB 50 Revamp: The More HOMES Act Amended

| Justin A. Zucker

SB 50, The More HOMES Act introduced by San Francisco State Senator Scott Wiener in December 2018 was reintroduced with amendments earlier this week. The reintroduction comes after SB 50 was held by the Appropriations Committee last spring by State Senator Anthony Portantino. SB 50, which we have previously reported on, seeks to address California’s housing crisis by requiring cities to allow increased density for housing projects near “high-quality” transit stops or “jobs-rich areas.” In addition, SB 50 would streamline permitting for multifamily housing developments up to 4 residential dwelling units that are code complaint per the zoning requirements in place as they existed on July 1, 2019. For such projects, the bill would establish a streamlined ministerial approval process, thereby exempting them from the California Environmental Quality Act (“CEQA”) approval process. And SB 50 would prohibit a local agency from adopting any requirement that applies to a project solely or partially on the basis that the project receives ministerial or streamlined approval.  Not surprisingly, opponents of SB 50 continue to express concerns regarding its incentive program taking away local control and the likely displacement of locals through gentrification. There is an estimated shortfall of 3.5 million units of housing in California that is the result of a decade of low housing production. SB 50 enables the production of more housing and requires larger projects to set aside 15% to 25% of homes to low-income residents. SB 50 aims to increase density in residential areas by making it legal to construct small apartments complexes, such as triplexes and fourplexes, in single-family neighborhoods and up to six-story buildings adjacent to “high-quality” transit. In order to address the local push back, the following amendments have been added: Gives local governments flexibility – local flexibility plans – for how they implement SB 50’s requirements; A priority preference program for local low-income residents; and Continues to provide a two-year implementation delay for “potentially sensitive communities” and five-year implementation delay for “sensitive communities.” These are generally defined as communities that are vulnerable to gentrification. Local Flexibility Plans In lieu of being subject to SB 50, local governments may submit a “local flexibility plan” that crafts their own housing plans. The local flexibility plan must create at least the same number of new units as would be allowed under SB 50. By July 2, 2021, the Governor’s Office of Planning and Research shall publish rules, regulations, or guidelines for the submission and approval of a local flexibility plan. Local governments will have to submit their local flexibility plans to the Department of Housing and Community Development for review and approval. If the local flexibility plan is certified by the Department of Housing and Community Development, the local government would not be required to grant the incentives provided under SB 50. To prevent a local government from concentrating new housing in certain areas, a local flexibility plan cannot result in increased vehicle miles traveled and must distribute new housing equally among both lower-income and more affluent areas. The goal being to add housing near jobs to reduce residents’ commutes, and in turn help the state reach its greenhouse gas reduction goals. Priority Preference Program In an effort to prevent displacement of low-income residents from their neighborhoods, individuals living within one-half mile of the housing development will receive priority for some of the project’s homes. Forty percent of a housing development’s affordable housing units are to be reserved for low income, very low income, and extremely low-income households living within one-half mile. Note, SB 50 does not include a provision for the creation of guidelines on implementation of the priority preference program. Sensitive Communities By July 1, 2023, “sensitive communities” in each county shall be identified by a working group comprised of residents of potentially sensitive communities within the county. The working group will develop a map of sensitive communities within the county to be adopted by the board of supervisors or council of governments, as applicable. And implementation of SB 50 would be delayed until January 1, 2026, for the identified “sensitive communities.” For “potentially sensitive communities,” implementation of SB 50 would be delayed until July 1, 2023. Senator Wiener has indicated that housing is his top legislative priority this year. And he is likely to have a receptive ally from Governor Gavin Newsom who has pledged to have 3.5 million new homes built by 2025. SB 50 has until January 31, 2020, to pass the State Senate otherwise the proposal officially dies in the legislature.   Authored by Reuben, Junius & Rose, LLP Attorney Justin A. Zucker 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.

Prop F

Prop F – More Restrictions on Campaign Contributions and Advertisements

| Tiffany Kats

In June 2019, District 4 Supervisor Gordon Mar introduced Proposition F, also known as the “sunlight on dark money” ballot initiative. The goal, according to Supervisor Mar, was to restrict “pay-to-play” donations and increase transparency in terms of who is contributing to candidates and their committees. However, what resulted was a ballot initiative—which was ultimately approved by approximately 77% of voters in the November election—that appears to only single out donations from the development community. Campaign Contributions Proposition F amended the San Francisco Campaign and Governmental Conduct Code by adding limited liability companies and limited liability partnerships, whether for-profit or nonprofit, to the business entities that are prohibited from directly contributing to candidate committees. In addition, individuals, and any entities the individual controls or majority owns, are prohibited from contributing to the campaigns of candidates for mayor, Board of Supervisors, or city attorney if they have a pending land use matter before the City or a land use matter that was ruled on within the previous 12 months. The following would be prohibited from making these land use-related donations: People who have an ownership interest of at least $5,000,000 in a land use project or property; Individuals who hold a director or principal officer position in an entity with an ownership interest of at least $5,000,000 in a land use project or property; and Developers of projects with an estimated construction cost of at least $5,000,000. Note that the prohibition on land use contributions is not applicable to matters concerning an individual’s primary residence. Finally, Proposition F prohibits current members, prospective candidates, or their election committees from accepting or soliciting prohibited contributions. However, the law interestingly includes a “safe harbor provision,” which states that if the political committee or candidate accepted a prohibited contribution after doing “due diligence,” they will not be penalized other than having to forfeit the contribution to the City’s General Fund. One of the ways to satisfy the “due diligence” requirement of the safe harbor provision is if the person or entity making the contribution states under penalty of perjury that the contribution is not prohibited. In that case, even if the candidate or committee knows or has reason to know that the contribution is illegal, the donor’s statement that it is not prohibited will constitute a complete defense from enforcement against the candidate and/or their committee. The wording of this safe harbor provision is certainly strange – but this is what the current law says. And although provisions of the Campaign and Governmental Conduct Code can typically be amended or repealed by the Board of Supervisors, the section that prohibits land use-related contributions (including the safe harbor protection for candidates and committees) can only be amended or repealed by the voters. Campaign Advertisements Proposition F also made a number of changes to campaign advertising laws, including: Lowering the threshold for qualifying as a top donor to political advertisements, which must be disclosed, from $10,000 to $5,000. If any of the top three major contributors is a committee, the disclaimer must also disclose both the name and the dollar amount contributed by each of the top two major contributors of $5,000 or more to that committee. Increasing the minimum Political Reform Act disclaimer size from 12 point to 14 point bold font. Requiring disclaimers in audio and video advertisements to be spoken at the beginning, rather than the end. Requiring committees that file late independent expenditure reports and associated advertisements to also file  an itemized disclosure statement with the Ethics Commission for that advertisement(s) Requiring committees making independent expenditures to pay for mass mailings to file a copy of the mailing and an itemized disclosure statement with the Ethics Commission within five days. However, if the mass mailing occurs within the final 16 days before an election, the copy of the mailing and itemized disclosure statement must be filed within 48 hours.   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.    

Trial Court Challenges to State Housing Laws

| Jonathan Kathrein & Matthew Visick

In the last few weeks, two California trial courts interpreted state housing development laws—SB35 and the Housing Accountability Act—in ways that limit their applicability to cities. While trial court opinions are not binding on other courts, these decisions may give development opponents tools to slow the creation of new housing supply. The decisions are summarized below. Ruegg & Ellsworth et al. v. City of Berkeley et al. When first passed in 2017, SB35 (authored by Senator Wiener) sought to streamline the approval process for affordable housing. For two years it has done that. Some of its provisions have also been expanded. Notably, SB35 faced mixed support in the Senate. It was supported by the cities of San Francisco, Sacramento, Oakland, San Jose and Los Angeles. It was also supported by private companies, chambers of commerce, and housing advocates. At the same time, it was opposed by nearly 90 cities across the state, including the City of Berkeley. The City of Berkeley lawsuit is rooted in a mixed-use project (multi-family over retail) at the parking lot next to well-known Spenger’s Restaurant on 4th Street. The City of Berkeley denied the streamlined ministerial approval allowed under SB35 (i.e., without discretionary review) based on an argument that the project would require demolition of an “historic structure,” specifically an historic shell mound buried under the site.  Projects that require demolition of “historic structures” are exempt from the SB35 process. The Alameda County Superior Court applied a very deferential standard when reviewing the City’s decision, concluding that the City’s decision could only be overturned if it was “entirely lacking in evidentiary support.”  While the project sponsor provided relevant studies showing that no intact remnants of the shell mound still existed, the City had relied on a study of the site from 2000 that concluded one boring sample “probably represents a remnant” of the shell mound.  This lone statement in a twenty-year-old study was enough for the Court to uphold the City’s determination that the project would require demolition of an historic structure. While the Court’s determination on this point was enough to uphold the City’s decision, the Court didn’t stop there.  The Court also limited the application of SB35 to mixed-use projects in general.  Taking a very narrow reading of SB35, the Court concluded that SB35 only applies to mixed use projects when the zoning requires at least two thirds of a mixed-use project be designated for residential use.  This reading of the statute would eliminate its application to most if not all mixed use projects. For both reasons, the Court held that Berkeley’s denial of the Spenger’s project was appropriate. SFBARF et al. City of San Mateo et al. The Housing Accountability Act (“HAA”) was passed in 1982 and has been modified several times since.  The HAA generally forbids a city or county from reducing the density of, or denying approval of, a housing project that complies with objective general plan, zoning, and subdivision standards and criteria unless the project will have a specific adverse impact to public health and safety that cannot be mitigated in any other way. In the City of San Mateo lawsuit, a developer applied for a 10-unit condominium project. The City denied the project based on an alleged failure to comply with the City’s Multi-Family Design Guidelines, specifically to set back upper floors of a project that exceeds the height of neighboring buildings. Housing advocacy groups then sued the City. The San Mateo County Superior Court upheld the City’s decision to deny the project based on its conclusion that the City’s Multi-Family Design Guidelines were objective criteria.  The Court rejected the plaintiffs’ arguments that design guidelines were fundamentally subjective.  Instead, it endorsed the City’s argument that there was a way to apply the guidelines objectively. Here again, while this determination was sufficient to decide the case, the Court did not stop there.  The Court also concluded that the HAA is inapplicable to a charter city (like San Mateo) because it would violate the “home rule” doctrine that allows charter cities to legislate without state interference in areas that are “municipal affairs.”  This remarkable interpretation of the HAA would eliminate its application—and potentially the application of other state housing laws—in 121 charter cities in California, including San Francisco, Oakland, San Jose, Sacramento, and many others. Conclusion If upheld, the Berkeley and San Mateo decisions could hamper housing production statewide.  The Berkeley decision provides an arrow in the quiver of project opponents – when an SB35 project is proposed, they will argue that exemptions (like the “historic structures” exemption) eliminate the potential for ministerial review and reject SB35 processing for many if not all mixed-use projects.  The San Mateo decision would blur the distinction between subjective and objective criteria, likely leading to additional litigation, and eliminate the application of the HAA (and potentially other state housing laws) in charter cities, which include some of the largest housing centers in the state. These are fluid areas of law. Keep in mind these are trial court decisions and are not binding on other courts, though they will likely be used by project opponents to create delay and confusion regarding housing project approvals. These cases will likely be appealed, and the appeals court decision will carry real weight. We will be watching closely for the result of those appeals.   Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein & Matthew 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.

New California ADU Laws Aim to Remove Barriers and Boost Development

| Tiffany Kats

While campaigning for Governor, Gavin Newsom pledged to build 3.5 million new units by 2025 to combat California’s housing crisis. One way to meet this ambitious goal is through the construction of accessory dwelling units (“ADUs”). Since 2017, California lawmakers have passed several bills to streamline the ADU approval process. However, exorbitant fees and strict local requirements in some cities have continued to hinder the development of new ADUs. In response, Governor Newsom recently signed into law five bills that aim to further remove local barriers to ADU development, as well as to incentivize owners of both single-family and multi-family homes to add much-needed additional units to their properties. AB 68 & AB 881 – Streamlining ADU Approvals AB 68 and AB 881, introduced by Assemblymembers Philip Ting and Richard Bloom, were consolidated and enacted as one bill because the fundamental goal of the two bills was essentially the same—to streamline and improve the ADU process in order to facilitate the development and construction of ADUs. Effective January 1, 2020 these bills will: Require permits for ADUs and junior ADUs added to existing single-family and multi-family homes to be ministerially approved or denied within 60 days, rather than the 120 days allotted by existing law; Allow the approval of ADUs in proposed housing to be delayed until the new construction is approved, but the ADU permit must still be issued ministerially; Allow cities and counties to establish minimum and maximum ADU size requirements, provided that the maximum floor area is not less than 850 square feet or 1,000 square feet if the ADU has more than one bedroom; Prohibit any lot coverage, floor area ratio, open space, and minimum lot size requirements that would impact or deny ADU production; and Prohibit municipalities from requiring that existing nonconforming zoning conditions be corrected as a condition for ADU permit approval. Perhaps most importantly, subject to certain requirements, the consolidated bill will require ministerial approval for projects in residential and mixed-use zoning districts that propose to create the following: One ADU (attached or detached) and one junior ADU on a lot with either an existing or proposed single-family home; Multiple ADUs within an existing multi-family building; or Up to two detached ADUs on a lot with an existing multi-family building. Note that if a garage is converted or demolished to construct a new ADU, the off-street parking spaces do not have to be replaced. Furthermore municipalities will be prohibited from enforcing parking standards for ADUs located within ½ mile of public transit. SB 13 – Owner Occupancy and Fees Similar to the consolidated bill made up of AB 68 and AB 881, SB 13 prohibits the enforcement of parking standards for ADUs within ½ mile of public transit, requires ministerial approval of ADU permits within 60 days, and allows the construction of ADUs in garages and detached accessory structures. However, SB 13, introduced by Senator Bob Wieckowski, goes a step further by tackling two key issues: (1) the owner-occupancy requirement and (2) expensive fees. First, as a condition of approval, local agencies can currently require that an applicant for an ADU permit occupy either the primary residence or the proposed ADU. Until January 1, 2025, SB 13 will exempt all ADUs from such owner-occupancy requirements. Second, one of the biggest barriers to constructing ADUs in California are the fees associated with getting them approved and developed. To further incentivize owners to construct ADUs, SB 13 will implement a tiered fee structure based on the ADU’s size and location. Specifically, no impact fees can be imposed on ADUs smaller than 750 square feet, and any impact fees assessed for larger ADUs must be proportional to the square footage of the primary residence. AB 670 & AB 671 – HOA and General Plans Finally, AB 670 prevents homeowners’ associations from banning or unreasonably restricting the construction of ADUs on single-family residential lots. Meanwhile, AB 671 will require local General Plan housing elements to incentivize and promote the construction of affordable ADUs that can be rented to very low, low, and moderate-income households. The California Department of Housing and Community Development must also draft a list of “existing state grants and financial incentives” for ADU owners and developers by December 31, 2020. Together, this package of ADU laws hope to ease local restrictions in order to incentivize the development of “affordable by design” ADUs. In the midst of California’s housing shortage, it remains to be seen what impacts these bills will have on ADU construction when they take effect next year.   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.

Citywide Jobs Housing Linkage Fee Increase on Office and Lab

| Melinda Sarjapur

On Tuesday, the San Francisco Board of Supervisors passed legislation increasing the Jobs Housing Linkage Fee (“JHLF”) for office and laboratory projects.   While some grandfathering applies to pipeline projects, as of January 2021 new large office projects will be assessed the JHLF at a rate of $69.60 per gross square foot (“gsf”); smaller office developments at a rate of $62.64; and laboratory projects at a rate of $38.37/gsf. The JHLF was created in the 1980s and applies to projects citywide that increase by 25,000 gross square feet (“gsf”) or more any combination of office, retail, hotel, integrated PDR, laboratory or small enterprise workspaces uses.  The Fee is intended to account for the increased housing demand created by new commercial construction. Until now, the JHLF program allowed developers to choose between paying an in lieu fee or dedicating land of equivalent value to a housing developer for construction of affordable housing (although the land dedication option was rarely used).  Projects within the Central SoMa Special Use District also have the alternative of dedicating land to the City for affordable housing production.  The JHLF is currently assessed at a rate of $28.57/gsf for office use, and $19.04/gsf for laboratory. Last May, District 6 Supervisor Matt Haney introduced legislation to raise the JHLF on office to $38.00/gsf – about $10 over the current rate.   Then in September he introduced modified legislation with much steeper rates:  $69.60 /gsf for office and $46.43/gsf for laboratory, with no grandfathering for pipeline projects.  The legislation did not increase the JHLF for retail, hotel, or small enterprise workspace development. On October 21st, amended legislation was introduced at the Board’s Land Use Committee, providing some grandfathering for pipeline projects by phasing-in rate increases between now and January 1, 2021.   On October 29th, additional amendments were introduced at the full Board, differentiating fee rates for large-cap (> 50,000 gsf) versus small-cap (49,999 gsf or less) office projects.   The final JHLF legislation fee rates are summarized below. Large-Cap Office (50,000 gsf or more): Small Cap Office (49,999 gsf or less): Laboratory: In addition, Tuesday’s legislation makes the following modifications to the JHLF: Requiring the fee to be indexed annually according to the Annual Infrastructure Construction Cost Inflation Estimate, consistent with most other City development impact fees; Eliminating application of JHLF to “Integrated PDR,” a defunct use category; Allowing projects citywide to comply with the JHLF through land dedication to the City, but removing the formerly-available option of compliance through payment of a fee or land dedication to another housing developer; Requiring sponsors of large-cap office projects approved by the Planning Commission before 9/10/19, which contain approval language stating that the project will be subject to JHLF increases adopted before the project received a Certificate of Occupancy [essentially “key sites” in the Central SoMa Plan area], to pay the difference in JHLF assessed at the time of site permit issuance and the rate due under the legislation ($52.20) prior to issuance of a Certificate of Occupancy; and. Requiring the JHLF Nexus study to be updated every five years. The JHLF legislation was approved by Board on Tuesday, and will become final unless disapproved by the Mayor within 10 days.  Pending Mayoral action, it is anticipated to take effect in December 2019.   Authored by Reuben, Junius & Rose, LLP Attorney Melinda Sarjapur 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.

New Legislation Aims to Limit “Intermediate Length” Rentals

| Chloe Angelis

Following recent controversy over furnished rental properties that skirt the short term rental regulations by requiring tenants to stay for at least 30 days, Supervisor Peskin introduced legislation last week aimed at reigning in such projects. The ordinance would create a new “Intermediate Length Occupancy” under the Planning Code and would provide corresponding amendments to the Rent Ordinance. The legislation is available here. Planning Code Changes – Intermediate Length Occupancy Units: Under the Planning Code, Peskin’s legislation would define a new Intermediate Length Occupancy residential use “characteristic.” The classification covers dwelling units offered for an initial occupancy of more than 30 days but less than one year. Such units would be subject to a new Planning Code section, which would create a framework for permitting (and limiting) the units. Projects that have not received a first building or site permit (as of the effective date of the new law), that would create at least 10 new dwelling units (i.e. those projects subject to the Inclusionary Affordable Housing requirements) would be eligible to establish Intermediate Length Occupancy units under the new rules—which would not apply to student housing, residential hotel units (subject to Admin. Code Chapter 41), or to projects with nine or fewer units. Units that are designated as affordable under the Inclusionary Affordable Housing Program, subject to the Rent Ordinance, or otherwise designated as below market rate units under state or federal law, are not eligible to be Intermediate Length Occupancy units. For qualified projects, the Intermediate Length Occupancy units would be permitted with conditional use authorization in any district that otherwise allows residential use. Such approval would limit the Intermediate Length Occupancy units to no more than 20% of the project, and the units would need to be specifically identified as Intermediate Length Occupancy units. While the units are defined as having an initial tenancy of no more than one year, a designated Intermediate Length Occupancy unit could be offered for a term of more than one year without losing its Intermediate Length Occupancy status. Like with Residential Hotels, owners of Intermediate Length Occupancy units would be required to file annual reports detailing the following: The location of the Intermediate Length Occupancy unit; The number of times the unit was occupied by a natural person for an initial stay for a duration of greater than 30 consecutive days but less than one year, including the duration of each of those stays; The average duration of each stay; The average vacancy between each stay; and The nature of the services, if any, that are provided to occupants. Notably, the ordinance states that no more than 500 Intermediate Length Occupancy units may be permitted throughout the City.   Rent Ordinance Amendments: Peskin’s related changes to the Rent Ordinance aim to strengthen tenant protections, prohibit fixed-term tenancies, and increase tenant awareness of Rent Ordinance protections. For starters, the legislation provides that any lease provision that requires a tenant to vacate a rental unit at the end of a stated term, “shall be void as contrary to public policy.” Such that a landlord may not recover possession of a unit without just cause, except in the limited circumstances where the Rent Ordinance expressly authorizes a fixed lease term or eviction without just cause. Additionally, the legislation prohibits the lease of rental units to corporate entities and use of a unit for a corporate entity’s own employees or licensees (i.e. a “Non-Tenant Use”). As of February 1, 2020, and subject to limited exceptions, rental units that are subject to the Rent Ordinance may not be used for a Non-Tenant Use. Agreements providing for such Non-Tenant Use would be considered void—and the occupants would be deemed tenants protected by the Rent Ordinance. Further, beginning February 1, 2020, online listings for units subject to the Rent Ordinance must disclose that the unit is subject to the Rent Ordinance. The legislation gives the Rent Board the authority to monitor online listings and assess penalties of up to $100 a day for non-compliant listings (but no more than $1,000 total for a single listing). The legislation also includes a civil suit provision—expressly granting authority to the City Attorney’s Office and to nonprofit tenants’ rights organizations to bring a civil action for any violation of these new Rent Ordinance regulations. 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.

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