​Last December, Mayor Ed Lee responded to the City’s current housing affordability crisis by issuing Executive Directive 13-01, which asked City departments with control over the permitting process take action to prioritize the construction and development of new housing.  At this week’s Planning Commission hearing, the Planning Department will provide an update on the status of its response to the Directive, including a discussion of newly-implemented policies and anticipated work product of a recently-formed Housing Working Group. The Executive Directive charged the Directors of the City’s Planning Department, DBI, Fire Department, Rent Board, and Mayor’s Office of Housing to form a Working Group with three primary tasks: (1) to recommend to the Mayor City policies and administrative actions that could be implemented to preserve and promote rental housing; (2) implement a process to have the Planning Commission consider Discretionary Review hearings when a loss of housing is proposed; and (3) serve as an advisory body to City department with permitting authority as a clearinghouse for code compliance checks for buildings that are being withdrawn from the rental market. Planning and DBI issued a joint response to the Directive last February, which identified several process-improving changes intended to help in facilitating the production and retention of housing.  Since then, the Departments have been implementing their recommendations through short-term administrative policy changes.   Most recently, the Planning Department prepared a Draft Director’s Bulletin No. 5, which summarizes and clarifies the new policies and, and provides guidelines for ensure their consistent implementation.  These policies include: Priority Application Processing The Department revised its policy for prioritizing the processing of residential applications.  The current policy prioritizes the review and processing of 100% affordable housing projects, followed by projects providing at least 20% on-site or 30% off-site affordable housing units, over all other types.  The Draft Bulletin clarifies that market-rate projects will be prioritized based on the amount of new on- or- off-site units provided; the greater the number of affordable units, the higher the priority for processing. However, applicants will still need to submit and be approved for priority processing before they can benefit from this policy. Concurrent Review Procedures For 100% affordable housing projects and project with at least 20% on-site or 30% off-site affordable housing, the Planning Department, DPW, the Mayor’s Office of Disability, DBI and the Fire Department will review applications simultaneously, when appropriate.   To take advantage of this process, applicants will need to request a pre-application meeting with all relevant agencies before filing a building permit. Additional Process and Disapproval Recommendations for Certain Dwelling Removals Applicant proposing the merger or removal of dwelling units in the City already face an uphill battle, but the Department’s revised policies would make the process even more challenging.   According to the Draft Director’s Bulletin, applications for the merger of dwelling units, where both units are “demonstrably unaffordable” (appraised within the last six months for $1.506 million or more), will continue to be processed administratively by the Department without requiring a Mandatory Discretionary Review or Conditional Use hearing.    However, for all merger applications where at least one of the units is valued under $1.506 million, administrative process is not available and the Department will automatically recommend that the Commission deny the merger application at the required hearing.  The Draft Bulletin states that is policy reflects the “exceptional and extraordinary circumstance” created by the current housing affordability crisis.    The Department will also require a Mandatory Discretionary Review hearing for the removal of unpermitted housing (including Live-Work units) in buildings containing three or more units, and applicants will be required to submit a report by a qualified professional outlining the upgrades (and associated costs) required to legalize the unit.  Where a feasible path is available to legalize the unit, the Department will recommend that the Commission deny the removal permit and preserve the unit. At this week’s Commission hearing, the Department will also discuss the Housing Working Group, which was recently formed in response to the Executive Directive.  Activities anticipated for this Group include (1) exploring changes to the City’s Inclusionary Housing Program to establish a “dial program” that would create more affordable dwelling units at a higher AMI and potential amendments to the off-site; (2) debating methods to improve the City’s entitlement and environmental review process; and (3) evaluating potential funding sources to support low- and- middle-income housing development. Additional information on the Department’s activities in response to Executive Directive 13-01 is available at: http://commissions.sfplanning.org/cpcpackets/Executive%20Directive%20Status%20Update.pdf 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.

​Existing zoning restrictions prohibit residential and office uses, and limit retail and institutional uses, in both PDR-1-D and PDR-1-G zoning districts.  These prohibitions have in fact discouraged production, distribution, and repair (“PDR”) development. Mayor Ed Lee, together with three members of the Board of Supervisors, recently proposed legislation to encourage the development of PDR uses, and small enterprise work spaces.  The proposed legislation would amend the Planning Code to allow office, retail, and certain institutional uses to be combined with PDR uses in new mixed-use development projects.  The proposed legislation encourages development of small enterprise work spaces, defined as a building that includes discreet work space units, commonly referred to as business incubators which are independently accessed from the building’s common areas. Subject to obtaining a conditional use authorization from the Planning Commission, applicants with parcels of 20,000 sq. ft. or larger located in PDR-1-D or PDR-1-G zoning districts north of 20th Street shall be permitted to construct new developments containing a minimum of one-third (total gross floor area) of PDR uses.  The remaining two-thirds of total gross floor area may be allocated to office use, retail uses, or institutional uses such as assembly, social services, child care, schools, colleges, religious facilities, residential care, and job training centers.  Each small enterprise use in a project would count as 0.5 square feet of PDR space and 0.5 square feet of non-PDR space.   The existing land use category known as “integrated PDR” would be eliminated from the Planning Code.  The Restricted Integrated PDR Special Use District would be eliminated from the Code.  The proposal would allow up to 33% of new PDR space to be characterized as accessory retail use.  To be eligible, the development site must be vacant or nearly vacant (i.e., built to a floor area ratio of 0.3:1 or less).  Small enterprise work spaces would be limited to a maximum of 1,500 square feet each, although these work spaces would be allowed to be a part of a mixed-use building. The proposed legislation is likely to facilitate construction of new PDR buildings and mixed-use buildings with PDR uses, and make it easier for new PDR uses to obtain permits.  The proposed Code changes reflect needed corrections to the existing PDR zoning controls, which were created in 2008 as part of the Bay View and Eastern Neighborhoods Plans.  The proposed changes reflect experience gained over the past 6 years with respect to zoning restrictions in PDR districts, and the reality that it remains difficult to finance construction of new PDR space even in PDR zoning districts.  Allowing office and other uses to be part of new PDR projects is expected to help alleviate this problem. The increase in the permitted size of small enterprise work spaces from the current maximum of 100 square-feet to the new maximum of 1,500 square-feet per workspace should encourage development of small PDR businesses including those with accessory retail space.   After more than a decade of controversy relative to replacement of former warehouse uses and many types of industrial uses by 21st century uses and modern industries such as technology, biotech, research and development, and internet services, the legislative proposal is a fresh approach to seeking a balance between maintaining PDR mandates while recognizing that technology office uses are the new bedrock of San Francisco job creation, economic development and growth. 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.

​As we reported in our July 13, 2013 Update, last year the San Francisco Board of Supervisors (“Board”) passed an ordinance establishing the Expedited Conversion Program (“Program”), designed to alleviate the huge backlog of Tenancy in Common (“TIC”) units waiting to convert to condominiums.  The Program permits qualified TIC owners to convert their units to condominiums, in exchange for payment of a conversion fee (“Fee”) of $20,000 per unit (although the fee may be reduced for qualifying units). The ordinance provides that an applicant for conversion under the Program may appeal to the Board for a reduction, adjustment or waiver of the Fee “based upon the absence of any reasonable relationship or nexus between the impact of development and the amount of the fee charged…”  While this standard for appeal is vague, it appears to be limited to a general challenge of the Fee requirement in the Program, as opposed to a challenge based upon the impact of the Fee as applied to a particular TIC owner.  To the Board’s chagrin, this right of appeal of the Fee resulted in appeals not anticipated by the ordinance, such as an appeal based upon an owner’s inability to pay the Fee due to financial hardship. To avoid further appeals not permitted by the Program, Supervisor London Breed sponsored an ordinance that was passed by the Board on April 29, 2014.  The new ordinance authorizes the Clerk of the Board to reject appeals of the Fee if the Clerk determines that the appeal on its face does not challenge, on a factual or legal basis, the relationship or nexus between the impact of development and the amount of the Fee charged.  To temper this authority granted to the Clerk, a Board Supervisor may permit the appeal and schedule a hearing, even if the Clerk determines that the appeal does not meet these standards.     To balance the limitation of appeals in the new ordinance with the legitimate concerns of cash-strapped TIC owners who are unable to pay the Fee when required under the Program, the new ordinance permits certain qualifying low and moderate income owners to defer payment of the Fee until six months after the condominium map is recorded.  This is intended to give such owners time to refinance their units based upon its increased value as a condominium, and presumably use money from the refinance to pay the Fee. To participate in the conversion Program, certain units must have been continuously owner-occupied for designated periods of time (typically 3 years), with no gaps in occupancy greater than 3 months.  This presents a hardship for those buildings in which there was a foreclosure due to an owner’s failure to pay its mortgage, as such units often stay vacant for several months until a TIC new owner occupies the unit.  Such a foreclosure would prevent the other innocent TIC owners from converting under the Program through no fault of their own.  To alleviate this hardship on innocent owners in a TIC building where a unit has been unoccupied for greater than 3 months due to a foreclosure, the new ordinance increases the permitted period gap in occupancy for one qualifying unit per TIC building to one year.   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.

​Today, a long-awaited economic study of formula retail controls in San Francisco was presented to the San Francisco Planning Commission.  Before diving into the details, some background: in response to a number of recently-enacted and pending proposals at the Board of Supervisors which would increase formula retail controls in San Francisco, the Planning Department in June 2013 commissioned an economic analysis of San Francisco’s existing formula retail controls and the impacts of the proposed legislation.  A retailer which has eleven or more other stores in the United States with certain standardized features is considered a formula retailer. The study, prepared by Strategic Economic Consulting Group, confirmed some hard truths about San Francisco’s formula retail controls, particularly that they are successful at deterring companies which would qualify as formula retailers from pursuing new locations in San Francisco’s neighborhood commercial districts.  At the same time, the results of the study emphasized the positive impact these retailers have on blighted neighborhoods, demonstrating that these companies are ideal tenants for large-scale spaces and can prevent long-term vacancies—if only the barriers to entry were lowered somewhat.  The study also questioned the utility and effectiveness of many proposed changes to formula retail controls in the city. Controls May Deter Formula Retailers… Among the highlights of the study are its conclusions regarding the effects formula retail controls have on a neighborhood.  The study—which included the first comprehensive mapping of all formula retail stores in San Francisco—concluded that the relatively low concentration of formula retailers in neighborhood commercial clusters likely means the cost, uncertainty, and delay associated with the conditional use approval process deters retailers from attempting to open stores in these neighborhoods.   Formula retailers are also most highly concentrated downtown, South of Market, in tourist-oriented areas like the northeastern waterfront and Union Square, and in shopping centers.  With the exception of most shopping centers in neighborhood districts, these areas do not have formula retail controls. …Which Might Not Help Other Retailers or the San Francisco Economy Formula retailers generally tend to occupy larger spaces than non-formula retailers — approximately 85% of formula retailers occupy spaces over 3,000 sq. ft. in size, while 80% of non-formula retailers use less than 3,000 sq. ft.  This seems to suggest that often formula and non-formula retailers do not compete for the same spaces, or at the very least most other retailers cannot or do not wish to lease large-footprint spaces.  Indeed, the study concluded that there is not a consistent relationship between the approval of a new formula retail application and an increase in local rents and subsequent vacancies. In fact, the disapproval or withdrawal of a formula use application may lead to long-term vacancies at the site:  the large and deep retail spaces that are natural fits for many formula retailers can sit vacant for extended periods of time after a project is disapproved or abandoned, and these large vacant spaces can act as a drain on the surrounding district’s overall performance as a shopping and commercial destination.   Assessing Current 11-Store Threshold and Proposed Legislation Finally, the authors of the study addressed the existing formula retail controls, as well as the many pieces of legislation proposing changes to these controls.  The study recognized that many local companies can become victims of their own success—such as San Francisco locals Philz Coffee and Pet Food Express, each of which recently passed the 11-store threshold.  The authors suggested raising the store threshold to twenty or even fifty stores.  Because the majority of formula retailers (approximately 75%) have fifty or more stores nationwide, raising the threshold could protect local fast-growing companies from the time, cost, and uncertainty associated with the conditional use authorization process, while at the same time requiring most formula retailers to still navigate that process.   San Francisco’s legislators have proposed a number of potential changes to the existing controls.  These changes include augmenting the definition of formula retail to count businesses with more than 10 stores worldwide—as opposed to in the United States; expanding the types of businesses which may be considered formula retailers; and including subsidiaries of formula retailers.  Additionally, the Planning Department recently began to apply numerical thresholds for concentrations of formula retail stores in certain districts. The study concluded that most of these changes would not have their intended effect.  For example, the international expansion would likely affect international companies seeking to place their first United States store in neighborhoods with a strong ethnic identity, such as Japantown or Chinatown, as well as in high-end shopping districts like the Upper Fillmore.  Subsidiaries would only account for three percent of formula retailers, and many of these subsidiaries already have more than 11 stores in the US, meaning they would already be subject to the conditional use process.  Making new categories of uses subject to formula retail controls—such as personal, business, and medical services, which include salons, gyms, and dialysis centers—could impact residents’ daily needs and make maintaining vacancy rates more difficult in many neighborhoods.     Finally, case studies of the Upper Fillmore, Ocean Avenue, and Geary Boulevard neighborhood commercial districts demonstrated that it is impossible to define a single ideal level of formula retailers across multiple neighborhoods of differing character, urban form, and demographics.  A single formula retail concentration threshold across the entire city would not have its intended effect. Next Steps In early May, the Planning Commission will adopt the results of the study, as well as make policy recommendations.  This final report and policy recommendations are slated to be presented to the Board of Supervisors later that month.  The hope is that the report’s conclusions and recommendations increase the Board’s understanding of the economics of formula retail controls before any new legislation is enacted.  We will continue to monitor the progress of the new legislation. 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,

​On April 8, 2014, Supervisor Jane Kim introduced new affordable housing legislation creating the “Housing Balance Special Use District,” which new Special Use District (SUD) is co-terminus with her Supervisorial District (generally covering SoMa, the Tenderloin, and Treasure Island).  While the provision of affordable housing is a public policy most of us can support, Supervisor Kim’s recent proposal unfortunately creates more problems than it solves.  Moreover, this proposal comes at a time and in an area of the City where affordable housing numbers are robust, leading to the inevitable question, “If it ain’t broke, why fix it?”   In May 2011, the Western SoMa Citizens Planning Taskforce documented that in the Western SoMa neighborhood (which largely overlaps with the proposed SUD), 37.8% of new housing units built from 1993 through 2009 were affordable units.   Supervisor Kim herself points out that in this area between 2006 and 2013, 71% of new housing consists of market rate housing, and 29% of new housing is available at below market rates.   These are strong affordable housing numbers, especially considering that 20% is the highest percentage of affordable units required by the City under existing law in market rate housing projects, and that number applies only when the developer chooses to provide units off-site or pay an in-lieu fee.  The required percentages when the developer provides units on-site are even lower.  Clearly, existing affordable housing requirements are working, and working particularly well in the proposed SUD. Notwithstanding these realities, and the existing regulatory difficulties already facing developers of housing in the City, Supervisor Kim feels one more layer of regulation is needed.  Here’s how it works.  In any case where a “market rate housing project” is proposed and the overall existing ratio of affordable units to market rate units constructed or entitled since 1993 in the SUD at that time is less than 30%, that market rate housing project must obtain conditional use authorization from the Planning Commission.  Removed affordable units and rent controlled units demolished, converted or removed from rent control will be subtracted from the ratio. Among the criteria to be considered by the Planning Commission are whether allowing the project would substantially hamper the location or viability of affordable housing in the SUD, and the extent to which approval of the project would cause or exacerbate the displacement of very low, low, or moderate income households from the SUD.  If the Planning Commission approves the market rate housing project, it must find that the project promotes the health, safety and welfare of the City and the SUD, in spite of any potential adverse impacts on affordable housing and potential displacement of lower income households in the SUD.  In the event the Planning Commission disapproves the housing project, it must make findings to explain how the project as proposed would have specific adverse impacts upon the public health and safety of the City and the SUD. Surprisingly, a market rate housing project is defined as any housing project that consists of less than 100% affordable units.  Thus, the legislation actually will work to suppress the production of affordable housing by imposing a potential conditional use requirement on housing projects even where they might propose up to 90% affordable units.  Imposing yet another entitlement requirement on proposed housing projects will make the projects less economically viable, particularly those projects with a high affordability component, which already have narrow profit margins, and ultimately suppress the production of both affordable and market rate units.  Such suppression of housing production directly contradicts the recent aggressive push by City leaders to construct more housing and address the City’s serious supply crisis. The legislation also flies in the face of the Western SoMa Plan, which was a community-developed plan that took over 10 years to accomplish.  The Plan already establishes a delicate balance of new housing allowed, and provides for a single, streamlined entitlement application for project approval.  Placing a conditional use authorization requirement on new developments will add $103,000 in additional application fees to such projects – even though these projects had to go to the Planning Commission already. Another problem with the legislation is the burden it imposes on an already resource-strained Planning Department.  The Department is tasked with calculating the number of affordable and market rate housing units constructed or entitled within the SUD.  The Department also must calculate the number of rental units withdrawn from rent control, and subtract that number from the number of affordable units. Not only does the legislation impose this heavy workload burden on the Planning Department, but it is easy to foresee the resulting complications.  It is simply not possible for the Department to accurately count the number of affordable and market rate housing units constructed in the SUD on a quarterly basis.  Estimates no doubt will result, and disputes will arise over those estimates.  Even more difficult to calculate will be the number of rental units withdrawn from rent control. Supervisor Kim no doubt had good policy intentions in proposing the Housing Balance SUD.  Unfortunately, the legislation does not appear to serve its own intentions. 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.             

​Planning Department Continues to Streamline CEQA Process While Heightening Air Quality Performance Standards As many of us know, the Planning Department has the (mostly) thankless job of being the lead agency running the environmental review of most new development projects in the city.  That being said, the Department still is bound by the requirements of the California Environmental Quality Act and must carry out its mandates – even when they are not efficient or don’t make sense.  In recent years, the Department has been aggressively working to streamline the CEQA process, which saves time and money for both project sponsors and the city alike.   Having essentially taken hazardous materials off the table of potential triggers for heightened environmental review last summer, the Department is now moving onto air quality.  Along with the Department of Public Health, they have drafted legislation that would enhance and expand the existing ventilation requirements while simplifying the environmental review process for air quality.  Specifically, the legislation would accomplish the following: Replace the current map of sensitive air quality zones with a new map with a smaller sensitivity zone (basically covering areas around freeways, South of Market, the Tenderloin, the Embarcadero, and a handful of other major intersections in the city).  If a project is located in this new sensitivity zone, it will no longer have to conduct a project-specific study as they do now – the project simply needs to incorporate heightened ventilation standards that are equivalent to a Minimum Efficiency Reporting Value (MERV) 13 filtration standard. Expand the air quality/ventilation requirements to cover all projects (1) located in the new sensitivity zones, (2) containing “sensitive uses,” and (3) proposing new construction, major alterations of 25,000 square feet or more, or a Planning Code change of use.  Sensitive uses include all residential, educational and institutional uses. So long as a project complies with these standards (which they would be required to by the new legislation), it could not trigger heightened environmental review due to air quality impacts on the new uses in the project.  There would still be a limited potential to trigger heightened environmental review due to construction air quality issues.  The legislation significantly simplifies the process – either a project is subject to the ventilation requirements or it is not.  No project-specific review would be necessary.   The Planning Department has cited several studies which conclude the increased costs of the MERV 13 ventilation systems are negligible when applied on a whole building (versus individual unit) basis.  Again, these heightened standards will only apply to “sensitive uses,” so projects involving office, retail or industrial uses will not be impacted. The new ventilation requirements represent a delicate balance the Planning Department is trying to achieve – increasing performance standards that will improve public health while simultaneously improving the entitlement process for developers. Board of Supervisors Continues In-Law Unit Push – New In-Law Units to be Permitted in the Castro The Board of Supervisors was busy this week making major changes to the way in-law dwelling units are regulated in the city.  As we reported last week, the Board passed on first reading an ordinance that would allow for the legalization of in-law units that have been created without a permit.  The ordinance was approved on second reading this week and now goes to the Mayor’s desk for signature. The Board also passed legislation on first reading this week to create a pilot program that would allow for the creation of new in-law dwelling units in the Castro district.  Within a certain defined area in the Castro, property owners may create a new in-law dwelling unit, which can be approved with a waiver from density (allowing density above what is otherwise permitted) and other Planning Code requirements, so long as they meet the following requirements: The unit is constructed within the existing envelope of the building; The unit has no more than 750 square feet of habitable space; and The unit does not incorporate space from any existing dwelling unit. As Supervisor Wiener stated Tuesday, these new units – required to be created in existing buildings, of modest size and not reducing existing housing – will be far more affordable than dwelling units that are coming on-line in new housing developments.  In-law units created in buildings subject to rent control will also be subject to rent control. And Finally, Eviction Relocation Payments Look Set to Pass As we reported last week, Supervisor Campos has proposed legislation that would increase required relocation payments that landlords pay to tenants when those tenants are subject to a “no fault” eviction.  The legislation would require the relocation payment to essentially cover the difference in rent between the current rent the tenant is paying and the fair market rent for a comparable unit for a period of two years.  The legislation passed on first reading at the Board on Tuesday with a 9-2 vote, which, if it holds, is a veto-proof majority that the Mayor would not be able to overturn.   The housing crisis continues to motivate the Board to seek creative mitigations – not necessarily complete solutions – to the problem.  We will continue to track these changes in housing policy closely, as they will have far-ranging impacts throughout the development community. 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.

​Ok, we get it.  It’s almost a cliché now to say that San Francisco is in the midst of a housing crisis.  For proof, check out this 1984 L.A. Times article on gentrification (dug up by the SF Housing Action Coalition) that you could easily mistake for an article published today (with the exception of $1,000/mo apartments in North Beach):  http://articles.latimes.com/1985-04-03/news/mn-28445_1_san-francisco-s-skyline. But it does seem like we are now in a particularly exacerbated point in the crisis.  Take for example two recent data points on the housing sector: In 2013, San Francisco rents have increased 10.6%, the largest increase in the country and three times more than the national average of 3%.   42,452 jobs have been created in San Francisco since 2011, yet an average of only 1,500 new dwelling units have been constructed per year since then. It’s no wonder Mayor Lee has heavily pivoted from his early-term emphasis on job creation to housing affordability and production this year.  But he’s not alone in searching for solutions to the current crisis.  Several members of the Board of Supervisors have been pursuing measures to help.  These efforts differ sharply based on members’ ideas of what is causing the problem, but no question, they will all impact how housing is regulated in San Francisco.  Just this week, the Board of Supervisors considered two very different ordinances impacting housing. In-Law Units:  It’s Your Turn to Come into the Light In recent years we have seen an increasing number of ordinances “legalizing” existing development and land uses that were not established through the proper channels.  Supervisors Chiu and Wiener have co-sponsored an ordinance that will allow for the legalization of “in-law” dwelling units that were constructed in a building prior to 2013.  To be eligible, a unit must (1) be located in a zoning district that permits residential use and (2) be established without the benefit of a permit.  The ordinance will allow an owner of such building to legalize the unit, even if it increases the dwelling unit count of the building above what is permitted by the zoning district, without the need for any variances and without neighborhood notice.   The tricky part of this process is that the in-law unit must also be made compliant with current Building, Fire, Electrical, Mechanical and Plumbing codes.  This could be either physically impractical or financially infeasible.  And how does an owner protect themselves from filing a legalization application with the city, finding out the work necessary to legalize the unit is impractical or infeasible, and then being stuck with a Notice of Violation from the city for an unpermitted unit?  The ordinance contains a provision that forbids the Department of Building Inspection (“DBI”) to seek an enforcement action in such situation unless it identifies “an imminent and substantial hazard.”  Since this leaves a lot of discretion to DBI inspectors, we recommend that any owner who pursues this process consult a building professional to perform an audit of the unit before any applications are filed with the city. The ordinance contains protections for tenants as well.  Legalization of in-law units are not permitted if a no-fault eviction has occurred in the unit within the past 5 or 10 years (depending on the type of eviction).  Costs of legalizing the unit cannot be passed-through to tenants.  Legalized in-law units will remain subject to rent and eviction control if they were already subject to it.   The ordinance passed on first reading this Tuesday, and must be passed on second reading next Tuesday before it is sent to the Mayor’s desk for signature. Ellis Act Evictions:  Still Legal, but Pay Up! Supervisors Campos, Kim, Avalos and Mar have co-sponsored another ordinance that aims to ease the effects of the housing crisis on tenants.  This ordinance would increase the amount of relocation expenses a landlord must pay to a tenant upon eviction under the state Ellis Act. The Ellis Act allows landlords to remove their apartment buildings from the rental market, even if evictions of tenants would result.  It also allows local governments to require monetary payments from the landlord to the tenant to mitigate the impacts of the eviction.  Currently, a landlord must pay $5,265 per evicted tenant (up to a maximum of $15,795 per unit) and an additional payment of $3,510 for tenants who are over 62 years old or disabled. The new ordinance would require a landlord evicting a tenant or tenants under the Ellis Act to pay a relocation expense equal to the difference between the monthly rent the tenant(s) is currently paying and the market rental rate for a comparable unit, multiplied over two years.  The payment would be split equally among tenants occupying the unit.  The ordinance would preserve the additional $3,510 payment for older or disabled tenants.  Landlords would have the right to petition the Rent Board for a downward adjustment in the payment due to undue financial hardship. The ordinance was first heard on Tuesday and instigated significant debate.  Consideration of the ordinance was ultimately continued to next Tuesday. These are just two of the latest ordinances that are intended to help with housing availability and affordability in San Francisco.  Other ordinances introduced this year to help the housing situation would: Exclude affordable housing units from dwelling unit density restrictions; Prohibit increases in rent based on additional occupants; and Allow construction of new in-law units exceeding dwelling unit density restrictions. And no doubt we will see more.  No one expects the housing crunch to be solved, but these measures are an indication of the Board’s willingness to at least fight back against this intractable problem. 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

​Are Split-Roll Taxes Still Alive? In the wake of Propositions 13 and 62, many local districts have imposed “special taxes” to finance public facility construction and operations.  One such special tax is the school district qualified special tax, which was enacted by the Legislature in 1987.   (Gov. Code §§ 57009 et seq.)  School districts have the authority to impose such special taxes as long as the tax “applies uniformly to all taxpayers or all real property within the school district.”  (Gov. Code § 50079(b)(1).  New legislation (SB 1021) introduced last month by Senator Lois Wolk (D-Davis) would allow school districts to levy unlimited tax increases on select property owners through non-uniform parcel taxes. This would essentially overturn existing law.   Over the years, school districts have attempted, unsuccessfully, to increase their parcel tax revenues by taxing different parcels differently, often referred to as “split-roll” taxes.  One such attempt by the Alameda Unified School District was rejected last year by the First District Court of Appeal.  (Borikas v. Alameda Unified School District, 214 Cal.App.4th 135 (2013).)  In that case, the overturned tax imposed a $120 yearly tax on residential parcels, while large commercial and industrial parcels were hit with $0.15 per square foot, with a maximum of $9,500 per year. SB 1021 revives split-roll taxes and would provide numerous ways to vary tax rates.  For example, school districts could split parcel tax assessments within a district based on characteristics such as the size of the parcel, the size of improvements to the parcel or the use of a parcel.  This means different tax rates could apply to residential parcels than shopping malls, industrial parks, hotels and wineries. The bill also would allow school districts to impose a different tax rate on unimproved parcels and to treat multiple parcels as one where the parcels are contiguous, under common ownership and constitute one economic unit. They would need to have “the same primary purpose” and not be separate and distinct properties that may be independently developed and sold.  We will keep track of this issue and keep you posted. Sometimes You Can Fight City Hall Developers in San Francisco are all too aware of the great deference courts accord to local agencies when agencies interpret their own codes.  That deference has become such a bedrock of land use jurisprudence that consideration is rarely given, if ever, to legally challenging such local agency interpretations.  A ruling last month by the Second District Court of Appeal, resolving a dispute that land use practitioners in San Francisco may find eerily familiar, may change this attitude.  (Tower Lane Properties v. City of Los Angeles, 168 Cal.Rptr.3d 258 (2014).) On May 3, 2011, Tower Lane applied to the City’s Department of Building and Safety for building and grading permits for three residences, a pool and spa, a pool cabana building, a pool service and equipment building, accessory living quarters, and associated parking areas.  The Department of Building and Safety forwarded the building plans to the City’s Planning Department for review. During its review, the Planning Department notified Tower Lane that to obtain a grading permit it must comply with Los Angeles Municipal Code Section 91.7006.8.2, which the Department asserted required approval by that Department of a tentative tract map whenever grading was conducted on a hillside area larger than 60,000 square feet.  Tower Lane objected to this requirement, arguing that Section 91.7006.8.2 required a tract map only when a subdivision of land was proposed. The city argued the court should grant deference to the city’s interpretation of its own code, and uphold its tract map requirement.  The court disagreed.  While recognizing that a local agency’s interpretation must be given great weight, the level of deference accorded to an agency’s interpretation turns on “whether the agency has a comparative interpretive advantage over the courts, and also whether its interpretation is likely to be correct.”  Factors to consider in determining if an agency has a comparative advantage include whether “the legal text to be interpreted is technical, obscure, complex, open-ended, or entwined with issues of fact, policy, and discretion.” The court ultimately was persuaded that the interpretation of Section 91.7006.8.2 did not require any particular expertise, and that the city over time had inconsistently applied the tract map requirement of Section 91.7006.8.2.  The court agreed with Tower Lane, and ruled that a tract map was not required. Redevelopment Replacement Ever since the dissolution of redevelopment agencies in 2012, Governor Brown has contended he would provide a redevelopment replacement tool.  Progress in this regard has been spotty.  In 2012, he vetoed a bill that would have partially restored tax-increment with no impact on the state general fund – and most likely would have done so again last year if the Legislature had sent him the bill again. But the Governor may be relenting.  In his budget message in January, Brown made it clear that he would sign a bill loosening up the rules on little-used infrastructure financing districts, which allow the use of tax-increment financing without the old find-the-blight requirement from redevelopment days.   Also, Brown seems likely to support a bill Assembly Majority Leader Toni Atkins (D-San Diego) has introduced to smooth recurring problems in the dissolution of local redevelopment agencies (AB 1963).  The bill is similar to Atkins’ AB 662 from last year, but drops a provision on amendments to project contracts that led Brown to veto it.  The revised bill contains continuity provisions that would allow projects begun under redevelopment agencies to be carried forward.  They include infrastructure financing districts, reimbursement of expenses taken on by housing authorities, and authorization to use bond proceeds on already-approved projects.  We will continue to track this issue. 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

​While not quite as exciting as the NCAA Tournament (I’m sure many of you are watching on your computer today), California’s limited liability company statute was recently updated by the California Revised Uniform Limited Liability Company Act (the “Act”).  The Act, which took effect on January 1, 2014, was intended to update existing California law to reflect developments in this area over the past twenty years, include more detailed rules governing issues not covered by the company’s operating agreement, and to bring California law in line with the laws of other states.  (CEB Law Alert, October 1, 2013).  The Act also provides more specifics concerning when the Act cannot be overridden by the members.     Although most of the substance of the Act is similar to existing law, there are a number of provisions that will impact the use of LLCs.  Some of the more relevant issues are discussed below.  Not all of the concepts are changes to the law, but serve as reminders about important issues.   Management Structure The Act retains the right of the LLC to be managed either by the members or a manager (or multiple managers).  If the articles of organization and the company’s operating agreement do not specify that the LLC will be managed by a manager, then the LLC will be deemed to be member managed, and all of the members will be agents of the Company.  This is a change from existing law where only the articles of organization needed to specify the structure.   Member Approvals Of Major Decisions The company’s operating agreement usually addresses what percentage of the members must approve a major issue, like merger, sale of the Company’s assets, or amendment of the operating agreement.  Previously, if these issues were not addressed, a majority vote was required.  Under the Act, the members must unanimously approve such decisions.  The operating agreement should clearly state the members’ intentions. Becoming a Member The Act allows a person to become a member without acquiring an interest in the profits of the company or making a contribution to the company.  Previous law did not provide for this.  The reason for the change was twofold – to accommodate common business practices and recognizing that an LLC does not necessarily need to have a specific business purpose.   Distributions of Profits Unless stated in the operating agreement, distributions of profits will be made to the members based on the value of the contributions from each member.  It is critical to specify the members’ intentions in the operating agreement.  In most cases, some members are intended to receive distributions for reasons that are not based on the amount of cash contributed. Failure to Make Contributions May Result in Personal Liability to Third Parties One of the most important protections of an LLC is to avoid personal liability to the owners/members.  The Act now includes an important exception.  If creditors of the LLC extend credit or act in reliance on a member’s obligation to make a contribution to the company, then that creditor may enforce the obligation personally against the member.  An example of this is where a lender agrees to make a loan to the company based on the member’s commitment to contribute capital at a later date. Non-Cash Distributions May Be Made The Act now allows a LLC to make distributions in kind (property, not cash) if the asset is fungible and each member receives a percentage equal in value to the member’s share of distributions.  This means that the property must have a value that is easily calculated.  However, a member may not demand a distribution in kind unless permitted by the operating agreement.  In some residential developments, members wish to receive condo units instead of cash distributions.  This can only be enforced if permitted by the operating agreement or elected by the vote of the members or managers, as applicable. Duties of Care and Loyalty In a member managed LLC, the members owe each other a duty of loyalty and care.  However, this standard of care is essentially one of gross negligence, unless otherwise provided for in the operating agreement.  In a manager managed LLC, the managers owe the members a duty of loyalty and care.  In all instances, the members and managers are bound by the covenant of good faith and fair dealing. Limitations on Freedom of Contract Although the Act recognizes the right to freedom of contract in creating an LLC structure, there are limits.  Here are some of the important limitations on what provisions may not be changed by the operating agreement:     Elimination of the duty of loyalty and care and the contractual obligation of good faith and fair dealing.  However, the operating agreement may specify categories of activities that do not violate the duty of loyalty and good faith and fair dealing; Any unreasonable restriction on the rights of members to receive documents relating to the company’s business; Change to the statutory restrictions on distributions (for example, prohibition of distributions if the company cannot pay its debts); Any provision that would eliminate liability for money damages for (i) receipt of a benefit to which the member or manager is not entitled, (ii) liability for excess distributions, (iii) intentional infliction of harm, and (iv) violation of criminal law. The above is a limited summary of the changes to LLC laws.  Consultation with counsel is always a good idea when forming a new LLC. 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.

​On February 26, 2014, something special happened in San Francisco.  On that date, the Board of Appeals held yet another hearing in a seemingly endless stream of hearings on the beleaguered, 12-unit, code complying residential project at 1050 Valencia Street.  What was special about this day was that, unexpectedly, the Board of Appeals reversed its previous decision, recognizing that the Housing Accountability Act (California Government Code Section 65589.5) limited their authority to dramatically reduce the size and density of the project.  As those that have been following this matter in the press over the last several years know, this was watershed event for a project that had become a punching bag for opposition groups in the vicinity.  Does this mean that the Housing Accountability Act will now become a major force in protecting well-thought-out, code and plan complying projects from unnecessary changes and size reductions in the future?  Time will tell.  In the years to come, looking back, 1050 Valencia may in fact be recognized an as important policy milestone in the City, notwithstanding its small stature. Housing Accountability Act – The Policy The Housing Accountability Act has been kicking around since 1982 and has not been a factor in San Francisco development until now.  While today the housing crisis has reached critical levels in places like the Bay Area, housing development has been difficult in California for decades because of laws like CEQA and communities that see growth as the enemy.   The Act in effect gives local officials some legal cover when they are besieged by angry project opponents who are intent on stopping housing projects in their neighborhood.  The Act was given new life in 2011 when the California Court of Appeal in Honchariw v. County of Stanislaus (200 Cal.App.4th 1066) ruled that the Act applies to all housing projects, not just affordable projects.  In a nutshell the Act limits local authorities by requiring a very specific set of findings that make it extremely difficult for Cities to reduce the density of a project for subjective reasons like neighborhood character, aesthetics, or other difficult-to-measure (and impossible to challenge) criteria. For a local agency to condition approval of a housing project on reducing the density of that project to less than proposed and otherwise permitted by law, the agency must determine that the project would have a “specific adverse impact on public health or safety” unless the density is reduced.  That finding simply could not be made for the 1050 Valencia Street project, requiring the Board to withdraw its original condition requiring that the top floor of the Project be removed. Housing Accountability Act – The Details Section 65589.5(j) of the Act states that when a proposed housing development complies with the applicable, objective general plan and zoning standards, but a local agency proposes to approve it only if the density is reduced, the agency must base its decision on written findings supported by substantial evidence that: 1. The development would have a specific adverse impact on public health or safety unless disapproved, or approved at a lower density; and 2. There is no feasible method to satisfactorily mitigate or avoid the specific adverse impact, other than the disapproval, or approval at a lower density. A “significant adverse impact” is defined as a “significant, quantifiable, direct and unavoidable impact, based on objective, identified written public health or safety standards, polices, or conditions as they existed on the date the application was complete.”  This is an incredibly high standard, in that it is difficult to imagine a scenario where a housing project would have a significant negative impact on public health. At the Board of Appeals meeting on Feb. 26, the project sponsor argued that eliminating the top floor of the Project, as proposed by the Board at their first hearing, would have resulted in a loss of approximately 2,600 square feet of residential floor area. This represented a significant decrease in the proposed density of development. The Board struggled with this issue, and there were two closed door meeting sessions with the Board and the City Attorney to discuss the application of the Act in private before final action was taken.  The Board ultimately decided it could not make the written findings required by the Act.  In effect, the Board acknowledged that the development of new homes in a dense urban area does not threaten public health or safety.  What a shock. Where We Go From Here The Act, especially after the Honchariw decision, provides one of the more powerful tools to prevent arbitrary downsizing of projects facing significant neighborhood opposition.  As 1050 Valencia demonstrated, we now know that a fully code-and-plan-complying residential project that needed no other Planning Commission approvals should be “protected” under the Act from significant loss of floor area that would reduce its density.  Will this apply to other projects that must seek some type of Planning Commission approval?  It is hard to say.  The critical language in subsection (j) states that the special findings related to public safety must be made when a project “complies with the applicable, objective general plan and zoning standards.”  What this means in San Francisco is hard to tell.  Our Planning Code is incredibly complex and very few larger projects are able to obtain building permits “as of right” (i.e. without some type of Planning Commission authorization).  Conditional use projects are probably not protected under the Act, as a conditional use, by definition, must receive a special blessing by the Planning Commission.  However, a number of projects receiving other types of Planning Code approvals, including the relatively new Eastern Neighborhood Large Project Authorization (LPA) process may in fact be protected under the Act.  A project receiving an LPA could be argued to “comply with the applicable objective general plan and zoning standards”, especially if no special exceptions or other variances or waivers are necessary. San Francisco is a City where developers have few, if any, effective tools to help them process good housing developments in a timely