​As we’ve reported in past updates, there are seven pending pieces of legislation to tighten formula retail controls and several other policy changes have been adopted within the past year.  Before this rush of new regulation, new chain retail stores were prohibited from opening in several neighborhoods:  Hayes Valley, North Beach, and Chinatown.  In other Neighborhood Commercial Districts (“NCD”), new formula retail uses are allowed only if the Planning Commission approves them as a Conditional Use.  Only a few areas are exempt from formula retail restrictions—notably downtown along with industrial and formerly industrial areas on the City’s eastern side.   Last year, the Planning Commission, Board of Appeals and Board of Supervisors tightened the definition of formula retail, expanded the geographic scope of formula retail controls, and moved toward an objective, numeric limit on new formula retail in one neighborhood.  Specifically, under Supervisor Kim’s interim zoning regulations extend formula retail restrictions downtown for the first time; they require a conditional use for formula retail in Mid-Market.  In the Upper Market NCD, the Planning Commission also adopted a policy to recommend disapproval of any formula retailer that brings the concentration of formula retail to 20 percent or more of total linear store frontage within a 300-foot radius. In deciding an appeal of a proposed store, the Board of Appeals effectively altered the definition of formula retail.  The Planning Code defines formula retail as a standardized retail business with more than eleven locations in the United States.  The Board of Appeals decided that spaces a formula retailer has leased but not yet occupied also count toward this threshold.  Pending legislation—some tailored to specific neighborhoods, others citywide in scope—would further extend this definition to apply to a retailer with more than 11 locations worldwide, or any establishment that is more than 50 percent owned by a formula retailer.    Faced with so many proposals, the Planning Commission put the brakes on all proposals to allow time for a comprehensive study of the issue.  The first portion of that study will be presented by the Planning Commission today.  Among its key conclusions: Formula retail is especially concentrated in commercial or mixed-use districts where conditional use approval is not required.  This includes downtown, the waterfront, and a handful of shopping centers scattered across the City.  In these districts, formula retailers make up 25 percent of all retail establishments and occupy 53 percent of all retail square footage.    Commercial districts with formula retail restrictions have lower concentrations of chain retail:  only 10 percent of all establishments and 24 percent of retail square footage.  The report concludes that regulations likely influence the lower concentration, but “other factors” – the prevalence of formula retails, smaller customer bases, and fewer large commercial spaces – also play a role. The impacts of formula retailers are hard to generalize.  A major chain retail store can serve as an anchor that brings new customers that increase sales at nearby stores.  This can also cause rents to increase.  On the other hand, formula retailers can detract from the distinctiveness of a district and cause a decrease in sales and rents and increased vacancies. Broader economic conditions are the main driver of rents and vacancies in neighborhood commercial districts, i.e. increases in rent do not track approvals or disapprovals of formula retail.   That said, formula retail controls may create some lower-cost opportunities for local entrepreneurs.    However, this demand is primarily for small spaces: 80 percent of local stores are smaller than 3,000 square feet.  Formula retail controls could contribute to long-term vacancy of larger spaces, which can be a drag on the surrounding district. Although the report includes information about wages and benefits in the retail sector as a whole, it does not provide meaningful comparisons of formula versus local retail.  It notes that wages offered by both—on average—are similar, but this generalization masks large differences between different types of stores.  It notes that benefits like paid sick leave and healthcare are less common in retail than other sectors. Benefits are more common in large (99 percent) and mid-sized companies (92 percent) than in small ones (72 percent), but these figures are not specific to the retail sector.   The next phase of study will look at formula retail at the neighborhood level and evaluate how it correlates with other “neighborhood and economic factors.”  This will include case studies of three specific neighborhoods to see how formula retail controls affect storefront vacancy rates, rents, retail sales and aesthetic character.  Selection criteria for the neighborhood case studies will be discussed at today’s hearing.  The second phase of the report is scheduled for completion in late March, with Planning Commission policy recommendations to follow in April. 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 Condo Law Common interest developments (“CIDs”) in California are governed by the Davis-Stirling Common Interest Development Act (“Davis-Stirling Act”).  CIDs mean a condominium project, planned development or stock cooperative.  A central purpose behind the Davis-Stirling Act is protection of residential condo owners, who may be regular folks whose homes happen to be condos.  The Davis-Stirling Act is also intended to provide guidance and rules for residential homeowners associations, which consist of and are often managed by the residential condo owners.   However, many of the policies supporting the Davis-Stirling Act do not apply in a commercial context.  Commercial condo owners are not considered to require the same protections as residential owners.  Unlike residential homeowners, owners of commercial condos are presumably professionally advised, well-informed and governed by other provisions of commercial law.  The Davis-Stirling Act recognizes the differences between residential and commercial CIDs by exempting commercial and industrial common interest developments (“Commercial CIDs”) from some of its provisions (See Civil Code Section 1373).  For example, certain provisions of the Davis-Stirling Act related to operating rules, rental restrictions, budget requirements, assessment increase restrictions and disclosure on transfers, do not apply to Commercial CIDs.  Such rules are considered to be unnecessary in a commercial context, and may interfere with commerce and increase the costs of doing business.   Even though the Davis-Stirling Act exempts Commercial CIDs from some of its provisions, the inclusion of both types of CIDs under the Act has proved confusing for property owners, homeowners associations and their counsel.  It has been unclear whether other provisions of the Davis-Stirling Act apply to Commercial CIDs, especially as the Davis-Stirling Act has been amended over the years. New Commercial Condo Law To clarify the law applicable to Commercial CIDs, the California legislature passed Senate Bill 752, which went into effect on January 1, 2014.  SB 752 separated the laws governing residential CIDs from the laws governing Commercial CIDs by establishing the Commercial and Industrial Common Interest Development Act (Civil Code §§6500-6576) (“Commercial Act”).  The Commercial Act provides for the creation and regulation of Commercial CIDs.  A “commercial or industrial common interest development” means a development that is limited to industrial or commercial uses by law or by recorded CC&Rs.   The Commercial Act mirrors much of the Davis-Stirling Act.  The foundational provisions of the Davis-Stirling Act related to the fundamental character of CID property ownership, governing documents, ownership rights and interests, and assessment collection and enforcement have been retained in the new law.  The exemptions for Commercial CIDs in the Davis-Stirling Act have generally been retained in the new law.   While there are similarities between the Commercial Act and Davis-Stirling Act, there are key differences.  The Commercial Act omits certain procedural provisions of the Davis-Stirling Act related to open meetings of the owners association, voting and election procedures, record inspection rights, delinquent assessment procedures, managing agent requirements, exclusive use common area requirements, accounting, use of reserve funds, reserve planning and dispute resolution procedures.  Protections for the members of the owners association have been reduced with respect to voting rights and required disclosures.  The new law also omits the entire chapter pertaining to finances in the Davis-Stirling Act, eliminating the requirement for distribution to members of an association budget and other financial disclosures.  The new law has significantly revised provisions from the Davis-Stirling Act pertaining to dispute resolution, and owners of commercial condos do not have a statutory right to request alternative dispute resolution in the event of a dispute under the governing documents, even with respect to actions taken by the board of directors regarding delinquent assessments. It is important to note that the new Commercial Act only applies to Commercial CIDs.  Therefore, any “mixed-use” CID that includes commercial and residential condos will still be governed by the Davis-Stirling Act. Special thanks to Stephanie Haughey who assisted with research and drafting of this Update. 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.

​Real estate developers who intend to sell residential units in larger condominium buildings should be aware of a change in California law as of July 1, 2014 with respect to liquidated damages in purchase contracts. Specifically, developers of certain larger scale projects will no longer be able to include liquidated damages provisions in an amount that exceeds 3% of the purchase price without concerns as to enforceability. Liquidated damages are a specific damages amount set forth in a purchase contract – typically the amount of the deposit- which a seller is entitled to automatically if the buyer defaults. California Civil Code Section 1675 (“Section 1675”) governs certain standards for liquidated damages provisions, including a maximum calculation which is presumed to be valid and reasonable.   Section 1675 provides for a presumption of validity if the amount of liquidated damages does not exceed 3% of the purchase price.  If such sum does exceed 3% of the purchase price then the provision is invalid and unenforceable unless the party seeking to uphold can establish that the amount actually paid is reasonable.  Projects with 10 or more units can stipulate an amount more than 3% of the purchase price but the seller needs to perform a detailed and timely accounting upon the buyer’s default and provide a refund to the buyer of any amounts in excess of the greater of 3% of the purchase price, or the total of seller’s damages resulting from buyer’s default.  After the accounting is complete, the amount is presumed reasonable if it does not exceed 3%, unless the buyer proves otherwise.  Sellers typically set the deposit as 3% of the purchase price in order to ensure the liquidated damages provision will be upheld. However, in 2008 the California legislature passed a bill, AB 2020, which added a temporary provision to Section 1675 granting an exception for certain larger scale projects, specifically that their purchase contracts could include liquidated damages of up to 6% of the purchase price and still be considered valid, unless the buyer could establish the amount was unreasonable.  These projects are defined as those which are 20 or more residential units, standing over 8 stories high, a high density infill development, located in a city or county with a population density of at least 1,900 residents per square mile and involve a buyer who pays a purchase price for the condominium unit of more than $1,000,000 (which amount has been adjusted annually by the Bureau of Real Estate).   Like the provision applying to projects of 10 or more units discussed above, a purchase contract in a project that meets these requirements can still provide for liquidated damages higher than 6% of the purchase price, but the seller is required to complete a detailed accounting upon the buyer’s default and provide a refund to buyer of any amounts in excess of the greater of 6% of the purchase price, or the total of seller’s damages resulting from buyer’s default.  Thereafter, the amount is presumed to be valid if it does not exceed 6% of the purchase price, unless the buyer can prove it was unreasonable.  AB 2020 contemplated that this allowance for certain larger projects would sunset and became inoperative on July 1, 2014 and repealed as of January 1, 2015.  To date, no legislation has been passed extending these dates or making this provision permanent. On July 1, 2014, this temporary exception becomes inoperative and Section 1675 is restored to a 3% presumption of validity rather than 6% for these certain larger scale projects. Projects involving 10 or more units can still stipulate liquidated damages in excess of 3% of the purchase price, but the seller is required to do an accounting and refund any excess to buyer and runs the risk of challenge as to enforceability.  We will be following this matter to see if any legislation extends the operation of this temporary provision.  If this special allowance for larger scale developments is not extended, affected parties should be aware and account for this in their purchase contracts.   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.

​In light of the dramatic increase in rental housing costs over the past year, the City is devoting substantial time, effort, and resources to attempt to address the chronic insufficiency of affordable rental units. Mayor Ed Lee has asked the directors of the Planning Department and the Department of Building Inspection to implement the following tasks toward meeting this challenge:  Recommend actions to promote more rental housing in San Francisco; Require Planning Commission discretionary review when a loss of housing is proposed; and Advise other municipal departments with permitting authority over buildings that are proposed for withdrawal from the rental market with respect to Planning and Building Code restrictions on such withdrawal. The two directors have formed a working group that includes representatives from other City agencies, SPUR, and a number of housing associations.  The working group has committed to immediately implement administrative changes in the permitting process that will speed review of new housing permits, retain existing units, and encourage development of more housing.  In addition, the working group has requested that the Rent Board strictly enforce restrictions on owner move-in evictions to ensure that the owner, or close relative of the owner, moves in to the evicted tenant’s unit within three months and occupies the unit as a principal residence for 36 consecutive months.  Once an owner move-in eviction has occurred in a building, no future owner may utilize that path to evict a tenant.   Recommendations for policies and procedures to be adopted in the short term include the following: Prioritize 100% affordable housing projects and projects with at least 20% onsite affordable housing.  Provide priority processing for market rate housing proposals based on the project’s proportion of affordable units produced. Priority processing is intended to be implemented in both the Planning Department and the Department of Building Inspection. Encourage developers to maximize density when constructing major alterations or new housing projects.   Discourage removal of illegal dwelling units in those cases where it is feasible to bring them up to code.   Encourage concurrent review of proposed projects by the Planning Department, Department of Public Works, Department of Building Inspection, and Fire Department to expedite approvals.   Seek improvements at the City’s Department of Human Resources to expedite hiring of additional staff to review housing permits. The working group has further recommended a variety of longer term policies that are intended to set the City on a course to approve 30,000 new and rehabilitated dwelling units by 2020.  The working group has identified the following steps that will require legislation to be adopted by the Board of Supervisors: Planning Code amendments to facilitate construction of accessory dwelling units. Development of affordable housing on public property. Building Code amendments to allow a new construction type of one or two levels of concrete podium with five or six stories of wood frame construction above, totaling a maximum of seven stories, while not being considered a high rise structure. Building Code amendments to modify natural light requirements. Streamline historic resource reviews under CEQA.  There is a general consensus that the current system adds too much time and expense to projects. Further recommendations by the working group for longer term efforts include the following: Advocate for amendments to state law, including the Ellis Act, Costa-Hawkins Act, CEQA, and the Subdivision Map Act to provide the City with increased ability to regulate housing at the local level. Provide increased protections for existing affordable units. Amend the Planning Code to facilitate new housing types that are affordable by design.  This means smaller units and increased density. Identify project types, such as 100% affordable projects, which may be approved via ministerial review for Planning Code conformance and without discretionary review. Implement the state housing density law.  This would include state authorized density bonuses.   Eliminate the current 375-unit cap on the production of micro-units. Consider reducing or eliminating the Planning Code requirements for residential exposure, open space, and parking requirements.   Allow for fee payments in lieu of variances. Add residential units to soft-story buildings. Study creation of environmental regulations by ordinance that could replace case-by-case mitigation measures and thereby simplify CEQA review. Explore efficiencies that would reduce the need for review of transportation impacts of housing projects. Expedite environmental review for housing projects. Support CEQA exemptions for construction of accessory dwelling units on properties that already have multiple units. Proposed Production, Distribution and Repair (PDR) Reform Legislation Under Consideration The Board of Supervisors is considering proposed legislation to make the development of PDR space more economically viable by permitting office and institutional uses, research and testing laboratories, and life science laboratories to subsidize the construction of PDR space on properties that are vacant or underutilized and that do not contain significant PDR space that would be demolished.  The proposal is geographically limited to PDR-1-D and PDR-1-G Zoning Districts that are located north of 20th Street and that are parcels of 20,000 square feet or larger.  At least one-third of the total gross floor area developed on the parcel would be required to contain PDR uses.  All projects seeking entitlement pursuant to this legislation would be required to obtain a conditional use authorization from the Planning Commission. In addition to the normal conditional use criteria, the Planning Commission would consider additional criteria including the likely viability of the new PDR space; whether the project is located in an appropriate location for the proposed non-PDR use, including whether the location of non-PDR uses would be compatible with or destructive to PDR uses on the site or in the vicinity.  The legislation proposes that such projects will have Notices of Special Restrictions recorded on title that will state that PDR uses shall never be less than one-third of the total gross floor area of the parcel, including any future building, alterations, or expansions on the parcel. 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

​Last Thursday, the San Francisco Planning Department delivered its first informational presentation to the Planning Commission on the status of a study that could have far-reaching effects on the City’s future regulation of formula retail (a.k.a “chain store”) uses. In the summer of 2013, faced with a dizzying array of 9 new and pending proposals that would revise the City’s treatment of formula retail, the Planning Commission called for a time out.   On July 25, 2013, the Commission passed Resolution No. 18931, recommending to the Board of Supervisors that the issue of formula retail be further studied to  “increase understanding of the issue overall and to examine potential economic and visual impacts of proposed controls versus the absence of new controls,” before new legislation was enacted. Hot on the heels of this resolution, the Department commissioned a new study of formula retail uses in the City, with the goal of assisting decision-makers in analyzing future legislation.  Strategic Economics was selected as the consulting firm to carry out the study, which is funded entirely by the Planning Department. The study is anticipated to be complete by the end of April and involves two phases.  The first phase (already underway), focuses on data collection and analysis, including mapping of the City’s existing and proposed formula retail controls, identifying and mapping existing formula retail locations citywide, and collecting data on a range of economic and neighborhood characteristics.    The Department will then select four narrower topics on which to base written issue briefs that will be presented to the Commission in late February.   Likely areas of study for these briefs include: (1) Exploring the potential effects of changes to the definition of “formula retail” uses under the Code; (2) Additional characterization of existing formula retail uses in San Francisco (such as by size of chain, square footage of establishments, type of retail, etc.); (3) Focusing on the effects of formula retail controls on specific store types (e.g. restaurants, groceries, coffee shops, pharmacies, pet stores, etc.); and (4) Employment impacts of formula retail versus other retail uses.  However, the Department is still in the process of selecting final topics. In the second phase, the Department will select three neighborhoods to be evaluated through focused case studies.  These case studies will assess the impact of formula retail and formula retail controls at the neighborhood level.   The Department has already conducted two small focus group meetings attended by stakeholders from a range of interests, including large formula retailers, small independent businesses, neighborhood advocates and business groups.  Similar focus groups will be conducted during the second phase as well.  In addition, the Department is seeking to solicit public feedback through its informational presentations to the Commission.  The tentative dates for future Commission presentations are February 27th (at the completion of Phase 1); March 27th (during Phase 2); April 24th (at the completion of Phase 2).   Once the study is complete, the Department plans to use the data and analysis to recommend a series of policy changes to the Commission.    The Commission may then make recommendations to the Board of Supervisors regarding future legislation. At last Thursday’s hearing, the Department shared some of the study’s Phase 1 preliminary draft findings, based on data purchased by the City from Dun & Bradstreet.  These draft findings included: There are approximately 1,180 formula retail establishments in San Francisco, accounting for nearly 11% of all retailers.   By comparison, nationally approximately 32% of all retail establishments are part of chains that include 10 or more outlets. Stores account for the majority of formula retailers in the City, followed by restaurants, bars and cafes.   Of the 1,180 existing formula retail establishments in the City, 57% are stores; 22% are restaurants, bars or cafes; 19% are banks, credit unions or savings and loans; and 2% are retail services such as copy centers, pet care, laundry mats or dry cleaners. Banks, credit unions, and savings & loans make up less than 20% of the City’s total formula retail establishments, but more than 80% of all banking establishments in the City are formula retailers. Within broad use type categories, there is significant variation in the prevalence of formula retail.  For example, while only 10% of the restaurants, bars, and cafes in the City are formula retail, nearly 50% of all coffee shops are formula retail.   For some other retail types, the prevalence of formula retail varies by size of the establishment.  For example, 84% of all large pharmacies (3,000 square feet or more) are formula retail, compared to just 3% of small pharmacies (less than 3,000 square feet.  Similarly, 76% of grocery stores with at least 12,000 square feet are formula retail, compared to 1% of grocery stores with fewer than 12,000 square feet. The Department is scheduled to deliver its next informational presentation to the Commission on February 27th, which will include a discussion of the focused issue briefs. Additional information on the status of the Department’s study is available at: http://commissions.sfplanning.org/cpcpackets/2013.0936U.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.

​Recently, the California Court of Appeal clarified a long-standing ambiguity about so-called “spot zoning” by municipal governments, determining that the practice of singling out a single property is proper so long as it is in the public interest.  In a time when anti-growth activists are proposing ballot measures and threatening to derail good projects, this development could make responsible growth in San Francisco just a little easier. “Spot” Re-zoning: The Court of Appeal Hands Project Sponsors (and the City) a Victory Last week, the California Court of Appeal published an opinion weakening a common objection to large or unique projects: that rezoning necessary for the project constitutes impermissible “spot zoning.”  In Foothill Communities Coalition v. County of Orange, (No. G048024, published 1/13/2014) the Court clarified that spot zoning is legal so long as it is in the “public interest.” The facts of the case will sound familiar to project sponsors.  A landowner—here the Orange County Archdiocese—owned a parcel of land in unincorporated Orange County that was zoned for single-family residential use.  The Archdiocese wanted to construct a 153-unit senior living facility on the parcel, but under the Orange County’s zoning code, senior living facilities were not permitted in single-family residential zones.  The County Board of Supervisors created a new zoning category for senior living facilities and re-zoned the Archdiocese’s property.  Grassroots community groups and area homeowners challenged the Board’s actions as impermissible spot zoning. As an initial issue, the Court explained that although spot zoning traditionally only referred to a City down-zoning a single parcel, the term now should apply equally to parcels singled out for either more permissive or more restrictive zoning. The Court then concluded that although the Board’s actions did constitute “spot” zoning by allowing more permissive use on the property, it was permissible.  Explaining that spot zoning is “merely shorthand for a certain arrangement of facts,” the Court determined that the real legal issue is if the Board of Supervisors correctly determined the change in zoning permitting the senior living facility was in Orange County’s public interest. The Court concluded that it was, and that Orange County’s administrative findings adopted when approving the project sufficiently showed how the project was in the public interest.  Specifically, the Court was satisfied by “factual findings of consistency” with Orange County’s applicable General Plan elements and an area plan for the neighborhood.  As explained in the Board of Supervisors’ approval ordinance and the County’s planning staff recommendation, the senior living facility was consistent with a number of different policies in Orange County General Plan’s housing element, as well as land use design goals and policies of an area plan. The opinion validates existing San Francisco Planning Department procedure to link re-zoning to the goals and policies of the San Francisco General Plan, as well as any applicable area plans such as the Eastern Neighborhoods Plan.  It also highlights the importance of making sure project applications which entail re-zoning can be directly supported by these plans.  Because San Francisco’s Board of Supervisors and Planning Department have a policy to make a number of findings of consistency with the City’s general plan and other local policies in the context of project approvals that involve re-zoning, the Court’s opinion should serve as a blueprint for proper “spot” rezoning in the future. Although most projects in San Francisco do not require re-zoning, the Court of Appeal’s opinion removes some uncertainty from large or unique projects that do. It should provide assurance to both the City and project sponsors navigating San Francisco’s complex and time-consuming entitlement process that at least one common objection to a project can be taken off the table with thoughtful planning.  It also reinforces the importance of ensuring accurate and thorough findings of consistency at each project entitlement stage. 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.

This week saw the introduction of two significant new housing policy measures designed to address an increasing call in the City for more housing of all types, particularly rental and affordable units.  With San Francisco’s robust economic turnaround now in full swing, a major question for policy-makers has become:  how do we grow not just jobs, but the housing stock, so that all these new workers have a place to live? Density Increases The first of the two proposals is from Supervisor Scott Wiener.  On Tuesday at the Board of Supervisors’ weekly meeting, Supervisor Wiener introduced an aggressive measure designed to increase density generally, and encourage affordable units.  The main components of the measure are as follows: In all zoning districts other than low-density single-family and two-unit districts, no affordable units will be counted in the density calculation for a project that proposes 20 percent affordable units on-site or as part of a tax credit project.  The net effect of this measure is a 20-percent increase in density, as long as the project provides 20 percent of the units as affordable on-site units or as part of a tax credit project. Under current law, when a project’s density calculation results in a fractional number, the calculation is adjusted downward for purposes of determining the allowed number of units.  Supervisor Wiener’s legislation would change this so the calculation is adjusted upward when the remaining fraction is one-half or greater. In Neighborhood Commercial zoning districts, density can be increased to the density of the nearest Residential or Residential-Commercial zoning district if that district’s density is greater than the Neighborhood Commercial district’s density. Supervisor Wiener’s legislation follows closely on the heels of his pointed opinion piece in the San Francisco Chronicle this week, in which he strongly criticized the all-too-common reality of residential projects being slowed, downsized, or disapproved as a project goes through our contentious entitlement process.  Supervisor Wiener highlighted the 1050 Valencia Street project, where the developer proposed a fully-complying project that included two affordable units on-site.  During a six-year review process, the developer agreed to reduce the number of units from 16 to 12 and to add car sharing.  The Planning Commission approved the project over objections by some neighbors and the adjacent Marsh Theater, and the Board of Supervisors rejected an environmental appeal. Project opponents then appealed to the Board of Appeals, which eliminated the top story of the building.  That decision reduced the number of units from 12 to 9 and thus eliminated the 2 affordable units, because 10 units is the threshold triggering affordable-unit requirements.  On Wednesday night of this week, the Board of Appeals continued its issuance of a final decision to February 26, 2014. TIC’s Under Fire The second proposal is from Supervisor Eric Mar, concerning tenancies-in-common (TIC’s).  TIC’s are a type of property ownership where two or more people have an ownership interest in a single property together, but each owner has certain exclusive rights with respect to the other.  For example, two people could own a single building with two dwelling units, and each person has an exclusive right to one of the units. TIC’s have generated some controversy in the City.  Proponents argue that TIC’s benefit the City because they are a less expensive homeownership option, thereby creating greater ownership opportunities for first-time buyers.  Opponents of TIC’s point out that TIC’s take rental units off the market.   Supervisor Mar’s proposal is designed to address the loss of rental units.  Under his legislation, all proposals to convert rental units to TIC’s would be subject to Planning Department approval.  The Planning Department would ensure that the building complies with all applicable building codes, and would track the number of conversions.  While Mar says that TIC conversions are an unregulated market that needs oversight, others counter that the additional red tape may reduce the number of conversions and homeownership opportunities.  In addition, it is still unclear whether Mar’s proposal is even legal.  At some point, legitimate land use regulation ends, and interference with private contracts begins.  A TIC is a 100% private agreement between parties, and the City must tread carefully if they want to regulate in this area.  As of this writing, the ordinance language had not been released for public review. We will continue to monitor these and other housing policy measures as they develop, and will keep readers informed of their progress. 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.

​Although the holidays are upon us, it has been a busy few weeks at City Hall.  Just Wednesday the Mayor proposed new administrative rules to address San Francisco’s housing shortage, with a particular emphasis on protecting renters and prioritizing projects with affordable units.  The Board of Supervisors is also set in the near future to upzone a number of parcels south of Mission Street between 7th and 9th Streets, permitting office and removing restrictions on residential density and retail uses. Executive Directive: Prioritize Housing, especially Affordable, and Create Additional Administrative Hearing for Projects Proposing a Loss of Housing On Wednesday of this week, Mayor Ed Lee issued an Executive Directive that could have a significant impact on the permitting and entitlement process for most residential projects.  The Executive Directive will affect residential projects twofold: giving administrative priority based on the amount of affordable housing in a project, and requiring at least one additional administrative hearing for most projects that propose to eliminate housing. The Mayor has directed both the Planning Department and the Department of Building Inspection to prioritize projects that include housing.  Residential developments will be further prioritized based on the proportion of affordable units proposed (either on-site or off-site) with 100% affordable projects given the highest priority.  This provides an obvious incentive: developers who wish to see their projects come to market quickly should include more affordable housing than is currently required.  It also discourages projects which propose paying a fee instead of providing units, pushing them to the end of the line and delaying the entitlement process.  The details of how the Planning Department will implement this new directive are unclear at this point (it has until February 1 to come up with an approach), as is the delay facing project sponsors who elect to pay the in-lieu fee or provide only the amount of affordable housing required under the Planning Code. Additionally, up to two new administrative hurdles would be created for projects proposing to eliminate housing or withdraw rental units from the market.  First, a mandatory Discretionary Review hearing before the Planning Commission would be required for any project proposing a loss of housing.  Many of these projects would appear before the Commission anyway under the existing rules for eliminating or merging units.  However, units valued above $1.3 million previously exempt from the discretionary review process would now be required to appear before the Commission.   Also, a multi-agency “clearinghouse” would be created to review all projects proposing to withdraw buildings from the rental market to evaluate the project’s “code compliance.”  This clearinghouse would not have any formal power to deny a permit, but would make recommendations to the Planning and Building Departments.  We will have to wait until February 1st to see how this clearinghouse will fit into the existing permitting and entitlement process, as well as whether its “code compliance” review could overlap with existing Planning and Building department responsibilities, creating yet another layer of red tape in the entitlement process.            Upzoning Mission Street Parcels On a different note, the Board of Supervisors could in the near future upzone approximately twenty five (25) parcels on the southern side of Mission Street between 7th Street and 9th Street.  Office use and formula retail use would become principally permitted, as well as more residential density flexibility. The parcels would be re-zoned from the SLR (Service/Light Industrial/Residential) District to the more development-friendly MUO (Mixed Use—Office) District.  Office use on the parcels would go from not permitted to a principally permitted use.  Formula retail would be allowed on the ground floor as a principally-permitted use, avoiding a mandatory Planning Commission hearing.  All residential unit density restrictions would be removed, and dorm-style SRO and group housing are also permitted. Although the properties’ 65-foot height limit would stay in place, the rezoning substantially increases the opportunities for creative mixed-use development along the two-block corridor.  The legislation was unanimously approved by the San Francisco Planning Commission as part of cleanup zoning associated with the recently-adopted Western SoMa Plan, and has been assigned to the Land Use and Economic Development Committee of the Board of Supervisors for consideration and approval.  We will continue to monitor its progress and, we hope, eventual approval by the Board.     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.        

​Most easements are created when one party grants the right to use its land to another by contract, but prescriptive easements are acquired when one party fulfills certain conditions over a set period of time.  To obtain a prescriptive easement, a person must use the affected portion of another person’s property for the statutory period of 5 years, which use must be (a) open and notorious; (b) continuous and uninterrupted; (c) hostile to the true owner; and (d) under a claim of right. A recent case decided by the Court of Appeal addressed a query related to the requirement that the use be adverse for the statutory 5 year period, namely, what if the property owner from whom you are trying to secure the easement has not been in continuous possession of their property for the 5 year period of your adverse use?  In King v. Wu (218 Cal.App.4th 1211 (2013)), the Kings’ predecessor had poured a concrete driveway on their property sometime on or around 1960, of which a strip of the driveway encroached on the neighboring property.  The Kings’ predecessor, along with the Kings themselves, had continuously employed the driveway for ingress and egress to their garage and for parking during their respective ownerships.  The Wus acquired the neighboring property in 1963 and in 2009 began to construct a metal guardrail over the encroaching strip of land. The Kings, in turn, filed suit to quiet title. In response, the Wus raised an affirmative defense that they had not been in possession of their property for 5 continuous years during the Kings and the prior owner’s collective 49 year use of the encroaching strip of land because they had leased out the property during much of their ownership.  Therefore, because they were not in possession of their property for 5 continuous years, the required statutory period could not have run against them.  The Court of Appeal ultimately rejected the Wus affirmative defense stating that California law does not require the owners of the adversely used land to have been in continuous possession for 5 years.  They clarified that if at any point during the hostile use an owner or a landlord has been in possession, including constructively at the expiration of a renewable lease, he or she could have taken action to interrupt such use.  Because the Wus were in actual possession of their property for intervening years when there were no leases in place, as well as constructively at the end of each of the leases, they could not rely on the fact that they did not have actual possession for a continuous 5 year period while the Kings and/or their predecessor’s used the encroaching strip of land. The King case did make it clear though that a prescriptive right cannot arise against an owner or landlord who has no possessory interest in the property at all during the period of hostile use.  The court in King referenced Dieterich Internat. Truck Sales, Inc. v. J.S. & J. Services Inc. (3 Cal.App.4th 1601 (1992)), in which that court determined that an action obtained solely against a landlord’s tenants cannot affect the landlord’s rights.  The Dieterich case held that a future interest, such as a landlord’s reversion, cannot be the subject of a prescriptive easement because the statutory period for acquiring the easement only runs against a possessory interest.  Therefore, if the property had been leased for the entire time period in which the Kings were asserting their adverse use, then the King case could have turned out very differently as against the Wus themselves. King v. Wu illustrates that as long as a property owner has constructive or actual possession of its property during the period of an adverse use, then that owner is charged to interrupt the hostile use during those interim times.  It does not matter if the property owner did not possess its property for a continuous 5 year period.  The person using the land can obtain a prescriptive easement against the owner, provided they satisfy all of the remaining conditions.  This case could have implications for landlords who should be aware of possible encroachers on their property as they are responsible to interrupt the adverse use during their periods of possession and guard against another acquiring prescriptive easement rights. 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.

​Earlier this month, Supervisor Jane Kim introduced an interim resolution that would add at least one more layer of red tape to the office conversion process in SoMa.  The proposed resolution, which directs the Planning Department to review all office conversion applications to determine if there is existing legal or illegal residential use in the premises, will likely slow down the approval process to some degree for all office development projects in SoMa. Proposed Interim Controls The legislation is thought to have been prompted by the much-publicized attempt by a Market Street building owner to “convert” illegal residential and live-work units to the building’s original office use.  The legislation’s stated purpose is to address situations in which a building zoned for office use is currently being used as a residential or live-work space, and the owner seeks to reintroduce office use. However, it would likely delay all proposed office conversions in SoMa—not just those with current residential or live-work tenants.        The resolution would prevent the Department of Building Inspection from issuing building permits for a commercial building “pending the Planning Department’s determination” that the proposed office space was not previously converted into ongoing residential use.  If the proposed office space was zoned office but is currently used as residential, the project sponsor would be required to appear in front of the Planning Commission at a public hearing and secure either Proposition M or conditional use authorization to convert to office.  Finally, the Planning Department and the Department of Building Inspection are required to conduct a study identifying all buildings in SoMa that have converted space from commercial to ongoing residential use. Unanswered Questions Create Uncertainty for Building Owners For building owners currently in the process of seeking Proposition M approval, or who have already secured entitlements but have not pulled building permits, the interim controls could delay the issuance of a building permit while the Planning Department confirms that the building does not have any residential use.  How long of a delay remains to be seen.   The resolution does not direct the Planning Department to follow any single procedure to determine if a building’s office space has been converted into residential use.  Potential options include a costly and time-consuming inspection of each premises in SoMa by City employees; a building permit application search which is unlikely to identify illegal residential use; and a questionnaire submitted to building owners.   The legislation has honorable intentions: preserving existing residential units during a housing shortage is important.  Its actual effects are more muddled though.  Building owners seeking to eliminate legal dwelling units are already subject to the Planning Code restrictions on dwelling unit removal, typically requiring approval from the Planning Commission – so the legislation would be duplicative in these situations.  The added effect of the legislation would be to require Planning Commission approval to remove illegal dwelling units.  How the Planning Commission could deny the removal of an illegal dwelling unit is anyone’s guess.  Of course, it may become clear in the coming weeks that the legislation’s sole intent is to stop or delay evictions of tenants at the Market Street building. If the resolution is passed, the new rules would be in effect for one year only.  The proposed legislation will be heard at the Board of Supervisors’ Land Use and Economic Development Committee on Monday, November 25 at 1:30 p.m.  The hearing should provide some insight as to whether these interim controls have a chance of being adopted by the full Board of Supervisors.  We will continue to track this 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, 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.