​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.

​Thousands of homes throughout San Francisco contain a secondary studio unit or small 1-bedroom unit, which is typically rented out to the general public.  Most of these units, commonly referred to as “in-law units”, violate Planning Code restrictions on residential density, as well as requirements for rear yard, open space, and off-street parking.  Many in-law units also are in violation of Building Code standards for residential units.  The existence of in-law units has been common knowledge for decades.   However, in the absence of complaints about specific units, the City has wisely chosen to devote its limited enforcement resources to more pressing issues.   The City is now considering permitting the construction of new in-law units within the existing envelope of a residential building or auxiliary structure on the same lot in certain areas of the City.  Legislation proposed by Supervisor Scott Wiener would allow construction of new in-law units in the Castro Street Neighborhood Commercial District and within 1,750 feet of the district boundaries. The proposed legislation would authorize the Zoning Administrator to waive existing density, rear yard, open space, and off-street parking requirements in order to create new in-law units.  In-law units constructed with a waiver of Planning Code requirements will be subject to the rent and other restrictions provided by the San Francisco Residential Rent Stabilization and Arbitration Ordinance if the existing building, or any existing dwelling unit in the building, is already subject to the Rent Ordinance.  As required by state law, the draft ordinance has also been submitted to the California Department of Housing and Community Development.  The proposed ordinance is presently pending before the Board of Supervisors Land Use and Economic Development Committee. The proposed legislation is long overdue and stands a good chance of approval.  Homeowners will support the added flexibility and potential for rental income.  Tenant’s rights organizations will be supportive of a new, legal source of affordable housing.  Some opposition from neighborhood groups is expected, owing to increased density and on-street parking issues.   If Supervisor Wiener’s legislation is approved, new construction of in-law units is likely to spread to other districts throughout the City. The current draft legislation will restrict the number of in-law units to one unit per building that has no more than 10 existing units, and two in-law units per buildings that have more than 10 existing dwelling units.  New in-law units will be limited to 750 sq. ft. of space.  In-law units shall not be permitted to be constructed using space from an existing dwelling unit, i.e. the in-law unit must be constructed in a storage space, garage, or outbuilding.   The legislation, in its current form, does not address legalization of existing in-law housing units.  Legalization could be added as the legislation proceeds through the public hearing process. State planning and zoning laws set forth in the California Government Code have encouraged the creation of in-law units since 1983.   A number of California Court of Appeals decisions from the 1990s provide broad support for property owners seeking approval of in-law units under local ordinances.   Governor Brown Vetoes AB 1229 On October 13, 2013, Governor Brown vetoed AB 1229, the bill that would have superseded the holding of Palmer v . City of Los Angeles, 175 Cal.App.4th 1396 (Second District, 2009) and allowed cities to require affordable rental housing as a condition of development.  Palmer struck down such requirements as a violation of State law restrictions on rent control.  San Francisco will likely retain its current fee-based form of Inclusionary Affordable Housing.  A project’s eligibility to provide on-site rental units at below market rate rents will continue to be governed by Costa Hawkins Agreements, which are currently in use by the San Francisco Planning Department.  Costa Hawkins Agreements with developers provide an avenue for the City to grant permission for below market rate rental units in new developments on a case by case basis, in exchange for conditional use authorization and/or variances from provisions of the Planning Code relative to rear yards, off-street parking, dwelling unit exposure, density, and the like, or where public financing is utilized for a project.   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.

​Last week, San Francisco tenant, labor, and community organizations presented a comprehensive policy agenda to address what they call an “eviction epidemic” in San Francisco.  According to the San Francisco Rent Board’s Annual Statistical Report for fiscal year 2012-2013, eviction notices have increased by 36 percent compared to 2012.  The report also shows that the Ellis Act, a state law which allows property owners to “go out of business” and remove residential dwellings from the rental market, was used 81 percent more than last year, providing the basis for almost 10 percent of all evictions.  The tenant activist groups claim the eviction epidemic is compounded by buyouts, demolitions, and the failure of developers to build below-market-rate units and they seek to resolve these issues by proposing changes to land use regulations, building codes, and rent control ordinances.  The legislative package includes proposals to control the unregulated conversion of residential dwelling units to tenancies in common, mergers of units and other discretionary city approvals of projects facilitated by no-fault evictions, and to strengthen rent control protections for tenants. Not surprisingly, the package did not include any ideas on how to make development of new housing projects less complicated, but that is a topic for another article. Currently, buildings with five six or more residential units are ineligible for conversion to condominiums in San Francisco.  There are also major hurdles to overcome in converting projects with five or less units.  However, when a landlord invokes the Ellis Act and removes residential units from the rental market, these units may be converted into other forms of “joint ownership,” such as tenancies in common.  The tenant groups argue that these converted units are essentially condominiums, yet they are not subject to the stringent consumer protection and health and life safety controls that are placed on condominium projects.  The tenant groups propose to amend the Planning Code to require that as a condition of changing rental units into tenancies in common, project sponsors must seek a conditional use permit, including a condition that the building is brought into compliance with current building codes.  Conditional use permits add complexity, time and expense, and can be hotly contested by opponents. Tenant groups also seek to prohibit the approval of a demolition, merger, or conversion of a residential dwelling unit if one or more of the units have been subject to a no-fault eviction within the last ten years (i.e., an Ellis Act eviction).  They claim the Ellis Act is often abused when speculators purchase buildings with long-term rent controlled tenants, evict them through the use of the Ellis Act, and then demolish, merge or convert the units to more lucrative luxury housing or commercial uses.  Supervisor Avalos has already introduced legislation to address this issue (Board of Supervisors File No. 130041) and the Planning Commission voted 6-1 last week to support the changes to city laws that Supervisor Avalos proposes.  Among other things, the new legislation seeks to amend the Planning Code to prohibit the evictions described above.  Supervisor Avalos and the tenant groups hope these legislative changes will deter property owners from invoking the Ellis Act and evicting longtime tenants in order to combine the rental units into a single unit and sell it for a significantly higher price. Finally, the tenant groups claim that speculators attempt to drive out tenants by conducting extensive and harassing construction in buildings while tenants are in place, in hopes that the tenants will just move out without having to invoke the Ellis Act.  The groups seek to increase building inspections of buildings where there is construction with tenants in place, and to adopt standards to protect against constructive evictions during construction.  The groups believe this issue will be resolved if the City restricts non-essential building permits where no-fault evictions are pending, such as during the one-year eviction notice period during an Ellis Act eviction.  In order to maintain the City’s housing stock and discourage abuse of the Ellis Act, the tenant groups recommend the City to define tenancy in common agreements as lease agreements.  They claim that tenancy in common agreements provide owners with exclusive rights to occupy a unit, just like a rental and therefore, tenancies in common should be treated like rentals.  This would likely have a chilling impact on tenancies in common since Ellis Act evictions result in restrictions on future rentals. This ambitious policy agenda will significantly tighten already stringent restrictions on rental unit conversions to tenancies in common and will impede opportunities for home ownership in San Francisco.  Given the limited availability of residential housing stock and high purchase price barriers, the Board of Supervisors will need to carefully balance the competing goals of providing rental housing and new home ownership opportunities. More information about the policy agenda may be found here: http://www.beyondchron.org/news/index.php?itemid=12001. Thanks to Stephanie Haughey in our office who contributed to 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.

​In a unanimous decision released last week, the California Supreme Court held that a city’s demand for a developer to set aside a certain portion of its units in a housing project as below market rate (“BMR”) or pay an equivalent in-lieu fee was an “exaction” for purposes of the California Mitigation Fee Act.    This ruling is significant because it allows developers to start construction of projects subject to inclusionary housing requirements, and then later challenge the imposition of BMRs and/or in-lieu fees when the project nears completion.  It also sets the stage for future decisions requiring a city’s inclusionary housing program to meet a stricter standard of review, beyond that applied to most land use regulations. The case, Sterling Park L.P. v. City of Palo Alto, involved a project to construct 96 residential condominiums on a 6.5 acre lot on West Bayshore Road in Palo Alto.   The project was subject to Palo Alto’s inclusionary housing program, which required that all residential projects involving five or more acres to set aside at least 20 percent of its units as BMRs, or agree to alternate terms set by the city.  The developer, Sterling Park, entered an agreement with the city to provide 10 units as BMRs and to pay additional in-lieu fees.   However, when the project was being finished and Palo Alto requested conveyance of the BMRs over a year later, the developer filed suit to challenge the inclusionary housing requirements. Palo Alto moved for summary judgment, arguing that the inclusionary housing requirement was not an “exaction” under the Mitigation Fee Act, but rather a land use regulation subject to the Subdivision Map Act, and that the developer’s lawsuit was time-barred.   The trial court and appellate court both agreed with the city, but the Supreme Court reversed, holding that the inclusionary housing program requirements were “exactions” subject to the Mitigation Fee Act.    The Mitigation Fee Act was passed by the California Legislature in response to developers’ concerns that local agencies were imposing development fees that were unrelated to their projects.   Before the Act, a developer was unable to challenge the validity of fees imposed on residential projects without refusing to pay them, and, since payment is often a condition of obtaining a building permit, a challenge would force the developer to abandon or significantly delay construction of the project.   However, the Act established a procedure whereby a developer could pay the fees under protest (or provide satisfactory evidence of arrangements to pay in the future), obtain a building permit, and proceed with the project while pursuing a legal action to challenge the fees.  The statute of limitations for appeals filed under the Mitigation Fee Act does not begin to run until a city issues a notice of the amount of fees and the right to file a protest.   The Sterling Park decision could have implications beyond the timeline for appealing BMR requirements – it could also set the stage for future decisions that invalidate or significantly restrict inclusionary housing ordinances throughout the state.    This is because, if the validity of inclusionary housing requirements can be challenged as “exactions,” a city seeking to impose them would have to show both that an “essential nexus,” exists between the requirements and the state interest being advanced, and that there is a “rough proportionality” between the amount of the proposed exactions and effects of the proposed development.   By contrast, most land use regulations are considered valid exercises of a city’s police power if it can be shown that they bear a reasonable relationship to the public welfare – a far more deferential standard.   The Supreme Court will have an opportunity to further clarify its interpretation of inclusionary housing programs in the near future, as it recently granted the Pacific Legal Foundation’s petition for review of California Building Industry Association v. City of San Jose.   In that case, the CBIA sued to invalidate San Jose’s inclusionary housing ordinance, arguing that it imposed an exaction on developers and was facially invalid because the city had failed to show a “reasonable relationship between the requirements imposed. . . and any increased public needs for affordable housing caused by such new residential development . . .”    In response, the city argued that the ordinance was simply a land use regulation, valid as long as it bore a reasonable relationship to the public welfare.   The trial court ruled in favor of CBIA, and enjoined the City of San Jose from implementing the ordinance.   However, in June the Court of Appeals reversed, holding that the inclusionary housing ordinance was a not an exaction, but instead a land use regulation subject to the more deferential standard of review. The Supreme Court’s decision in CBIA v. City of San Jose should help to shed some light on the future standards applicable to a city’s inclusionary housing program, and could have some cities in the Bay Area scrambling to protect their programs against legal challenges. 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 2009, the Palmer v. City of Los Angeles decision held that the inclusionary rental housing program in Los Angeles  violated the Costa-Hawkins Act, which prohibits local governments from rent-controlling units built after February 1, 1995.   Since then, cities have navigated around the Palmer decision with relatively minor changes in the form, but not the substance, of their inclusionary housing requirements.  In San Francisco, for example, developers are no longer required to provide on-site inclusionary units.  Instead, paying an affordable housing fee is the default option, and developers may voluntarily opt to provide on-site units where certain conditions are met. In response to Palmer, affordable housing advocates in Sacramento pushed aggressively for AB1229, a statewide law that would reverse the decision by allowing cities to require inclusionary rental units.  It was narrowly passed by the Legislature over bipartisan objections.   Last week, Governor Brown vetoed the bill, recalling his experiences in Oakland: “As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities.  Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing…” The failure of AB 1229 will not impact San Francisco’s inclusionary housing program, which has been revamped to comply with Palmer.  However, San Francisco’s approach to Palmer is based on a narrow exemption to the Costa-Hawkins Act.  The exemption allows cities to restrict rents in projects that received (a) a direct government financial contribution or (b) a density bonus or development incentive under the state Density Bonus Law. In order to provide affordable rental units, builders must enter into a Costa-Hawkins Agreement with the City.  In most cases, the agreements are based on a project having received a bonus or incentive under the Density Bonus Law. However, the bonuses and incentives cited in most agreements are far less than what is required by state law. In fact, prior to the Palmer decision, the City took the position that the Density Bonus Law applied only where projects provided more affordable housing than was required under the Planning Code.   This meant that most private projects were not, in the City’s eyes, eligible for any bonuses or concessions.  The City quietly reversed itself only when it became necessary to avoid the impact of Palmer  on its inclusionary housing program.  A recent court decision, Latinos Unidos del Valle de Napa y Solano v. County of Napa (“Latinos Unidos”) confirmed that the current approach is correct: density bonuses are available for projects including only required affordable housing.  In spite of its stated commitment to affordable housing, the City has lagged in implementing what could be a powerful tool  to encourage housing production.   It has failed to pass an ordinance describing how the Density Bonus Law is to be implemented – an ordinance expressly required by state law.  In the rare instances where the City has granted bonuses, it has required zoning legislation by the Board of Supervisors.   State law specifically declares this unnecessary. Though it would certainly be challenging to get a bonus approved given the City’s past reluctance, the benefits are compelling.  For example, a rental project meeting the minimum 12 percent requirement for affordable housing would be eligible for a 23 percent density bonus, plus an incentive or concession to help defray affordable housing costs.  In addition, cities are prohibited from applying “any development standard that will have the effect of physically precluding” a development from providing bonus units.  This could allow for height, bulk or floor area bonuses in districts where density is limited only by the allowable building envelope.  In Wollmer v. City of Berkeley, the Court of Appeals upheld height, floor area and setback variances, which were needed to allow density bonus units.  Finally, the benefits of implementing the Density Bonus Law would not accrue only to builders.  The general public is the intended beneficiary:  the law is meant to address the housing shortfall as a matter of “urgent public necessity” so that Californians are not “forced to unnecessarily accept further limitations on their personal aspirations, their social and economic mobility, and their physical comfort and well-being.”  That seems like something San Francisco can get behind.  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 a decision surprising to many in the residential home building industry, the California Court of Appeal recently ruled that California’s Right to Repair Act (also known as SB 800) (the “Act”) does not provide the exclusive remedy in cases where actual damages have occurred to a home because of construction defects.  In Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (Case No. G046731, Cal. App. 4 Dist., September 26, 2013), the Court concluded that even when a construction defect claim falls within the scope of the Act, where actual damage to a home has occurred, a property owner is not limited to the remedies provided in the Act, and retains common law rights and remedies. BACKGROUND In 2004, Eric Hart purchased a home from Brookfield Crystal Cove LLC (“Brookfield”). In 2008, the home was flooded when a fire sprinkler pipe burst.  Brookfield acknowledged its liability for, and repaired, the damage to Hart’s home.  Hart moved into a hotel for several months while Brookfield repaired the damage to the home.  Hart’s homeowner’s insurance provider, Liberty Mutual Insurance Company (“Liberty Mutual”), paid for Hart’s hotel and other relocation expenses during that time. In 2011, Liberty Mutual exercised its rights under Hart’s homeowner’s insurance policy and filed a subrogation claim against Brookfield to recover the hotel and relocation expenses it incurred related to the repair of damage from the burst sprinkler pipe.  The claim included common law causes of action for strict liability, negligence, breach of contract, breach of warranty and other claims.  In a subrogation action, the insurer steps into the shoes of its insured.  Thus, Liberty Mutual’s right to recover from Brookfield was dependent on whether Hart would have been able to recover from Brookfield for the hotel and relocation costs. In response to Liberty Mutual’s claim, Brookfield argued that the claim was time-barred under the section of the Act that requires any claim for plumbing issues to be made within four years of the close of escrow for the owner’s purchase of the home.  Because Liberty Mutual did not file the claim until 2011 (seven years after Hart bought his home), Brookfield argued the claim did not meet the time limits in the Act, and must therefore be dismissed.  While the trial court agreed with Brookfield and dismissed Liberty Mutual’s claim, the Court of Appeal reversed the trial court’s decision. COURT OF APPEAL DECISION The Court of Appeal decided that claims under the Act were not the only options for a property owner seeking recovery for actual damages.  The Court determined that the Act was not intended by the California legislature to provide the sole remedy for actual damages to residential property.  Rather, the primary purpose of the Act was to provide a property owner with remedies for repair of construction defects before the defects caused actual damages.  The holding also stated that the Act was not intended to eliminate a homeowner’s other rights under the common law when actual damages have occurred to the owner’s property.  For this reason, even if Liberty Mutual’s claims under the Act were time-barred and properly dismissed, its other common law claims should not have been dismissed as untimely.  The Court noted that the Act was adopted in large part to overturn the previous court case of Aas v. Superior Court (2000 24 Cal.4th 627) which held that in the absence of actual damages to the property, a homeowner could not file a claim for construction defects in residential property.  Thus, the Court determined that the Act was largely intended to provide a homeowner with a means of pre-damage redress for defects that such owner would not have under the Aas decision, and the Act was not intended to limit an owner’s other rights once actual damages have occurred. IMPLICATIONS OF DECISION When the Act went into effect in 2003, many believed it provided the exclusive remedy for construction defect claims for new construction residential projects, including time limits for such claims.  The Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC decision calls this belief into question, in particular with respect to common law claims involving actual damages.  This uncertainly may make it difficult for those in the residential building industry to predict and protect themselves from claims related to construction defects, and the applicable timeframes for such claims. 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.

Fire and Air Typically, passage of a Fire Code update (generally done every three years or so) would not attract much attention.  But the 2013 Fire Code is different, and recently, Committee rooms and City Hall corridors have been buzzing.  The issue is firefighter air replenishment (or “air rescue”) systems.  Simply described, a firefighter air rescue system is a column of open space constructed into a building’s core that can be accessed by firefighters on upper floors to replenish their oxygen tanks while fighting a fire.  This spares them from having to travel all the way to the ground floor to replenish their oxygen.  The systems were created after 9/11 and other high-profile, high-rise fires. San Francisco adopted legislation in 2004 requiring new buildings over 75 feet tall to install the air rescue systems.  The systems are manufactured largely by one company, RescueAir, of San Carlos.  Although the systems had been installed in a number of buildings, the S.F. Fire Department has never used them and doesn’t even train with them.  The Department relies on other methods for firefighters to replenish their tanks.  Building owners prefer other methods for air replenishment because the air columns are expensive and take up valuable floor area. Last week, the Board of Supervisors adopted new legislation allowing high-rise buildings to choose not to provide an air rescue system, if the building instead provides a Code-compliant fire service access elevator (which can be used to shuttle air canisters up and down the building during a fire).  The new legislation was supported by the S.F. Fire Department, which prefers using the fire service elevators for air replenishment.  The Mayor is expected to sign the legislation into law this week, and it would take effect in 30 days. Mr. Taxman The Board of Supervisors recently adopted numerous technical, but potentially important, business and parking tax changes to the Business & Tax Regulations Code.  These changes include the following:   1. Requiring monthly installment payments rather than prepayments of hotel and parking taxes; eliminating the annual parking tax bond renewal    requirement; excluding penalties from calculation of interest on tax determinations (chalk one up for the taxpayer); adding an underreporting penalty for failure to file a return when tax liability exceeds $5,000 (chalk one up for the taxman); and changing the penalty for failure to register or update a registration, making misstatements in a registration, failure to allow inspection or production of records, and failure to file a return.   2. Eliminating the prepayment Revenue Control Equipment certification for parking taxes.   3. As to Payroll Expense Taxes, providing that interest applies to unpaid penalties but not unpaid fees and interest (another positive change); changing the date that businesses must file an affidavit with the Office of Economic and Workforce Development claiming the Central Market Street and Tenderloin Area Payroll Expense Tax Exclusion.   4. Specifying the date the Revenue Control Equipment Compliance Fee is due.   Warriors’ Ball Keeps On Rolling Last week, the Governor signed into law legislation that helps the Warriors clear a hurdle in developing their new arena project on Piers 30-32.  The challenge facing the project was that the common law Public Trust Doctrine, as interpreted by the U.S. Supreme Court, places limitations on the ability to use “public trust” lands for nontrust purposes.  The San Francisco Bay shoreline is considered public trust land.  A basketball arena is not a traditional public trust use – it does not involve water related commerce, navigation, or fishing.  The new legislation, AB 1273, authorizes the State Lands Commission to find that the arena project meets the definition of a public trust use and approve the project, if certain conditions are met.   Among those conditions are requirements that the project attract people to the waterfront, increase public enjoyment of the San Francisco Bay, encourage public trust activities, and enhance public use of trust assets and resources on the waterfront.  Another major condition requires the project to include a significant and appropriate maritime program, which may include a city fire station and berthing facilities for city fire boats; facilities that can accommodate periodic use by cruise or other deep draft vessels; facilities that enable direct public access to the water by human-powered vessels or swimmers; and water-transit docking or berthing facilities for water taxis, ferries, or both.   CEQA Is Now Reformed As reported in previous updates, the Board of Supervisors recently approved legislation that provided significant and much-needed clarity and certainty to the CEQA appeals process in San Francisco.  The legislation provided that its provisions would not become legally operative until the later of September 1, 2013 or five business days after the Secretary of the Planning Commission provided a memo to the Clerk of the Board of Supervisors advising that the Commission had held a public hearing at which the Planning Department demonstrated to the Commission that it had updated its website to provide up-to-date information to the public about each CEQA exemption determination.  The Planning Department now has done so, and the Secretary of the Planning Commission sent the memo to the Clerk of the Board on September 20.  The legislation became legally operative September 25.                    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.     

Japantown Proposed for a Zoning Facelift This month, the Planning Department is unveiling its years-in-the-making community strategy to preserve and promote the cultural heritage of Japantown.  The Japantown area generally runs along Geary Boulevard and Post Street between Fillmore and Laguna Streets, and along Buchanan Street for a block and a half north of the well-known Peace Pagoda building.  After Japanese immigrants relocated to the area after the 1906 earthquake, Japantown became one of the largest Japanese enclaves outside of Japan – and today is the oldest and largest such enclave in the United States (the only other remaining Japantowns in the US are in San Jose and Los Angeles).  The Japantown planning process was initiated in response to concerns in recent years that the neighborhood was losing its cultural identity and that the community had not been involved in its recent planning and development. The Japantown Cultural Heritage and Economic Sustainability Strategy (JCHESS) outlines a number of goals, including creating community groups that can help develop or guide development, improving the various pedestrian malls in the area, creating area-specific design guidelines, and rezoning the area within a new Japantown Special Use District (“SUD”).  The proposed SUD generally promotes greater retail uses in the area by relaxing controls on upper stories and requiring retail uses on the ground floor.  Automobile uses are further discouraged, new curb cuts are prohibited along most streets, and only two banks are allowed.  Housing is also allowed at greater densities. The JCHESS document provides a detailed and fascinating history of San Francisco’s Japantown, as well as the City’s Japanese population.  It can be accessed at http://www.sf-planning.org/ftp/files/plans-and-programs/in-your-neighborhood/japantown/JCHESS_Revised_Draft_9-12-2013_WEB.pdf.  The Planning Commission initiated the Code amendments earlier this month, so expect them to be enacted in late 2013 or early 2014. Easier Alterations to Non-Conforming Dwelling Units Proposed Citing the need to provide greater flexibility to improve and alter existing dwelling units in the City, Supervisor Avalos has introduced legislation, reviewed last week by the Planning Commission, that would do just that.  Of the roughly 360,000 dwelling units in the City, nearly 52,000 are non-conforming with respect to density (they were built before current density limits and now exceed the permissible density).  As a result, these units currently may not be enlarged or altered.  The legislation would allow the expansion or alteration of these units so long as it does not expand the envelope of a building as it existed on January 1, 2013.  These dwelling units would still be subject to the Planning Code’s dwelling unit removal controls – which require Department or Commission approval for removal of dwelling units and enlargement of certain units.  But such enlargements would at least be permitted.  This common-sense legislation was recommended by the Planning Commission last week and now moves on to the Board of Supervisors. San Francisco Formula Retail Debate Makes it into the New Yorker Those of us in the development and land use community love our jobs, but we all recognize that our field does not typically inspire the same interest and excitement in the literary community outside of local blogs and industry publications.  However, do not fear, those of you who would like to elevate our profession to be material for cocktail parties on the Upper West Side.  This week, the New Yorker magazine published an online article covering the ongoing debate over formula retail in our fine City.  And the angle of this liberal-ish publication isn’t necessarily what you would expect – which sheds light on the ironies involved in the fight against Big Retail.  Check it out: http://www.newyorker.com/online/blogs/currency/2013/09/what-it-means-to-keep-chain-stores-out-of-san-francisco.html The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

​New in-lieu fee options and increased requirements for bicycle parking, and dwelling unit mergers are becoming even more difficult. New Bicycle Parking Requirements On July 23, 2013, the Board of Supervisors approved an ordinance amending bicycle parking requirements in the City.  In part, this ordinance establishes an in lieu-fee program that allows developers to pay $400 per space for up to 50 percent of the required Class Two parking spaces up to 20 spaces.  The ordinance also allows for waivers of Class Two parking requirements to be approved by the Zoning Administrator in certain circumstances.  In addition to these changes, the ordinance will increase bicycle parking requirements for individual uses. The new basic requirements for residential, office, and retail uses are as follows: Residential One Class One bicycle parking space for every dwelling unit, up to 100 units, and 1 Class One space for every four dwelling units over 100.   (Class One spaces are secure, weather-proof parking for long-term storage by employees and residents.)                And One Class Two bicycle parking space for every 20 dwelling units.  (Class Two spaces are bicycle racks located in publicly-accessible, highly-visible locations and intended for short term use.) Residential units that are also considered Student Housing will be required to provide 50% more spaces than would otherwise be required. Office One Class One space for every 5,000 occupied square feet;               And Minimum of two Class Two spaces for any office use greater than 5,000 gross square feet, and one Class Two space for each additional 50,000 occupied square feet. Retail One Class One space for every 7,500 square feet of occupied floor space               And (minimum of two spaces) One Class Two space for every 2,500 square feet of occupied floor area.  For uses larger than 50,000 gross square feet, 10 Class Two spaces plus one Class Two space for every additional 10,000 occupied square feet. The Administrative Approval for Dwelling Unit Mergers…Going, Going….Gone? Removing dwelling units through demolition, merger, and conversion can be a very difficult process.  Partly because the Planning Department has a general policy against removal of dwelling units, and partly because there are different standards that apply to various neighborhoods around the City, found in Code sections spread throughout the Planning Code.   As David Silverman in our office wrote a few weeks ago, Supervisor Avalos introduced legislation that would streamline the definitions and requirements pertaining to the removal of dwelling units so that Section 317 would apply City-wide and offer universal definitions and standards for dwelling unit removal.  While this new legislation will simplify things, it will also make it a bit more difficult to get a merger approved due to new language and restrictions added to Section 317. Because of the Planning Department’s policy against mergers, most people rely on qualifying for administrative approval of their merger, in order to avoid almost certain disapproval of their project at a Planning Commission hearing.  Currently, dwelling unit mergers can be administratively approved in one of two ways: 1. By proving that each of  the units merged is demonstrably “unaffordable”  (appraised at or above $1,342,000); or 2. By satisfying a supermajority (four out of five) of the existing criteria in Section 317(e): (i)      Whether removal of the units would eliminate only owner occupied housing; (ii)      Whether removal of the units and the merger is intended for owner occupancy; (iii)     Whether removal of the units will bring the building closer into conformity with prevailing density; (iv)     Whether removal of the units will bring the building closer into conformance with prescribed zoning; and (v)      Whether removal of the units is necessary to correct a deficiency that cannot be corrected through interior alterations. As proposed, the new legislation would remove criteria (iii) and (iv), and instead focus on whether the removal of the units would, (1) remove affordable housing, and (2) if so, whether replacement housing will be provided equal or greater in size, number of bedrooms, affordability, and suitability to households with children as the removed units.  In addition to these new criteria, the ordinance would amend Section 317 so that administrative approval for dwelling unit mergers that satisfy a supermajority of the criteria would no longer be allowed. With these new changes, all dwelling unit mergers would be subjected to a mandatory Discretionary Review hearing before the Planning Commission, unless the units being merged are demonstrably unaffordable. In July, the Planning Commission recommended that the zoning and density considerations be maintained and the affordable housing criteria be added in addition to the existing criteria. It is unclear at this time what will happen, but either way it will be much more difficult to complete a dwelling unit merger in the City once this legislation passes. 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.

​The battle over California cities’ and counties’ ability to require developers to provide on-site affordable rental units in new residential projects is raging in Sacramento.  On September 9, legislation that would allow cities and counties to impose such requirements was presented to Governor Jerry Brown and is awaiting his signature.  The bill, Assembly Bill 1229, was co-authored by State Senator Mark Leno and passed in the State Assembly on May 30, 2013 by a vote of 41 to 31, and the State Senate on September 3, 2013 by a vote of 21 to 16.  This vote is not surprising given the current composition of the State Legislature.  Similar bills in recent years have failed to move out of the Legislature.     The California Constitution grants what is referred to as the “police power” to each city and county, giving them the power to “make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.”  State planning and zoning laws set forth minimum standards for cities and counties to follow in land use regulations.  However, the State Constitution establishes the Legislature’s intent to “provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters.”   Using the police power, cities and counties throughout California have adopted inclusionary zoning or inclusionary housing ordinances which force developers to ensure that a percentage of residential units in a new development, whether rentals or individually owned, be affordable for lower income households.  There is wide variation in the percentage of affordable units required, the depth of the affordability required and the options for compliance by developers.  Often, developers do not build the required affordable units themselves or pay their full cost; rather, developers may donate land and/or make a financial contribution toward development costs.  Some jurisdictions permit developers to pay in-lieu fees to finance a city or county’s own low income development.   This may enable a developer to receive certain entitlements, like more density and floor area.  Inclusionary zoning’s intent is also to achieve inclusiveness in certain neighborhoods, leading to a greater mix of housing products with varied prices within a neighborhood.  The real estate development industry is one of the few industries that are required to provide below market pricing for its products. The Legislature has determined that inclusionary housing ordinances have provided affordable housing to approximately 80,000 people in the California in approximately 30,000 units of affordable housing over the last decade.   The ability of cities and counties to require the provision of on-site affordable rental units (as opposed to ownership units) in new residential projects was called into question by the holding in Palmer/Sixth Street Properties, L.P. v. City of Los Angeles, which was handed down by the California Court of Appeal on July 22, 2009.  Palmer was a developer that argued that the City of Los Angeles’s affordable housing requirements violated and conflicted with the Costa-Hawkins Act.  Enacted in 1995, Costa-Hawkins established what is referred to as “vacancy decontrol,” declaring that “notwithstanding any other provision of law,” all residential landlords may, except in specified situations, “establish the initial rental rate for a dwelling or unit,” even if the local rent control ordinance would otherwise limit rent levels across tenancies.  The practical effect of this, according to the Palmer decision, was to permit landlords to “impose whatever rent they choose at the commencement of a tenancy.”  The Palmer court found Los Angeles’s requirement that Palmer to provide a certain number of affordable rental housing units in a new residential project violated Costa-Hawkins.  As a result of the Palmer, decision, many cities and counties no longer require developers to provide on-site affordable rental units as part of a new residential project. The intent of AB 1229 is to expressly overturn the decision in Palmer.  Specifically, AB 1229 authorizes California cities and counties to “establish, as a condition of development, inclusionary housing requirements, which may require the provision of residential units affordable to, and occupied by, owners or tenants whose household incomes do not exceed the limits for lower income, very low income, or extremely low income households … .” We will keep you updated on the status of AB 1229 and the Governor’s decision.   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.