​What are landlord’s rights and obligations when entering a unit that has been leased to a tenant? In a commercial context the answer is usually governed by the terms of the lease. Sometimes a landlord is granted a blanket right to show the property to prospective purchasers or lessees without any liability or obligations to the tenant.  Typically, however, a lease will require reasonable advance notice to a commercial tenant so they are aware when the landlord will be accessing the space for showings.  Again, these terms are generally provided for in the lease and based on the business deal between the parties. The situation is different when it comes to residential leases. California law provides residential tenants with certain safeguards, notwithstanding the terms of the lease, in order to protect the place where one lives and sleeps.  One such law is California Civil Code Section 1954 (“Section 1954”). Section 1954(a) forbids a landlord from entering a dwelling except in limited, certain circumstances, specifically, “(1) in cases of emergency, (2) to make necessary or agreed repairs or agreed services or exhibit the dwelling unit to prospective or actual purchasers, and (3) when the tenant has abandoned or surrendered the premises.”  Subsection (b) of Section 1954 further provides that “except in cases of emergency or abandonment, entry may not be made during other than normal business hours (unless the tenant consents to other than normal business hours at the time of entry).” One recent case decided by the Court of Appeal posed the unanswered question, what are “normal business hours?  In Dromy v. Lukovsky, the landlord wished to sell the leased property, but the tenant would not allow the real estate agent to conduct weekend open houses at the premises.  This was a problem for selling the unit since many potential buyers work during weekdays.  Dromy sought a declaration as to his rights under Section 1954, including whether he could require the tenant to allow weekend open houses at the leased property. To address the issue, the Court of Appeal charged itself with interpreting the phrase “normal business hours”, which is not defined in Section 1954.  The Court of Appeal reviewed the Uniform Residential Landlord and Tenant Act, which provides that a tenant cannot unreasonably withhold consent with respect to the landlord’s proscribed rights to enter a leased property under Section 1954.  The Court of Appeal also looked at Black’s Law Dictionary, which defines “normal business hours” as “those hours during which persons in the community generally keep their places open for the transaction of business”.  The relevant community in this context was determined to be licensed professionals in real estate whose custom and practice is to hold open houses on the weekend. Ultimately, the Court of Appeal tried to balance two overarching concerns, the implied right of quiet enjoyment for a tenant and a property owner’s inalienable right to sell its property.  The Court of Appeal recognized that a landlord’s ability to sell his or her property might be negatively impacted if the property could not be exhibited to prospective buyers at reasonable times. Therefore, they upheld the lower court’s decision to allow weekend open houses, provided the tenant received proper advance notice and the showings were limited to twice per month during limited afternoon hours. Dromy v. Lukovsky illustrates that a landlord, especially in a residential context, should tread lightly when entering a tenant’s leased premises, but should also feel confident that a tenant must be reasonable when imposing limitations on a landlord’s right to access the property pursuant to a sale. 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.

​Anyone even remotely connected to development in California has heard the ills of CEQA by now.  In San Francisco, where following land use could be one of the most popular hobbies, blogs dedicate entire posts to the intricacies and pitfalls of the local CEQA appeal process.  And these ills of CEQA are not illusory – the law continues to have unintended consequences on the development process in California.  In an age where graduate level environmental and planning programs are teaching smart growth as a solution to climate change, high-gas prices and unhealthy living, CEQA continues to give a powerful tool to those who oppose change.  With Democratic super-majorities in Sacramento, there has been increasing discussion and news coverage of potential improvements to the law.  But while the legislature has gotten all the attention, the San Francisco Planning Department has been quietly and deliberately acting on a local level to significantly improve the CEQA process in the city. One of the key problems with CEQA – and especially its implementation in San Francisco – is that new projects need to undergo a bevy of studies before even being determined exempt from the law.  These studies add costs and – just as importantly – significant time to the entitlement process.  And in a market where 6 months can put you on one side or another of a business cycle, months lost to the entitlement process can be critical.  Further delay and cost can be caused by the need for a mitigation measure for a project, triggering the need for a negative declaration or an EIR.  For many projects, the difference between an exemption and negative declaration can mean a cost difference of $150,000 and a delay of 6 to 12 months. Area Plans As far back as 2005, when the city enacted the Rincon Hill area plan, the Planning Department understood the potential of targeted rezonings, and their associated Environmental Impact Reports, to improve the CEQA process.  If a project is consistent with the new zoning, it should be able to rely on the area plan EIR and skip case-by-case review by the Planning Department.  In many ways, these area plans have worked – significant amounts of previous analysis can be relied upon for code-consistent projects in these areas.  Further, these area plans also incorporate mitigation measures that can allow a project to delay analysis on a particular environmental issue until after entitlement, when the project sponsor has the major discretionary city decisions (i.e. risk) out of the way.  For example, the Eastern Neighborhoods EIR has effectively taken archeology off the table as a potential trigger of heightened environmental review.  The EIR essentially states that if you are in an area that could have impacts on archeological resources, you need to conduct additional study and potentially develop a plan to be sensitive to potential resources – after entitlement and without the need for a negative declaration or EIR. Air Quality Some unexpected CEQA curveballs have also been thrown at the Planning Department.  Many readers may remember in early 2012 when the Bay Area Air Quality Management District issued new air quality “thresholds” – essentially the measurements used to determine whether a project has a significant adverse effect on air quality – that would eliminate the possibility of a CEQA exemption for even modest-sized projects.  The Planning Department actively pursued a patchwork of regulations that have basically solved the problem, by relying on performance-based ventilation requirements that already exist in the city’s Health Code.  Once again, so long as a project conducts a limited air quality study and complies with the requirements of the already-in-effect ventilation rules, no heightened CEQA review is necessary.  The Planning Department is currently developing legislation to codify these rules, expected to be introduced in the near future. Hazardous Materials/Soils While these area plan EIRs were intended to remove as much uncertainty in the CEQA process as possible, there has been at least one hole to plug.  Both the Eastern Neighborhoods and Market-Octavia area plans failed to include a mitigation measure that would avoid the potential for required soils testing prior to entitlement.  As a result, heightened environmental review could be triggered, such as a negative declaration or EIR.  Projects proposed on sites with a history of industrial use would then be required to conduct soils testing to determine if any hazardous soil removal was necessary.  This was previously required to take place before entitlement, and actual soil remediation would be required prior to entitlement if any hazardous materials were detected.  This was particularly a problem in the Eastern Neighborhoods, where much of the area has been historically dedicated to industrial uses.  Most projects would be unable to rely on the Eastern Neighborhoods EIR, undercutting the whole purpose of the area plan EIR in the first place – to minimize environmental review.   Fortunately, over the past few months the Planning Department has shepherded a piece of legislation through a multi-agency review process which would expand the boundaries of the “Maher Zone” – an area, mostly adjacent to the bay, where local law required that soil study and remediation take place when excavation was proposed.  Due to technical subtleties of CEQA, the fact that it is a legal obligation of properties within the zone to conduct the studies, no mitigation measure would be required to bind a project to the remediation requirements.  And because no mitigation measure is required, there is no potential for the soils testing to trigger a negative declaration.  The legislation would expand the zone to cover all properties that have ever been used or zoned for industrial use.  The Board of Supervisors passed the legislation in July, and it went into effect starting next week.  As a result, the potential for soils testing to trigger a negative declaration in the Eastern Neighborhoods and Market-Octavia plan areas has been eliminated. Few Potential Heightened Environmental Review Triggers Remain As a result of these efforts by the Planning Department, the number of environmental issues that could potentially

​Demolition of dwelling units is strictly regulated by the San Francisco Planning Code. Current Demolition Rules In general, residential demolition will be approved only if: (1) A recent appraisal shows the value of the dwelling unit to be in excess of 1.3 million dollars, for a single family home, 1.9 million for a two family home, or 2.5 million for a three family home. These values are adjusted annually. If the value of the existing structure and land is equal to or greater than these amounts, the demolition is not required to undergo a Discretionary Review Hearing at the Planning Commission, unless a member of the public requests a hearing; or (2)   the applicant provides to the Planning Department a soundness report prepared by a licensed architect, engineer, or contractor which demonstrates, according to strict Planning Department criteria, that the cost to upgrade construction deficiencies exceeds 50% of the replacement cost of the building. Replacement of foundations and certain other improvements are excluded. Structures of one or two units proposed for demolition may be approved administratively by the Planning Department staff, without a Planning Commission hearing, if the staff accepts a soundness report demonstrating that the building is not sound, according to the Planning Department criteria.   This potential avenue to demolition is very difficult to satisfy. The Planning Department will require submittal of “Historic Resource Evaluation” for buildings built more than 50 years ago.  If a structure is deemed to be of “Historic Significance”, approval of demolition is highly unlikely. In theory, it is possible to demolish a sound dwelling unit if the Planning Commission finds that the proposed demolition complies with sixteen criteria set forth in the Planning Code. Both the Planning Department and the Planning Commission are predisposed to disapprove demolition applications, in accordance with policies set forth in the City’s General Plan that are intended to preserve the existing stock of housing, and in particular affordable housing. An example of an applicable General Plan policy is “to conserve existing housing, to preserve cultural and economic neighborhood diversity.” Current Merger Rules A merger occurs when two or more legal residential units are combined into one unit, whether by installing a connecting doorway, removing a demising wall, or otherwise. As with demolitions, mergers of residential units are disfavored by the Planning Department and Planning Commission. Merger applications are decided by the Planning Commission at a Discretionary Review Hearing, in most cases. Residential units proposed for merger that exceed the values set forth above are exempt from mandatory Planning Commission Discretionary Review hearings, and can be approved administratively by Planning Department staff. Projects that meet four out of the five criteria listed below may also be approved administratively by the Planning Department staff: (1) Removal of the unit (by merger with another unit) would eliminate only owner-occupied housing; (2) Removal of the unit and the merger of another is intended for owner occupancy;  (3) Removal of the unit will bring the building closer into conformance with the prevailing density in its immediate area and in the same zoning district; (4) Removal of the unit will bring the building closer into conformance with applicable zoning restrictions; and (5) Removal of the unit is necessary to correct design or functional deficiencies that cannot be corrected through interior alterations. As with demolitions, the City’s General Plan policies and Planning Code restrictions strongly discourage mergers of residential units. Approval of applications for residential mergers is uncommon. New Proposal On July 30, 2013, Supervisor Avalos proposed legislation to amend the Planning Code to revise the criteria for residential demolitions and mergers and to standardize those criteria across zoning districts and to enhance the already strong presumption in favor of preserving existing housing.  The proposed rules would make it even harder to demolish or merge residential units: Additional criteria for “Residential Demolition” would include: “Whether the project increases the number of family-sized units on-site” “Whether the project is of superb architectural and urban design, meeting all relevant design guidelines to enhance existing neighborhood character” Additional criteria for “Residential Merger” would include: “Whether the removal of the unit(s) will remove an affordable housing unit as defined in Section 415 of this Code or housing subject to the Rent Stabilization and Arbitration Ordinance”. “If removal of the unit(s) removes Affordable Housing or units subject to the rent Stabilization and Arbitration Ordinance, whether replacement housing will be provided which is equal or greater in size, number of bedrooms, affordability, and suitability with children to the units being removed”. “Whether the number of bedrooms provided in the merged unit will be equal to or greater than the number of bedrooms in the separate units” . An application for a permit that would result in the loss of one or more dwelling units through merger or demolition is required to obtain a Conditional Use Authorization in the RTO,RTO-N, NCT, and Upper Market NCD zoning districts, as well as the loss of any residential unit above the ground floor in the C-3 (downtown) zoning district. The application for the proposed replacement building is also subject to obtaining conditional use authorization. The proposed legislation adds “affordability” of the replacement unit to the criteria for removal of dwelling units. The legislation would establish a strong presumption in favor of preserving existing dwelling units that occupy non-conforming structures or lots. In sum, the proposed legislation will tighten up the already stringent Planning Code restrictions on residential demolitions and mergers.   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.

​Assessment Appeals Deadline is Looming The market upswing has resolved many owners’ concerns about real property taxes.  For owners that believe their assessment is still above market value, the deadline to appeal the San Francisco Assessor’s valuation for tax year 2013-2014 is September 16, 2013.  This deadline cannot be waived, so appeals should be filed as early as possible.  (For other counties check the Assessor’s website.) Many appeals are still pending for the last few years.  According to the Assessment Appeals Board, appeals from 2010-2011 are still being heard, leaving two tax years to resolve.  Due to the high caseload, for the most part, the Assessor’s office has been unable to focus on resolving appeals before they are heard by the Assessment Appeals Board.   With all of the sales activity buyers should be aware that if they disagree with the new property value assessed due to the sale, the deadline to file an appeal is 60 days after receipt of the notice or the new tax bill.  Owners should confirm that the Assessor/Tax Collector has their current contact information for notices.  It could take 2-3 years for a new tax bill to be issued, so owners should reserve funds to pay taxes and follow up with the Assessor’s office regularly.  Failure to receive a tax bill does not excuse the payment obligations. Reassessment Exclusions are Available for Certain Projects For developers building a new project or renovating existing property, there are a number of real estate tax exemptions available for issues like seismic upgrades and ADA renovations (to existing buildings), low income housing, and immediate sale after construction (most applicable to condominiums).  There are strict filing requirements and deadlines for these exemptions, so check with the Assessor or legal counsel to be sure that you do not lose the potential benefits. New Disclosure Laws are in Effect     Commercial Energy Disclosures.   In a previous update we mentioned that the long-postponed commercial energy disclosure requirements were supposed to kick in as of July 1, 2013.  These disclosures would initially apply only to the sale of commercial property with over 50,000 square feet.  However, because the website established by the California Energy Commission is unavailable for utility companies’ uploading of energy data, the enforcement of the regulations have been suspended until September 1, 2013.  The California Energy Commission recommends that the disclosures be made “to the extent feasible.” More information about these disclosure requirements may be found at www.energy.ca.gov/ab1103/index.html.       Accessibility – Lease Disclosures.   New disability access disclosure requirements took effect as of July 1, 2013.  Despite the additional administrative burden, the stated goal of reducing lawsuits is beneficial to owners.  California Civil Code Section 1938 requires landlords to disclose whether the premises has undergone inspection by a “Certified Access Specialist”.  Performing an inspection would give some legal defenses to landlords.  (See our March 22, 2013 update for more information.)  Even without an inspection, the disclosures help focus attention on any issues. The City and County of San Francisco added additional and more detailed disclosure requirements at the local level.  Effective as of July 1, 2013, the City requires that a specific notice be provided to all commercial tenants occupying less than 7,500 square feet of space, which must include a copy of the Small Business Commission Access Information Notice under Section 38.6 of the Administrative Code in the tenant’s requested language.  The notice informs the tenant that the lease must specify who is responsible for disability access upgrades that are required by law, and that the tenant should investigate these issues before signing the lease.  While there are no specific penalties for ignoring the disclosure requirements, landlords should comply in order to avoid any failure to disclose or negligence claims, and to be sure the lease properly allocates responsibility for delivery access. Other local jurisdictions may have specific requirements, and these should be confirmed before finalizing a lease. 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.

​History: San Francisco has a lot of it.  From its oft-admired ornate buildings dating back to the Victorian and Edwardian eras, to its association with powerful political and cultural movements that helped shape our national identity, San Francisco has much to celebrate and preserve.   So, it’s not surprising that the City has developed and implemented a range of detailed administrative procedures and legislation surrounding the need to preserve historically-significant buildings, neighborhoods, and resources.   And, it is equally unsurprising that these procedures sometimes prove difficult for private citizens to understand and navigate. In July 2013, SPUR, a local public policy think tank, and San Francisco Architectural Heritage, a non-profit known for its preservation advocacy, released a joint policy report aimed at trouble-shooting San Francisco’s historic preservation processes.   The Report, entitled: “Historic Preservation in San Francisco: Making the Preservation Process Work for Everyone” includes an overview of San Francisco’s existing system for the documentation and preservation of historic resources, as well as a frank analysis of which policies and procedures are currently working well, and which are not.  The Report is split into three parts: (1) the formation of historic surveys, (2) the creation of historic districts, and (3) the evaluation of resources under the California Environmental Quality Act (“CEQA”). While the authors believe it is critical to protect the rich historic fabric of the City, they also recognize San Francisco as a major urban center with a projected growth of nearly 1 million residents by 2035, necessitating the need to support growth and change in appropriate areas. Historic Surveys Historic surveys are the process by which San Francisco identifies, evaluates and documents properties and places that reflect important historic themes.   They’re often conducted by the Planning Department (“Planning”) as part of an area plan or rezoning effort (such as the Transbay, Market/Octavia, and Easter Neighborhoods efforts in recent years), but are sometimes initiated directly by a community who engages their own consultant.  The City has implemented a range of procedures for conducting and certifying the results of these surveys, involving review of Planning and the Historic Preservation Commission.   The SPUR/Heritage Report recognizes that these surveys provide valuable information to planners, residents, property owners and developers.  However, the existing survey process is complex, and the outcomes and impacts are not always clear to members of the public who may be affected.   The SPUR/Heritage Report recommends implementing a range of measures to simplify and de-mystify the historic survey process, including (1) completing a citywide survey; (2) conducting surveys early in the area plan process so that their results can be used to inform planning activities; (3) soliciting public input in the development of historic context statements and themes; (4) notifying the public and other key stakeholders at the outset of the survey process and explaining its significance; (5) publishing community outreach standards and policies for historic surveys; and developing a user-friendly grievance process. Historic Districts An historic district is a collection of built resources (buildings, structures, landscapes, sites and/or objects) that are historically, architecturally, and/or culturally significant.   Since the late 1960s, the City has designated 13 local historic districts, in addition to the nearly 40 historic districts listed in the California Register of Historic Resources and National Historic Landmark Program.    The SPUR/Heritage Report recognizes the importance of historic districts in ensuring that the most distinctive physical qualities of a community are maintained and fostering neighborhood conservation and stability.  However, the authors also note that the process for establishing new historic districts can be complicated, and the potential impacts of being included within such a district are not always known to landowners and area residents at the time districts are formed. The SPUR/Heritage Report recommends the following measures to improve the City’s treatment of historic districts: (1) publishing Planning policies for community engagement and procedures for historic districts in a new administrative bulletin; (2) developing clear design guidelines that interpret how best to apply established standards for the treatment of historic districts; (3) providing clear mechanisms for project applicants to request advisory opinions from the Historic Preservation Commission on compliance with design guidelines early in the review process; and (4) expanding local access to historic preservation incentives, including state Mills Act property tax relief. California Environmental Quality Act At its core, CEQA is an information-gathering process that requires public agencies to analyze environmental impacts when deciding whether or not to approve a particular project.   In San Francisco, the CEQA process is administered by Planning through its Environmental Planning Division.   CEQA affects the development of historic buildings and sites in San Francisco because any project that will cause a “substantial adverse change” in an historic resource is considered to have a significant effect on the environment.  As a result, CEQA can trigger a layer of state-mandated review on top of local historic preservation protections already in place for projects involving buildings that are 50 or more years old – more than 135,000 buildings in the City. The CEQA review process for historic resources is highly-complex.  A thorough discussion is available for readers in the report.  The authors recognize that current CEQA procedures are valuable because they “provide broad protection for the vast majority of buildings in the City,” and “give ordinary citizens a powerful mechanism to question projects large and small, identify important aspects of history to matter to them, and propose alternatives and mitigation measures.”  However, they also includes unclear standards for evaluating the impacts of major alterations or demolitions of buildings that contribute to historic districts, and have the potential for inconsistent evaluation of potential historic resources. The SPUR/Heritage Report identifies several recommendations for reforming current CEQA evaluation and treatment of projects involving potential historic resources, including, among others: (1) Publishing guidelines that identify significant historic themes, associated property types and thresholds of significance for the purpose of making CEQA determinations on individual buildings; (2) revising Preservation Bulletin 16 to provide clear guidelines on how to evaluate the impacts of major alterations or demolitions to contributor buildings within

​This week, the Board of Supervisors finally approved a compromise ordinance revising and clarifying the City’s procedures for California Environmental Quality Act (“CEQA”) appeals.  The legislation places firm deadlines on CEQA appeals and expands public access to CEQA determinations through an online subscription service.  A piece of trailing legislation proposes giving the public the right to appeal an Environmental Review Officer’s determination that a modified project is exempt from CEQA. Firm Limits on Appeals The legislation goes a long way toward addressing long-standing concerns in the development community about the uncertain appeal deadlines:  in some circumstances a negative declaration or exemption could be appealed almost up until the start of construction.  On the other hand, Environmental Impact Reports (“EIR”) have long been subject to a definite, 30-day appeal period that starts running as soon as the Planning Commission certifies an EIR. Under the new rules, negative declarations and exemptions will also have 30-day appeal periods that run from the first “Approval Action” on a project. An “Approval Action” occurs at the sooner of the following two situations: (1) when the first city agency approves the project in reliance on the CEQA determination after a public hearing, or (2) if there is no public hearing, when a city agency issues a building permit or an entitlement for the project.  Notably, approval at a discretionary review hearing is considered an “Approval Action,” a silver lining for projects which find themselves undergoing discretionary review. For projects that go before Commissions for approval, the changes are a benefit.  They ensure that CEQA appeals are resolved early in the process, meaning that money spent preparing construction drawings and processing building permits will no longer be at-risk if there is a late filed environmental appeal.  For projects that don’t require a public hearing, the appeals deadline will not run until the first building permit is issued.  This still allows relatively late appeals, but is nonetheless a marginal improvement over the current situation where even incidental permits for tree removal or street space occupancy can result in CEQA appeals.   Public Notice Requirements The legislation also enhances both optional and mandatory notice requirements.  In particular, actions associated with projects which received exemptions or negative declarations must be made available to the public. Of note, the Planning Department is tasked with establishing a web-based system for public notice.  The system will provide automatic notices to individuals or organizations that sign up as subscribers.  Subscribers have the option of receiving notifications for all CEQA-related determinations made by the city, or for certain types of determinations.  The menu includes: (1) specific projects, (2) specific neighborhoods, (3) historic districts, (4) exemption determinations, (5) negative declarations, and (6) full EIRs. Additionally, the legislation imposes a number of public notice requirements for exempt projects and projects which received negative declarations. Public notice will be required for the following actions: (1) exemption determinations, (2) approval actions for exempt projects, (3) notices of exemption, (4) modifications of exempt projects, (5) negative declarations, and (6) mitigated negative declarations. The combination of an expanded scope of actions requiring public and the web-based electronic notification system means that interested parties will have immediate and easy access to far more CEQA-related actions than before this legislation was passed.  On the one hand, this may be a welcome development in responding to project opponents who complain they were unaware of a project’s environmental review status.  On the other hand, it provides enterprising anti-development types with a tool to track the entirety of the city’s CEQA-related actions at the click of a button. Coda: Changed Projects and Appeals to the Environmental Review Officer One final aspect of the compromise the Board of Supervisors reached in passing CEQA reform was to consider a piece of trailing legislation. As currently written, the trailing legislation provides for a process to appeal a determination by the Environmental Review Officer (“ERO”) that a change to an exempt project is not a “substantial modification” requiring a new CEQA decision.  Members of the public would be able to present new information to the ERO at a public hearing.  However, project approvals and construction related to the changes in the project would be able to proceed during the appeal process. 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.

​After a contentious legislative process where the original sponsors withdrew their support for the ordinance and the Mayor did not sign it, on June 18, 2013, the San Francisco Board of Supervisors passed an ordinance establishing the Expedited Conversion Program (“Program”).  The Program was promoted to alleviate the huge backlog for conversion of Tenancy in Common (“TIC”) units to condominiums stemming from the existing condo conversion lottery system, which limits conversions to 200 units per year.  The ordinance goes into effect July 28, 2013, and will permit hundreds of TIC owners to convert their units to condominiums, in exchange for payment of an “impact fee” of $20,000 per unit (although this may be reduced) in addition to the condo conversion application fee of over $9,600 per building. Of course, this is San Francisco… and the ordinance includes trade-offs for offering so many TIC owners the privilege to convert to condos under the Program.  The trade-offs include: (i) existing tenants living in a converted unit must be offered a lifetime lease, (ii) more stringent tenant eviction limitations that could restrict the ability to convert, (iii) increased owner-occupancy rules requiring owners to continually occupy their units for lengthy periods of time, and (iv) perhaps most controversial, a “poison pill” provision that will suspend many condo conversions in the event anyone files a legal challenge to the ordinance (subject to exceptions). TIC conversion to condos under the Program will occur in phases over the next several years.  Certain buildings will be eligible to convert immediately, while other buildings will become eligible in April of each year from 2014 through 2019.  TIC buildings that participated unsuccessfully in the 2012 or 2013 lotteries are the primary beneficiaries under the Program, and will be eligible to convert to condos under the Program either (a) immediately (if owner-occupancy requirements met for 5 years as of 4/15/13), or (b) beginning on 4/15/14 (if owner-occupancy requirements met for 3 years as of 4/15/14). Other “Additionally Qualified Buildings” under the Program include those that did not participate in the 2012 or 2013 lotteries, but had a signed TIC agreement in place as of 4/15/13.  These buildings may become eligible for conversion in April of each year, beginning in 2014 and ending in 2019, with the order of eligibility depending on when the buildings meet the required owner-occupancy periods.  For example, a TIC building may apply for conversion under the Program beginning on 4/15/15 if the required number of owners continuously occupied their units for six years (from 4/15/09 to 4/15/15).  The following year, a TIC building may apply for conversion under the Program beginning on 4/15/16 if the required number of owners continuously occupied their units for six years (from 4/15/10 to 4/15/16).  And so forth until April 2019. Future TIC owners and existing buildings that did not have a signed TIC agreement in place as of April 15, 2013 bear the brunt of the ordinance, and will be negatively impacted.  These buildings must wait until the condo lottery resumes, ten or more years from now, before becoming eligible to convert.  When the lottery does resume it will do so with much more restrictive owner-occupancy requirements and tenant eviction rules.  Conversions under the condo lottery will generally be limited to 2-4 unit buildings, with 5-6 unit buildings being eligible to convert only in very limited circumstances. While the Program provides a path to condo conversion for many TIC owners, the devil may be in the details.  Those interested in the Program should understand the significant trade-offs contained in the ordinance.  In particular, the real possibility that a building’s condo conversion application may be suspended midway through the process pending the outcome of a lawsuit challenging the ordinance.  Owners must decide whether they can live with this risk and associated expenses, when their condo conversion could be held up for years, or potentially canceled, depending on the outcome of such a lawsuit. Please note that the above is only a brief summary of the main points of the Program, and is not a complete description of all applicable rules.  Owner-occupancy standards may vary for 2-4 unit and 5-6 unit buildings.  The eviction history of a building may restrict or completely disqualify a building from converting to condos.  Various deadlines for payment of fees and submittal of applications apply.  All condo conversions must meet the applicable requirements of Article 9 of the San Francisco Subdivision Code and the San Francisco Department of Public Works, the lead City agency for processing of condo conversion applications. A copy of the ordinance is available at the following link:  http://www.sfbos.org/ftp/uploadedfiles/bdsupvrs/ordinances13/o0117-13.pdf Special thanks to law clerk Andrew Guess, who contributed significantly 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.  

More Formula Retail (Out of) Controls Formula retail controls are once again in the news.  This time, it is Supervisor Jane Kim’s introduction this week of interim zoning controls regulating formula retail in the Mid-Market district, on Market Street from 6th Street to Van Ness Avenue.  Interim zoning controls are important to understand because they are enacted quickly (typically within 60 days), and are subject to limited public process.  Whereas land use controls generally are submitted to the Planning Commission and the Planning Department for review and public hearings, no such process is allowed for interim zoning controls.  Interim zoning controls remain in place for 18 months or until permanent legislation is enacted, whichever occurs first, and can be extended for an additional 6 months. Formula retail is defined as a retail sales activity or establishment that has eleven or more other retail sales establishments located in the United States.  In addition to the eleven establishments, the business maintains two or more of the following features: a standardized array of merchandise, a standardized facade, a standardized decor and color scheme, uniform apparel, standardized signage, a trademark or a servicemark.  Supervisor Kim’s proposal would require formula retail uses to obtain conditional use authorization from the Planning Commission in the manner presently required under the Planning Code, but would add a new requirement that the Planning Commission consider the “economic and fiscal impact of the proposed formula retail use in the area.”  The applicant must provide the Planning Department with an economic impact analysis of the proposed use, prepared by an independent licensed professional.   These new controls are of great import to developers in the Mid-Market district.  Just as exciting development begins to take hold in this long-neglected neighborhood, these formula retail controls represent a new impediment that could slow that growth.  We will continue to monitor the progress of Supervisor Kim’s legislation and will keep readers posted. CEQA being CEQA The Board of Supervisors was scheduled to consider the CEQA reform measures introduced by Supervisor Wiener and Supervisor Kim this week, but continued the matter for another week.  CEQA reform always has been, and continues to be, a frustratingly slow process.  In Sacramento, the Legislature is considering its own version of CEQA reform (SB 731 – Senate President Pro Tem Darrell Steinberg).  The bill originally was quite ambitious.  Yet, as is typically the case with CEQA reform, the bill became watered down to appease the various interested parties.  The Senate recently passed the bill 39-0, and it is likely to be passed by the Assembly and signed into law by the Governor.  Interestingly, the bill is named the CEQA Modernization Act of 2013, replacing the idea of reform with modernization, in an attempt to gain wider support. Among the bill’s provisions are the following: Aesthetic impacts would be eliminated as a potential environmental impact and no longer reviewable under CEQA; The Natural Resources Agency would develop statewide significance thresholds for parking, transportation and noise.  While this latter provision initially seems promising, the bill allows localities to impose more stringent significance thresholds for these impacts. Enterprise Zones Being Zoned Out Enterprise zones are not widely known but have been in existence in California for almost 30 years.  The enterprise zones program provides tax credits to businesses that create new jobs for low-income employees who perform services directly related to their particular enterprise zone.  San Francisco has the largest enterprise zone program in the state, with enterprise zones located in Bayview Hunters Point, Chinatown, the Mission, Mission Bay, Potrero Hill, North Beach, and the Financial District.  Recently, the widely respected Public Policy Institute of California published a study that proved enterprise zones to be largely ineffective.  This prompted the Legislature to pass legislation introduced by Governor Brown that would eliminate enterprise zones and replace them with more targeted tax credits.  We will continue to monitor this legislation and can assist local business in identifying the new tax credits that may be available to them in place of the enterprise zone credits. CBIA Huffs and Puffs but Doesn’t Blow Inclusionary Housing Down As any residential developer in San Francisco knows all too well, inclusionary housing requirements impose a significant cost on development.  Whether it is the payment of the in-lieu fee or the provision of affordable units (on-site or off-site), this requirement is usually the most expensive one imposed on development.   The California Building Industry Association (CBIA) has led the charge around the state in challenging the legality of local inclusionary housing ordinances.  A major recent victory for CBIA came in the Patterson case in 2009 (Building Industry Association of Central California v. City of Patterson (2009) 171 Cal.App.4th 886).  In that case, the court struck down the city’s inclusionary housing requirements imposed on a particular project because the city could not meet its burden of showing that the inclusionary requirements were “reasonably related” to the impacts of the development. Trying to build off the Patterson victory, CBIA recently lost an inclusionary housing battle in San Jose.  (California Building Industry Association v. City of San Jose, 2013 Cal. App. LEXIS 447, 2013 WL 2449204 (Cal. App. 6th Dist. June 6, 2013).)  In the San Jose case, CBIA brought a facial challenge to San Jose’s inclusionary housing ordinance in its entirety, rather than its applicability to a particular project.  This facial challenge, ruled the court, meant that the burden was on CBIA, rather than the city, as in the Patterson case.  Moreover, CBIA had to show that the inclusionary housing ordinance was an improper exercise of the city’s police power.  The court sent the case back to the trial court for a determination whether CBIA could make this showing. We will continue to monitor the progress of this important litigation.   The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose,

L​ast week, the United States Supreme Court issued a ruling cautioning local governmental agencies from exerting too much leverage on developers to demand concessions during the entitlement process—particularly in the form of monetary payments.  (Koontz v. St. Johns River Water Management District, 570 U.S. ____ (2013) (slip op).)  The ruling permits a project sponsor to challenge a city or local agency’s project approval conditions even if permits or entitlement documents are never issued, and even if the conditions are only the payment of impact or off-site mitigation fees.  The ruling should serve as a caution to city agencies that impact fees must be reasonably related to a project, both in the context of single-project concessions and district or city-wide impact and mitigation fees.      In relevant part, the Supreme Court concluded that (1) a “taking”—a government’s deprivation of an individual’s property right—can occur when a permit or entitlement application is denied; and (2) development impact and off-site mitigation fees must be related to the harm arising from the development, and the fee amount must be roughly proportionate to the amount of harm the project causes. The facts of the case are relatively straightforward.  A landowner of 15 acres in Florida sought to develop approximately 3.5 acres of his land, and offered to foreclose any future development on the remainder of his property through a conservation easement.  A Florida wetlands agency with permitting power (the “Agency”) issued two counter-offers: (1) reduce the size of his project to one acre and dedicate the remaining 14 acres to conservation, or (2) make a one-time mitigation payment to the agency, which would be used to enhance approximately 50 acres of off-site environmental projects.  The landowner did not accept either offer, and instead sued the Agency, claiming an unconstitutional taking.  The Agency defended itself on the ground that there was no taking, because it did not issue a permit or approve any project, and because its second counter-offer was for cash and not restrictions on land.  The Supreme Court rejected these defenses.  Whether a permit had been issued was irrelevant: “extortionate demands” may be a taking, even if the project is never approved, and even if the demand was for monetary payments and not a restriction on land use.  In essence, the Supreme Court concluded that a government should not have free reign to limit landowners’ use of their land by imposing what are essentially unrelated or excessive monetary exactions for the right to develop before issuing any discretionary approvals or building permits. After the opinion was released, certain city planning and environmental groups cautioned that the Supreme Court may have irreparably weakened local agencies’ power to impose mitigation conditions.  It remains to be seen if this is the case.  The Supreme Court did not decide that the Agency actually demanded too much from the landowner.  It also emphasized that reasonable government regulation—both through restrictions on land use and impact fees—are constitutional.  Nevertheless, some commentators predict the practical result of the ruling will be that the burden to prove the reasonableness of impact and mitigation measures will shift from property owners attacking the measures to city governments defending them. Mitigation and impact fees should continue to be an important means for cities to offset environmental and other consequences of development, so long as the fees are related to identifiable and legitimate harms, and are proportional to the amount of harm the project causes.  What this ruling appears to do is caution city governments that they may not demand too much from a developer or require mitigation entirely unrelated to the project.  It also permits developers and landowners to immediately challenge in court what they believe to be “extortionate” demands after a building permit or entitlement application is denied.  It remains to be seen if the ruling will lead to increased litigation between developers and city agencies,   particularly in locations where cities conduct extensive “nexus” studies to ensure the impact and mitigation fees they put in place are reasonable in amount and adequately related to the development. The full Supreme Court opinion can be found at http://www.supremecourt.gov/opinions/12pdf/11-1447_4e46.pdf Mark Loper in our office contributed significantly 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.  

As we reported recently, formula retail is a very hot topic in San Francisco.  There has been a strong push to limit formula retail stores, and while controls may seem strict now, there are many who would like to see even more restrictions on new formula retail in the City. Currently, formula retail is defined by the San Francisco Planning Code as a “type of retail sales activity or retail sales establishment which, along with eleven or more other retail sales establishments located in the United States, maintains two or more of the following features: a standardized array of merchandise, a standardized facade, a standardized decor and color scheme, a uniform apparel, standardized signage, a trademark or a servicemark.” (Planning Code Section 703.3.)  When most people think of formula retail, they think of large national chain stores, and while large chain stores are in large part, the kind of stores formula retail regulations are aimed at, smaller businesses are also impacted. Some recent discussions have turned to the adequacy of the definition of formula retail stores. As applied today, this only applies to brick and mortar stores, but there are those who believe internet stores should also be included in the overall count when determining if a use is formula retail. While the increase in internet shopping has undeniably changed how retailers do business, would including online stores in the formula retail calculations really be wise? As more and more neighborhoods in San Francisco are strictly limiting and even outright banning new formula retail stores, the answer to that question could have a huge impact on which stores are allowed in the City. But, a policy like that may end up harming those it’s aiming to protect because big national chains won’t be the ones affected, if such policy becomes a law. Online Instead of in Line Shopping online has greatly increased in popularity over the past several years. (See http://www.nytimes.com/2012/01/16/business/some-shoppers-rebel-against-giant-web-retailers.html?pagewanted=all&_r=0.)  In response, retailers have had to completely re-think their strategies to get customers into their brick and mortar stores.  Despite these efforts, for many shoppers, the allure of possibly finding a better deal online is too much to resist.  One Survey showed that as many as 44% of Americans prefer online shopping. (See http://www.marketingcharts.com/wp/interactive/6-in-10-americans-prefer-shopping-in-store-to-buying-online-25244/.) Recently, much attention has been given to a practice called showrooming. Showrooming is when a shopper goes to a store to view and test a product, and then later purchases that product online.  One study showed that as many as 21% of shoppers engage in this practice.  To counteract this, and get people in the door, retailers use price matching, special “in store only” deals, and in some cases coupon apps that only work in the store.  Despite these efforts online sales are becoming an integral part of the retail experience.  This paradigm shift in retail sales is not only limited to large retail stores.  Small business and restaurants, and even people without physical stores, are using the numerous online retail “stores” like Etsy, Facebook, Amazon, and personal websites, to reach a wide array customers and expand their sales. Internet Stores and Formula Retail Because online stores play such a large role in retail, there are those who would like to see them included in the calculation of the total number of stores a retailer has, when determining if it is formula retail.  The current definition of formula retail, without question, already covers big name national retailers.  Including internet stores in the definition will not impact their status.  And while these large stores do need to be concerned with legislation limiting and banning them entirely form portions of the City, any changes in the definition of formula retail will likely have little or no impact on their prospects in San Francisco.  The ones who will be greatly impacted by a policy like this are the little guys who formula retail controls are aiming to protect in the first place.  The mom and pop store that has grown over the decades into a local household name, local restaurants with online ordering, and entrepreneurs and artists who use online stores to earn the seed money for a new business.  These are the businesses that would be most impacted by the inclusion of internet stores in the calculation of total stores in the United States.  A locally owned business with stores all around the Bay Area could be completely banned from certain neighborhoods in the City because its online stores put it over the permitted eleven stores.  An artist or craftsman with a strong internet sales presence could have trouble opening a brick and mortar establishment if online sales meet enough of the formula retail criteria.  Even small local restaurant chains could suffer if individual stores maintain separate online ordering systems. Thoughtful regulation is important for any issue, and a wide array of locally owned businesses is part of what makes San Francisco such a great City.  It is important that in the rush to protect these businesses, we don’t make it even harder for them to survive here.   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. ​