The possibility of mechanics liens is a key issue in any construction project.  A contractor and their subcontractors and laborers want to ensure that if an owner does not pay for the work, they have recourse to recover the value of their services through a lien secured against the subject property.  An owner, on the other hand, wants to make sure that it receives lien releases prior to making payment for any work done, to limit the filing of liens against its property.  Typically, a lien burdens the property owner who entered into the construction contract with the contractor.  But what if the lien was foreclosed upon a subsequent property owner who was not a party to the construction contract?  How is the lien valued if not based on the price in the construction contract?  These concerns were addressed in a recent Court of Appeal case entitled Appel v. Superior Court of Los Angeles County.  (214 Cal.App.4th 329 (2013)).  In Appel, the general contractor brought an action against the condominium developer and the unit owners for foreclosure of a mechanics lien related to the contractor’s work constructing the residential condominium development.  There was no dispute that the contractor had a right to foreclose on the lien even though the condominium owners were not the parties who hired and agreed to pay the contractor to do the work.  The Court provided that a mechanics lien “attaches to the improved property when the first labor or construction material is furnished for the construction work, and cannot be defeated or otherwise affected by the conveyance of the property after the lien attaches.”  The question presented in Appel was to determine the proper standard for valuation of a mechanics lien enforced against a non-party to the contract.  Typically, the amount of a mechanics lien may not exceed the agreed-upon price of the construction contract which is the basis for the work.  Section 8430(a) of the Civil Code (listed as the former Civil Code Section 3123(a) in this case) states that the lien shall be either in “the reasonable value of the work, or for the price agreed upon by the claimant and the person with whom he or she contracted, whichever is less”.  In this case the contractor, Webcor, and the developer, Wilshire Landmark, had previously settled their claims.  In doing so they also adopted a change order which increased the original contract price from $81 million dollars to $95.5 million dollars.  Webcor argued in its case against the unit owners that the value of the mechanics lien should be based solely on the reasonable value of its services, since the unit owners were not a party to the original contract.  The unit owners responded that they should be allowed to introduce evidence as to the original value of the construction contract between Webcor and Wilshire Landmark, which was lower than the settlement amount. The lower court in Appel interpreted Section 8430(a) of the Civil Code to mean that, the amount of the lien should be based solely on the “reasonable value” of the completed work, thus ignoring the other clause providing that it should be the lesser of that amount and the price agreed upon in the contract.  The lower court determined that the value of the construction contract between Webcor and Wilshire Landmark was not relevant because the unit owners were not parties to that agreement.  The Court of Appeal disagreed finding this interpretation conflicted with another statute, Civil Code Section 8434 (listed as the former Civil Code Section 3140 in this case), which codified the long adopted rule that if there is a valid contract, the contact price measures the limit of the amount of the lien which can be acquired against the property by the contractor or subcontractor.  The Court of Appeal held that if Section 8430(a) was construed to use the reasonable value of services solely as a basis for recovery whenever a property owner was not a contracting party, a contractor could obtain a lien in an amount that was more than the contract price if the reasonable value of the work exceeded that amount. The decision in Appel confirms the proposition that the amount of the mechanics lien filed against a property by a contractor or subcontractor is limited to the amount of the contract price in the construction contract, regardless of whom it is being enforced against.  Owners and contractors should be cognizant of this fact when they draft a construction agreement.  Further, subsequent owners should be aware of any mechanics liens filed against a property they elect to purchase.  They are not insulated from liability even though they did not enter into the construction contract which is the basis for such liens.  Buyers should make sure they do their proper due diligence and title review in any purchase to guard against these issues.  Development Impact Fee Deferral Program Expires July 1 The City’s impact fee deferral program is set to expire July 1, 2013.  If no legislative action is taken, beginning July 1, all impact and in-lieu fees applicable to a project will be due prior to the issuance of the building permit or first site permit addenda authorizing construction. Time is running out.  If you have any questions, please call Andrew Junius or John Kevlin in our office.   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 great formula retail debate is about to be joined yet again in San Francisco.  The term “formula retail” is shorthand for virtually any national retailer who has more than eleven stores in the country.  That certainly describes a lot of businesses, and in fact, many locally-grown businesses that expand to eleven stores or more unknowingly go from being viewed as a cute mom-and-pop to being thrown into the same bucket as Walmart and McDonalds.  The formula retail question is fundamentally unique in the world of land use in that it is focused not on what the business does, but who owns it. The Issues On one side of the aisle are those who argue that formula retailers drive out small businesses, destroy neighborhood character, give nothing back to the local community, and export their profits to corporate headquarters in far off lands, etc.  They also often argue that owners hold their properties off the market and keep them vacant in the hope that they can attract a successful formula retailer. On the other side of the debate, well, the arguments aren’t quite as passionate, but are no less real.  What if an existing building is too large for a mom-and-pop store to use, or too expensive to retrofit?  What if a store’s front has been vacant for years and the only interest in the space is from formula retailers?  Would neighborhoods rather see a formula retail use or a vacant space that is constantly being attacked by graffiti?  Shouldn’t including more retailers in an NC district encourage competition and benefit everyone? Unlike many of the hotly contested, case-by-case land use battles we see every day in San Francisco, the formula retail question doesn’t really lend itself to easy answers.  It’s not as simple as saying that a particular building is too tall, an architectural style is ugly, the upper floor setback is too small, etc.  The debate surrounding formula retail involves much more fundamental questions about what rights and responsibilities various stakeholders have – or should have – and what metrics the City should use to decide who gets to do business where.  The Players The debate is joined by four basic groups: The first group is comprised of residents, community activists and business owners in our Neighborhood Commercial Districts who have strong feelings one way or the other about what their commercial street should look like, and who should be allowed to do business on it; Second are the national retailers, who of course, are looking for business opportunities and want to be where everybody else is in terms of neighborhood locations; Then come the commercial property owners; And the final group is made up of the decision makers – the Planning Department and Planning Commission and the Board of Supervisors – they have the very difficult job of trying to “referee” this complex dance.  The three stakeholders with “skin in the game” (the local neighbors, the property owner, and the formula retailer) all have competing interests, although there should be common ground (i.e. it is in everyone’s interest, for example, to have a vibrant, attractive, active, commercial street that offers a variety of goods and services to residents).  But real progress cannot be made unless the parties are willing to come to the table, set aside the emotion, and have a rational discussion. The Dialogue The City’s current formula retail process encourages this kind of dialogue by requiring mandatory public outreach meetings and a conditional use authorization process at the Planning Commission that virtually every formula retail store outside of the downtown area must go through.  But despite this established process, there are still heated battles at the Planning Commission over formula retail uses.  Here are some thoughts about how each of these groups could think about this issue going forward in order to engage in a  more productive dialogue. The Neighbors.  Clearly this is an emotional issue for San Francisco residents across the board.  Neighborhood character is an important touch-stone in the City, and it is a legitimate (if difficult to define) neighborhood asset worthy of careful protection.  In many of the most desirable neighborhoods, residents have been extremely successful in preventing formula retailers from coming in (Hayes Valley, North Beach).  While these neighbors are achieving the specific goal of keeping national retailers out of their neighborhood, their efforts can also have negative consequences, such as a lack of additional services for the residents in the area and continued long-term commercial vacancies that can also invite graffiti, squatting or safety concerns for the community.  We believe interested neighbors have every right to air their concerns about formula retail; at the same time, these neighbors also have a civic duty to come to the table and talk to retailers who are doing outreach and considering locating in their neighborhood. The Property Owners.  Property owners have a vested interest in keeping their spaces occupied and rents flowing.  There is no question that a “credit tenant” like a national retailer is something that most landlords and property owners love to see.  From a strictly business perspective, owners cannot be blamed for wanting what they believe are high quality tenants who can pay the rent.  That said, owners must realize that their individual properties are a part of the cumulative character of the community.  They should consider tenants (both large retailers and small mom-and-pop stores) who are willing to revitalize existing spaces, invest in the character of the surrounding community, and offer goods and services that are not already readily available. The National Retailers.  National retailers want to be in the City for obvious reasons.  What some are starting to learn, however, is that they must be much more sensitive to store design, neighborhood concerns, signage, and a whole variety of issues that are extremely important to stakeholders in the surrounding Neighborhood Commercial District.  Many of these companies have a difficult time adjusting to these very fine grain issues and concerns.  These companies are very attached to the comprehensive national

As discussed in our Update last week, urban developers often need to cross their neighbors’ property lines in order to efficiently construct their projects.  Last week we talked about installing shoring under the neighbors’ building to properly protect it from movement during excavation.  This week we shift our attention to using the airspace of other property for construction crane overswing. The invasion of airspace by a crane overswing is not a clear cut issue.  Although property owners have rights to the “top of the atmosphere”, there are exceptions.  For example, there is a right of commercial aviation over all property in the United States.  See Cal. Public Utilities Code §§ 21402, 21403; Drennen v. Ventura, 38 Cal.App.3d 84, 87 (1974).  Believe it or not, this issue was litigated, proving the point that there are enough lawyers to take on any case.  Construction projects have created disputes between property owners over the right to use airspace.  Although such use would technically be an invasion of this property right, different states have varying rules about the penalties for doing so without permission. In New Jersey, the owners of a nine-story building hung scaffolding over an adjacent three-story building, occasionally only six inches above the smaller building’s roof. The smaller building’s owner sought an injunction prohibiting the use of the scaffolding over the airspace of the building.  The court concluded that because the smaller building’s owner had never made any use of the airspace above the building, he had no right to prevent the owners of the larger building from hanging scaffolding.  See Slotoroff v. Nassau Associates, 428 A.2d 956 (N.J. Sup. Ct. Ch. Div. 1980).  In Illinois, in contrast, the owner of a smaller building sought both an injunction and money damages as a result of scaffolding from a larger building under construction hanging over the property line.  Concluding that the owner had not demonstrated any harm from the presence of the scaffolding other than the threat of possible future negligence from falling materials, the court dismissed the case entirely.  Geller v. Brownstone Condominium Ass’n, 402 N.E.2d 807 (Ill. App. Ct. 1980). California applies a “reasonable use” standard.  Hinman v. Pacific Air Transport, 84 F.2d 755 (9th Cir. 1936).  The oft-repeated right to the “top of the atmosphere” is not literally true in California.  Instead, a landowner owns only so much of the airspace above ground as it can “make good use of.”  An adjacent landowner has violated this right when there is some “actual interference” with the landowner’s use and enjoyment of the land. In the context of tower cranes, developers need to consider the property over which the crane would swing.  For example, if a crane is hundreds of feet in the air and hangs over a two-story building or a parking lot, the presence of the crane likely does not impede the existing use of the property.  If the crane hangs over a public park or open space, the presence of shadows on the property may technically interfere with the use of the park by depriving the park of sunlight.  However, the amount of harm caused by shadows that only cover a small portion of the park would be minimal.  Nevertheless, a best practice may be to avoid casting shadows during the times of day when people would use the park, such as the lunch hour.  Finally, even if a tower crane traverses airspace over a high-rise building, unless there is some use made of the airspace above the building, or the crane interferes with light, the high-rise owner might not have any harm on which it could sensibly seek an injunction or damages in a California court. While developers must apply for permission to use tower cranes, the application process does not involve notifying neighbors that a crane may cross over the airspace above the neighbor’s property. Of course, it is always better to obtain permission for the use of airspace, if possible.  The threat of litigation, or complaints to the City Building Department, are never helpful to the project and could cause delay.  Early discussions with the neighbors will best serve the developer and avoid disputes.  It will significantly benefit the developer to come up with a package of protections to show the neighbor, including comprehensive insurance, experience and safety record of the construction company, and a depiction showing that loads will not be carried over the neighbor’s property.    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 reviewed in our Update last week, urban developers often need to cross their neighbors’ property lines in order to efficiently construct their projects.  Last week we talked about installing shoring under the neighbors’ building to properly protect it from movement during excavation.  This week we shift our attention to using the airspace of other property for construction crane overswing. The invasion of airspace by a crane overswing is not a clear cut issue.  Although property owners have rights to the “top of the atmosphere”, there are exceptions.  For example, there is a right of commercial aviation over all property in the United States.  See Cal. Public Utilities Code §§ 21402, 21403; Drennen v. Ventura, 38 Cal.App.3d 84, 87 (1974).  Believe it or not, this issue was litigated, proving the point that there are enough lawyers to take on any case.  Construction projects have created disputes between property owners over the right to use airspace.  Although such use would technically be an invasion of this property right, different states have varying rules about the penalties for doing so without permission. In New Jersey, the owners of a nine-story building hung scaffolding over an adjacent three-story building, occasionally only six inches above the smaller building’s roof. The smaller building’s owner sought an injunction prohibiting the use of the scaffolding over the airspace of the building.  The court concluded that because the smaller building’s owner had never made any use of the airspace above the building, he had no right to prevent the owners of the larger building from hanging scaffolding.  See Slotoroff v. Nassau Associates, 428 A.2d 956 (N.J. Sup. Ct. Ch. Div. 1980).  In Illinois, in contrast, the owner of a smaller building sought both an injunction and money damages as a result of scaffolding from a larger building under construction hanging over the property line.  Concluding that the owner had not demonstrated any harm from the presence of the scaffolding other than the threat of possible future negligence from falling materials, the court dismissed the case entirely.  Geller v. Brownstone Condominium Ass’n, 402 N.E.2d 807 (Ill. App. Ct. 1980). California applies a “reasonable use” standard.  Hinman v. Pacific Air Transport, 84 F.2d 755 (9th Cir. 1936).  The oft-repeated right to the “top of the atmosphere” is not literally true in California.  Instead, a landowner owns only so much of the airspace above ground as it can “make good use of.”  An adjacent landowner has violated this right when there is some “actual interference” with the landowner’s use and enjoyment of the land. In the context of tower cranes, developers need to consider the property over which the crane would swing.  For example, if a crane is hundreds of feet in the air and hangs over a two-story building or a parking lot, the presence of the crane likely does not impede the existing use of the property.  If the crane hangs over a public park or open space, the presence of shadows on the property may technically interfere with the use of the park by depriving the park of sunlight.  However, the amount of harm caused by shadows that only cover a small portion of the park would be minimal.  Nevertheless, a best practice may be to avoid casting shadows during the times of day when people would use the park, such as the lunch hour.  Finally, even if a tower crane traverses airspace over a high-rise building, unless there is some use made of the airspace above the building, or the crane interferes with light, the high-rise owner might not have any harm on which it could sensibly seek an injunction or damages in a California court. While developers must apply for permission to use tower cranes, the application process does not involve notifying neighbors that a crane may cross over the airspace above the neighbor’s property. Of course, it is always better to obtain permission for the use of airspace, if possible.  The threat of litigation, or complaints to the City Building Department, are never helpful to the project and could cause delay.  Early discussions with the neighbors will best serve the developer and avoid disputes.  It will significantly benefit the developer to come up with a package of protections to show the neighbor, including comprehensive insurance, experience and safety record of the construction company, and a depiction showing that loads will not be carried over the neighbor’s property.    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. ​

Underpinning – Can You Dig It? Urban developers often need to cross their neighbors’ property lines in order to efficiently construct their projects.  Two of the more difficult challenges are (i) using the airspace of other property for construction crane overswing, and (ii) installing shoring under the neighbors’ building to properly protect it from movement during excavation.  While using the property of another without permission is a legal trespass, there are different “ground rules” (pun intended) for going below the earth, compared to using airspace.  This week we cover underpinning agreements; in a future issue we will be discussing tower crane swing issues. California has detailed rules for protecting a neighbor’s property during excavation which can be used to force developers to make substantial payments to their neighbor or incur major costs.  Each property owner is entitled to lateral and subjacent support from neighboring landowners.  (Cal. Civ. Code § 832.)  At the same time, the law permits landowners to “make proper and usual excavations” on their land for construction and improvements.  These sometimes-competing rights of support for one landowner and excavation for another create a quandary for developers who must conduct extensive excavation while preventing subsidence on their neighbors’ land. Landowners who intend to excavate their foundation must provide “reasonable notice” to their neighbors.  (Cal. Civ. Code § 832.)  The code provides that at a minimum the notice must state the depth of the excavation and when it is scheduled to begin.  Although the statute does not define the when or how notice must be made, landowners should provide notice in writing, preferably by certified mail or verifiable means, with a sufficient amount of time for neighbors to prepare their property for the excavation.  It is also wise to notify neighboring tenants of the upcoming excavation to avoid surprising the tenants, and receiving complaints. Also, a landowner making excavations must not only use “ordinary care and skill,” but also has an obligation to take “reasonable precautions” to sustain the lateral and subjacent support its land provides to adjacent properties.  (Cal. Civ. Code § 832.)  Furthermore, if excavation is to be deeper than nine feet and the foundation of an adjacent building is also deeper than nine feet, the developer has an additional duty to protect the adjacent land and any buildings on the adjacent land, provided that the necessary license is given to enter the property, and is liable for any damage to the adjoining property and any buildings on it.  (Cal. Civ. Code § 832.) In practice, for many projects the only way to ensure an adjacent building’s stability is substantial underpinning, tiebacks or shoring.  However, the statute does not permit a developer to enter the neighbor’s property unless the neighbor grants a license to the developer. Id.  The developer has an obligation to protect its neighbor’s property—including buildings on the property—but has no right absent a negotiated license to enter the property to install underpinning or shoring.  Some attorneys use this tension as leverage in negotiations by taking the position that if the neighbor does not grant a license, the developer has no obligation to protect the neighboring property.  However, it is highly questionable whether this defense would work if damage occurred, and most contractors would not take this risk.  Local building departments often carefully review the shoring plans to confirm that there is no risk of damage to a neighboring property. Unfortunately, since there is no way to force a neighbor to grant access, developers are sometimes asked to pay for the right to underpin their neighbor’s property.  Sophisticated real estate developers and owners often times consent to these agreements without requiring payment, knowing that underpinning and tiebacks will, in almost every case, make their building safer and improve their foundation at no cost.  Smaller property owners and residential projects often use an adjacent construction site as an opportunity to increase revenue.  In either case, the developer can expect to be required to provide a hefty insurance policy and broad indemnity for any damage that occurs.  What is often negotiated is whether the developer is responsible for any loss of business or tenant claims for disruption during the construction process.  The parties’ bargaining power and relationship will often be a major factor in how these negotiations turn out. It seems that this problem would be ripe for a legislative solution, especially in urban environments where infill development has caught fire.  Unfortunately, no solutions are pending at the State or local level.  This may continue to be a cost of doing business since the thorny issues of private takings and giving benefits to developers may be a tough sell. Development Impact Fee Deferral Program Set to Expire July 1 The city’s fee deferral program, which allows for up to 80 or 85 percent of project impact fees and BMR in-lieu fees to be deferred until the first certificate of occupancy is issued, is set to expire July 1, 2013.  The program had been enacted in 2009, in the middle of the economic crisis, and was meant as a stimulus measure, and included a sunset clause.  In our experience, this has been a very successful program, with virtually all projects taking advantage of it since its adoption.  Action by the Board of Supervisors would be required to preserve the program.  The Planning Commission will be holding a hearing on the effectiveness of the fee deferral program on June 13.  The result of that hearing will be a recommendation to the Board of Supervisors to extend the program or let it expire. DBI is currently informing the public that projects can take advantage of the fee deferral program so long as they have a complete permit application on file prior to July 1, as well as a fee deferral request on file.  If no legislative action is taken, beginning July 1, all impact and in-lieu fees applicable to a project will be due prior to the issuance of the building permit or first site permit addenda authorizing construction.  RECON

The Planning Department and the Department of Public Health (“DPH”) have joined together to propose amendments to the 1986 Maher Ordinance (SF Health Code Article 22A) in order to expand the scope of required soils testing and remediation for hazardous substances at all properties that DPH determines may cause a public health risk, as a condition of issuing a building permit.  The Maher Amendments were introduced to the Land Use Committee of the Board of Supervisors on April 16, 2013. Benefits for Developers A significant benefit of the Maher Ordinance amendments will be their effect of authorizing the City to issue Community Plan Exemptions from CEQA, as well as categorical CEQA exemptions, as envisioned by the Eastern Neighborhoods Plan, adapted in 2008.  The Eastern Neighborhoods Community Plan EIR has already performed CEQA review for properties within the Eastern Neighborhoods, in order to avoid repeating an additional CEQA review for every project.  Despite the City’s certification of the Eastern Neighborhoods EIR, a conflicting view of the law by Planning Department staff caused it to require Mitigated Negative Declarations for all projects located at former gas stations and industrial properties, due solely to the need to excavate soil from the property.  While excavation and testing of soil for disposal in a landfill is a routine, common-place event for nearly all development projects, the Planning staff made a determination that CEQA exemptions could not be granted where DPH had not issued a “No Further Action” letter, or case closure, for a former gas station or industrial property.  CEQA Exemptions were not granted even when 95% of a property had already been excavated and the soil disposed at a landfill. The Maher Amendments have the effect of authorizing the City to issue CEQA exemptions in cases where soil or groundwater testing or remediation is required by DPH.  The Planning Department has concurred with this analysis. In essence, the requirements of the Maher Amendments will replace the Planning Department’s current practice of requiring mitigation measures, attached to mitigated Negative Declarations, to ensure soil and groundwater investigation and remediation where indicated by prior uses of the property.  This should save everyone a lot of time and energy without in any way compromising environmental safety procedures when it comes to soils issues. Existing Law  Under existing law, in order to obtain a building permit for any project that includes excavation of at least 50 cubic yards of soil, all properties located along the City’s Eastern Shoreline must be tested by the applicant for the presence of hazardous substances.  The applicant must prepare and submit to DPH a soils testing report disclosing and quantifying the presence of any hazardous substances at the property.  DPH will review the report and determine the appropriate remediation for the property, if any.  The Applicant is also required to submit remediation work plans to DPH for approval.  The applicant is responsible for the excavation and removal of any underground storage tank and contaminated soil at the property, under DPH oversight, and for such other steps as DPH may require, including testing and remediation of groundwater contamination where appropriate. Proposed Amendments  For nearly three decades, the Maher Ordinance has applied only to properties located along San Francisco’s Eastern Shoreline.  The proposed amendments would expand the geographic scope of the Maher Ordinance to cover all properties throughout the City that (1) have the potential to contain hazardous substances, based on site histories that indicate prior use for industrial uses, gas stations, or any other uses associated with underground storage tanks or located within 100 ft. of any properties containing underground storage tanks, and (2) properties located within 150 feet of freeways.  The owner must prepare a use history for all such properties, and submit the findings to the DPH for review.  DPH will require soil testing and/or groundwater investigation where appropriate.  DPH will also require remediation where the investigation indicates the presence or absence of any one of the materials designated by DPH as hazardous.  Property owners are required by the Maher Ordinance, as well as by State and Federal law, to notify DPH whenever hazardous substances are encountered in significant concentrations at their property.  Upon notification, DPH will take jurisdiction and oversight over the investigation and remediation of the property, including both soil and groundwater.  Self-help without DPH oversight would be a violation of the Maher Ordinance and should not be attempted. Remediation of the property, once commenced, must continue until completion of a final closure report prepared by the property owner’s environmental consultant, approval of the report by DPH, and issuance by DPH of a “No Further Action” letter addressed to the owner and to the Department of Building Inspection (“DBI”).  In most cases, remediation is required prior to DBI issuance of a permit to commence building the project.  However, DBI retains jurisdiction to issue site permits and site permit addenda to undertake soil sampling or remediation at any time.    Notification to Buyers of Real Property A seller or a seller’s agent involved in the sale or exchange of any real property located on any parcel of land that is subject to the Maher Ordinance (identified as such on a list to be prepared by the Director of DPH)​ shall provide a copy of a summary of the Maher Ordinance, prepared by DPH, to the buyer or buyers, and shall obtain a written receipt from the buyer or buyers acknowledging receipt of the DPH summary.  Until the Director’s list of properties subject to the Maher Ordinance and the summary are available, sellers should provide a copy of the Maher Ordinance (SF Health Code Article 22A) to buyers for any property that may have once been used for a gas station, an auto repair shop, any type of industrial use, or that is known or suspected to have contained or released hazardous material. The proposed Maher amendments are a welcome expansion of the City’s efforts to ensure mandatory testing and remediation of properties with a history of uses having indicators of the potential

This April the Planning Commission unanimously approved a new policy that will create new hurdles for formula retail (a.k.a. “chain stores”) trying to locate in the Upper Market Street neighborhood.  The policy prohibits the Planning Department from recommending approval of new uses that would bring the concentration of formula retail within 300 feet of the proposed location to a threshold of 20% or greater.  The policy was a collaborative effort of the Department and members of the Duboce Triangle Neighborhood Association (“DTNA”). For years, the City has been requiring Conditional Use authorization to locate formula retail in neighborhood commercial districts, citing an interest in protecting San Francisco’s vibrant small business sector.  The Hayes Valley Neighborhood Commercial District (“NCD”) and North Beach NCD have even chosen to ban the location of formula retail uses entirely.  Formula retail is defined by the 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 service mark.” Under the new policy, applicants seeking to locate any formula retail store in the Upper Market neighborhood will be required to provide the Department with an analysis of the concentration of formula retail within 300 feet of the proposed site.   If locating proposed formula retail use within the Upper Market neighborhood would bring the concentration of formula retail within a 300 foot radius to greater than 20%, the Department will not be allowed to recommend approval of the application to the Commission, regardless of the level of public support.   A detailed description of the formula for assessing the concentration of formula retail under this policy is provided in the Department’s Executive Summary of the policy: http://www.sfplanning.org/index.aspx?page=3438. However, if the Department determines the surrounding concentration to be lower than the 20% threshold, it would evaluate the proposed Formula Retail application and make its recommendation to the Commission based on other criteria set forth in the Planning Code.   These criteria include: (1) the existing concentrations of formula retail uses within the district; (2) the availability of other similar retail uses within the district; (3) the compatibility of the proposed formula retail use within the existing and aesthetic character of the district; (4) the existing retail vacancy rates within the district; and (5) the existing mix of Citywide-serving retail uses and neighborhood-serving retail uses within the district.  Of course, even if the Department recommends disapproval under the new policy, the Commission retains its discretion to approve or disapprove the formula retail application.  And, the Department will still evaluate each proposed Formula Retail application based on all applicable criteria under the Planning Code, in order to aid in the Commission’s deliberation.  How important is the Department’s recommendation in these kinds of cases? The Commissioners’ comments at the April 11, 2013 Commission meeting may shed some light on the issue.   Commissioner Antonini noted that it places a restriction on the total concentration of formula retail in the area, without differentiation due to the type of formula retail proposed – banks, restaurants, pharmacies, groceries, cell-phone retailers and clothing stores are all treated as one general formula retail category.  He also voiced concerns that a number of long-term retail vacancies exist along Upper Market Street, and that new and existing commercial spaces containing larger square footages could be difficult to fill with non-formula retail uses.   Prior to casting his vote in support of the policy, Commissioner Antonini reiterated that the policy will not eliminate the Commission’s discretion to weigh these factors before making is ultimate decision on a proposed formula retail use, stating, “It’s just the staff recommendation, which might not carry the day.”  However, most of the Commissioners’ comments were supportive of the policy and of increased restrictions on formula retail uses.  Commissioner Hillis questioned whether the 20% threshold was low enough to effectively restrict new formula retail in the area, stating that “I would like to make sure that the percentage is low enough that…we are setting the signal to formula retail that you don’t want more formula retail on this corridor, which is what we are trying to do.”  Likewise, Commissioner Borden explained that although the Commission has gone against Department recommendations in the past, they often lead the Commission to more robust discussion of the proposed uses and lead the Commission to “think harder about why we believe a particular business should be in a particular location.”   The new policy on formula retail in the Upper Market Street neighborhood was unanimously approved by the Commission in April.  More information on formula retail uses in San Francisco can be found on the Planning Department’s web site at: http://www.sf-planning.org/index.aspx?page=2839.   Real Estate Round Table – May 9 – Let’s Talk Gross Receipts Tax Last year’s passage of the gross receipts tax in the City brought us an entirely new tax regime for business.  Next week the RERT will feature Manny Fishman of Buchalter Nemer to explain this new world of the gross receipts tax.  If you would like to attend or learn more about the RERT, please contact Lenore ElKarou at lelkarou@reubenlaw.com or (415) 567-9000 x452.   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.       ​

Central Corridor Draft Plan Released:  Adoption Hearings May be as Early as Mid-2014 At long last, the Planning Department last week made public the draft Central Corridor Plan.  This document will provide the policy basis for the rezoning, Planning Code amendments, fees and neighborhood improvements associated with the Central Corridor Plan.  The plan is quite ambitious, and beyond the rezoning and Planning Code amendments, foresees significant upgrades and overhauls of the local transportation system (beyond the obvious Central Subway), creation of new parks and “public ways,” and establishment of an “eco-district” to improve urban sustainability in the area.  This week’s Update provides highlights of those plan elements that are most relevant to development in the area, but we recommend reading the full plan for anyone interested in the broader picture:  http://centralcorridor.sfplanning.org. The biggest news from the Draft Plan is that the Planning Department is suggesting that the plan could be adopted as early as mid-2014.  Considering the Notice of Preparation of the EIR for Central Corridor was just issued this week, that is a fast turnaround – and shows the plan to be a priority for the Planning Department.   At a high level, the Plan is intended to maximize the value of the multi-billion-dollar Central Subway currently under construction along 4th Street.  The Plan will allow for an additional 5,563,700 square feet of new office space above what is currently permitted, and an additional 3,490 dwelling units.  The Plan generally favors commercial development over residential development – and enforces this by requiring commercial use on larger lots generally south of the freeway.  Big-box standalone retail will not be permitted.  Tourist hotels will no longer be limited by room count. The Plan gives new details on how taller buildings will be regulated.  Higher-zoned sites will have a no-bulk-limit base up to 85 feet, with towers above set back at least 15 feet.  Tower floor plates will be limited to 15,000 square feet for commercial uses and 12,000 square feet for residential uses.  Tower separations of 115 feet will be required.  Some height limits have been tinkered with since the last proposed height map was published.  The Plan will encourage retention or additions to existing buildings in several ways.  Lot mergers of smaller lots in the area will be restricted, although higher FAR limits will apply to smaller lots.  Building retention will be incentivized by providing an FAR bonus for additions instead of demolitions.  A Transferable Development Rights program will be established for historic buildings – development sites may need to purchase TDR for floor area above 4:1 or 5:1 FAR. Eastern Neighborhoods impact fees would generally remain the same, with the exception of a new tier of higher fees that will apply to properties that received a height limit increase of more than 60 feet (roughly $20/sf for residential use, $18/sf for non-residential use).  For lots formerly zoned SLI or SALI, minimum below-market rate housing requirements will increase, similar to the requirements in the UMU districts. We will continue to track the Central Corridor Plan’s progress, and keep you posted on all major milestones.  CEQA Reform Effort:  Inching Closer to a Possible Deal We informed readers last week about the Land Use Committee’s hearing on CEQA reform on Monday and the progress towards a potential deal on setting time limits for filing appeals on CEQA exemptions and negative declarations.  Progress continues to be made, although it has been anything but smooth.  First, Supervisor Kim has amended her legislation to include time limits on appeals.  This now leaves us with two pieces of CEQA reform legislation, BOTH including time limits on appeals of all CEQA documents.  This is a major victory – just last November, Supervisor Wiener’s legislation underwent a major assault of opposition at the Planning Commission and many observers predicted reform was dead.  We now have competing CEQA reform proposals, both including appeal period limits.   Supervisor Chiu requested several amendments to Wiener’s legislation on Monday that, upon first review, Supervisor Wiener believed he could accept.  The hearing was again continued for another two weeks to May 6, to give time for the public to review the amendments.  In the meantime, Supervisor Kim’s legislation is being heard at the Planning Commission today.  There is still some serious legislating to be done on CEQA reform, but barring a complete failure of the process, it appears we are on track for CEQA appeal periods this legislative term. 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. ​

Update on Local CEQA Reform – Next Hearing on Monday There continue to be a number of twists and turns in Supervisor Scott Wiener’s attempt to reform local implementation of CEQA to include appeal deadlines for exemptions and negative declarations – but, according to public statements made by a key member of the Land Use Committee, a compromise does seem to be within reach. As many of you already know, Supervisor Jane Kim, who serves on the Board of Supervisors Land Use Committee with Supervisor David Chiu and Supervisor Scott Wiener, introduced a competing legislative proposal a few weeks back.  In short, her proposal does not include any CEQA appeal deadlines.  That being said, Supervisor Kim was quoted last week by the Chronicle saying:  “If we’re going to put a firm deadline to appeal on the back end, then we have to have a strong notification process on the front end,” she said.  “We clearly need a deadline for negative declarations and exemptions, but making it more difficult for people to appeal the process is not the answer.” This appears to be a major movement towards a compromise deal.  We think most people in the development community would be happy to have stronger noticing requirements of CEQA decisions in exchange for a clearly-defined appeal period.  The next, main event in this process is this Monday, April 22.  The Land Use Committee will once again hold a hearing on Supervisor Wiener’s proposal.  Public comment really does matter – especially in this case where anti-reformers will be out in droves.  The hearing will be held at City Hall, Room 263 at 1:30 p.m.  CEQA reform is the first item on the agenda.  Condo Conversion Bypass Fee – Could We Finally Have Reached a Deal? It has become a biennial ritual in San Francisco that every legislative session of the Board of Supervisors, an ordinance is proposed to allow Tenancy-In-Common (TIC) owners to bypass the annual condo conversion lottery and pay the city a fee for the right to convert to condominiums.  Also part of the tradition:  the ultimate failure of the legislation.  But something funny happened at the Land Use Committee on Monday:  After a rally was held outside of City Hall by tenants rights’ activists (typically opposed to making condo conversions easier) calling for a compromise measure, Supervisor David Chiu and Supervisor Norman Yee introduced amendments to the proposed ordinance that would do just that. The compromise is just another example of the current Board’s practical, get-things-done approach to legislating after years gridlock and antipathy during the previous decade.  Here’s the deal:  the existing 2,200 of so TIC units in the city have the one-time opportunity to pay a $20,000 fee to the city to gain approval for a condo conversion.  The fees would be put towards affordable housing preservation and development in the city.  In exchange, the annual condo lottery would be put on hold for roughly 10 years, and when it does start back up, only TIC buildings with 1-4 units can apply.  Buildings with 5 or 6 units, currently eligible for the lottery, would be completely prohibited from converting.  The Land Use Committee will be hearing the new proposal on Monday, right after the CEQA reform hearing.   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, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. ​

This week’s update reports on three recent planning policy measures of import to the San Francisco real estate community. Stimulus Program Last week, the Planning Commission adopted a “Stimulus Policy for Recession Recovery & Project Implementation.”  This measure gives sponsors of approved projects that have exceeded their performance commencement deadlines a one-time opportunity to submit Building or Site Permit Applications immediately, without going through the typical lengthy Planning Commission extension process.  The Stimulus Program does not change existing policy subjecting the new Building or Site Applications to current fee amounts and other current Code requirements. Eligible projects are those with construction costs over $500,000 and approvals no more than 10 years old.  The Planning Department is mailing notice of the Program to approximately 65 identified eligible project sponsors.  The project sponsor will have 60 days to “opt in” to the Program.  Planning also has produced a list of the eligible projects.  Please contact our office if you would like to know if your project is on the list.  Further details on the Stimulus Program are provided below. Office Allocation The Planning Department recently announced that it has added 800,000 square feet to the City’s Large Project Office Development Allocation pool.  This additional square footage previously had been incorrectly deducted from the pool.  This is welcome news as many in the development community are concerned about the availability of allocations due to the recent abundance of office development applications. CEQA Reform The Board of Supervisors’ Land Use and Economic Development Committee considered Supervisor Wiener’s CEQA reform legislation (see our March 29, 2013 Update) at its April 8, 2013 hearing.  It was an overflow hearing room, with both supporters and opposition present and vocal.  Over 50 speakers addressed the Committee.  In the end, the Committee voted to continue the matter until April 22.  Supervisor Kim introduced her alternative CEQA legislation this week, and the Committee intends the use the continuance period working to reconcile the two measures. Further Stimulus Program Details (and Performance Condition Clarification) In order to be eligible for the Stimulus Program, the development project must meet the following specific requirements: Has a Conditional Use Authorization, a Downtown Project Authorization, or an Eastern Neighborhoods Large Project Authorization approved by the Planning Commission between April 4, 2003 and October 4, 2011; Has a condition of approval with a performance time frame that has expired; Is not subject to specific Planning Code provisions that limit the time frame for project implementation (e.g., § 321(d) for large office projects); Has an estimated construction cost of no less than $500,000; and Does not involve any Wireless Telecommunications Facility. A submitted Building or Site Permit Application (the “Application”) will be approved only if it meets the following specific requirements: The Application complies with all other conditions of approval and is consistent with the project’s granted approval(s); The Application complies with all Planning Code provisions currently in effect, including but not limited to use limitations, building form controls and development impact fees; and The Application is approved by the Planning Department and issued by DBI no later than October 4, 2014.  This 18-month period may be extended at the discretion of the Zoning Administrator only where implementation of the project is delayed by an appeal or by a legal challenge, and only by the length of time for which such an appeal or challenge had caused delay. In a related action, the Planning Commission formalized its existing policy concerning the performance time frames imposed on future Conditional Use Authorizations, Downtown Project Authorizations, and Eastern Neighborhoods Large Project Authorizations.  The performance time conditions for these Authorizations will provide that a Building or Site Permit must be issued within three years from the date of approval. The conditions of approval also will provide that if the three-year period lapses without issuance of a Building or Site Permit, the project must seek renewal of the Authorization through an amendment of the original Authorization or an application for a new Authorization.  If the project sponsor does not file for such a renewal, the Planning Commission must conduct a public hearing in order to consider revocation of the Authorization.   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. ​