Stimulus Package Hearing at Planning Commission on January 14 As we’ve reported to you last year, the Mayor’s office has introduced a stimulus package to spur new activity in the development community. The Planning Commission will be the first city body to review the plan. We urge everyone to attend and voice their support at the Commission’s January 14th hearing. The meeting begins at 1:30 p.m. in Room 400 of City Hall. To recap, the stimulus package includes two major reforms. The first would simplify city development fees by creating a new unit at the Department of Building Inspection that would serve as the one-stop shop for information on fees and collection of fees. In addition, all development fees would be due prior to issuance of the first building or site permit. However, project sponsors could delay payment of all development fees until issuance of the first certificate of occupancy. The only extra charge for this fee deferral would be an annual fee equal to the city’s cost of funds. The other major piece of the stimulus package would allow project sponsors to indefinitely delay payment of 33% of their inclusionary housing requirements or Jobs-Housing Linkage fee requirements. In exchange, the project sponsor would have to record a Notice of Special Restrictions on the property’s title that would charge a transfer tax equal to 1% of the value of the property upon each successive sale. Please email us if you have any questions, or view our more detailed earlier Update at “https://www.reubenlaw.com/index.php/rj/singleUpdate/mayors_real_estate_development_stimulus_plan_moves_forward/.” Mayor’s Task Force: Cut Commercial Building Energy Use 50% by 2030 In addition to the news last month that the Transamerica Pyramid has achieved LEED Gold certification, the Mayor’s Task Force on Existing Commercial Buildings released a report with recommendations on how to reduce San Francisco’s greenhouse gas emissions through the greening of existing commercial buildings. The operation, construction and demolition of buildings accounts for almost half of San Francisco’s greenhouse gas emissions and commercial buildings account for 63% of building-sector emissions. The task force has recommended the city set a goal of reducing existing commercial building energy use 50% by 2030. The task force recommends policy steps that can be taken to reach this goal, including requiring buildings to conduct an energy audit every 5 years, producing a “green tenant toolkit” to educate commercial tenants on how to reduce energy usage, requiring sub-metering for each individual commercial tenant, and implementing a public education campaign to teach building owners and commercial tenants how to reduce energy usage. The task force has merely made recommendations to the Mayor. Legislation would need to be introduced to implement these measures. We will keep you posted on further developments. You can find the full report and an executive summary at “http://www.sfmayor.org/press-room/press-releases/press-release-transamerica-goes-green/.” State Agency Adopts Final CEQA Guidelines Regarding Greenhouse Gas Emissions On December 30, 2009, the California Natural Resources Agency adopted final CEQA guidelines regarding greenhouse gas emissions. The rulemaking process took under a year, commencing last April. Senate bill 97 requires lead agencies to evaluate, during its CEQA review of projects, the impact that a project’s greenhouse gas emissions will have on the environment. These new regulations provide guidance on how a lead agency is to determine the significance of impacts from a project’s greenhouse gas emissions. In addition, the regulations authorize program-level documents, such as a general plan, to include a greenhouse gas emissions analysis that future, project-level documents can tier off of. Lead agencies can also develop a new type of plan, a plan for the reduction of greenhouse gas, that can also be tiered from. The final regulations are posted at “http://ceres.ca.gov/ceqa/guidelines/.” 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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work. Copyright 2010 Reuben & Junius, LLP. All rights reserved.  

This is the first in an occasional series of commentaries the Reuben & Junius Update is publishing on San Francisco’s ongoing process of adopting a new Housing Element. The Housing Element is one of the mandatory elements of the City’s General Plan. The General Plan is the City’s most basic and comprehensive planning document. As described by the late Daniel Curtin in his annual “California Land Use and Planning” handbook, the General Plan “provides the blueprint for development throughout the community, and is the vehicle through which competing interests and the needs of the citizenry are balanced and meshed. The General Plan addresses all aspects of development, including housing, traffic, natural resources, open space, safety, land use, and public facilities.” So the General Plan is the “big picture” document that states City policies and objectives in broad strokes. It is very different from the City’s zoning ordinance (Planning Code), which is very detailed in its implementation of all zoning and land use matters, including, of course, the furtherance of the policies in the General Plan. The General Plan and the City’s zoning ordinances must be consistent. The complete General Plan is located on the San Francisco Planning Department’s website. San Francisco’s General Plan is broken into two parts, the main plan elements under Section 1 (which includes seven mandatory elements required by state law), and a series of 15 different “area plans.” The area plans focus on discrete geographic areas of the City and provide for a more detailed series of plans and objectives related to each specific area. State law requires that the Housing Element be updated periodically, usually every five years. That didn’t happen for a while, as there was a long, 14-year gap between the City’s 1990 Housing Element (then called the Residence Element) and the 2004 Housing Element. The 2004 Housing Element was challenged in court. The challengers claimed that the Housing Element could not be adopted without preparation of a full environmental impact report (EIR) pursuant to the California Environmental Quality Act (CEQA). The California courts agreed and directed the City to prepare an EIR for the 2004 Housing Element. Because there has been yet another rather long gap between the 2004 Element and where we are today, the Planning Department is preparing an EIR that will cover both the court’s mandate for the 2004 Element as well as analyze the environmental effects of the proposed 2009 Housing Element. On September 2, 2009, the Planning Department issued a Notice of Preparation of an EIR report for the 2004 and 2009 Housing Element. That document is also available on the Planning Department website and presents what we believe to be a very good comprehensive overview of both elements (2004 and 2009) as well as the CEQA process they are undertaking and how they will be approaching the issue of environmental effects under CEQA. Planning staff has recently completed an EIR scoping meeting to set the parameters of the CEQA review. Earlier this year, the Planning staff hosted a series of meetings and workshops throughout the City to hear directly from interested parties what their housing priorities and needs were. Planning’s website indicates that they hope to publish the Draft EIR by in the spring of 2010, with a Final EIR and adoption by the Planning Commission and Board of Supervisors later next year. However, you don’t have to wait for the Draft EIR to see the Draft 2009 Housing Element. It is also available on the Planning Department’s website “http://housingelement2009.sfplanning.org/” In the coming months, we will be taking a closer look at a variety of the different policies and objectives of the Draft 2009 Housing Element. Not surprisingly, the document continues to ratchet up the pressure on the City to find ways to create and facilitate the construction of more affordable housing and also the preservation of existing affordable housing. It also includes the first ever policies and objectives related to sustainability in green building, and for the first time includes an objective that directs the City to “ensure a streamlined, yet thorough, and transparent decision-making process.” Please let us know if you have any questions about the Housing Element process, or how to find a copy of the Draft 2009 Housing Element that is on the Planning Department’s website. We look forward to bringing you more in-depth analysis of a number of Housing Element topics in 2010. Our update team will be taking a break for the holidays. Our next issue will be the week of January 4, 2010. Happy holidays to all of our clients and friends. 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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.    

California law provides contractors and developers protection against indefinite liability exposure by limiting the time within which an action may be brought for construction defects. Generally, an action for patent defects (defined by statute as “a deficiency which is apparent by reasonable inspection”) must be brought within four years from substantial completion of an improvement. An action for latent defects (defined by statute as “a deficiency which is not apparent by reasonable inspection”) must be brought within three or four years from the date of discovery of the defect but in any case within ten years from the date of substantial completion of the improvement. The ten-year statute of repose for latent construction defects is commonly regarded as an “absolute” limitations period, meaning that the ten-year limitations period applies regardless of when the defect was discovered. Thus, it is a marker upon which a contractor or developer may rely in making insurance coverage and other business decisions. However, while the legislature created the ten-year period to address “economic effects of indefinite ‘long tail’ defect liability on the construction industry” (Lantzy v. Centex Homes (2003) 31 Cal. 4th 363, 374), there are a number of exemptions to the limitations period, including actions based on willful misconduct or fraudulent concealment, or a cross-complaint for indemnity in an action that is commenced within the ten-year limitations period. In addition, courts have created an exemption based on principles of equitable estoppel. The legislature and courts view the exemptions as a reasonable balancing of the need for consumer redress and construction industry economic stability. Willful Misconduct Understanding how some of the exemptions work can help contractors and developers avoid their potential pitfalls. For example, in one case, the court determined that plaintiffs had sufficiently pleaded a claim for contractor/developer willful misconduct where experts identified alleged defects, stated that the defects involved conspicuous failures of subcontractors to comply with the building code, and expressed the opinion that the defects could not be present without the tacit or express approval of the contractor/developer. Thus, a court may charge a contractor/developer with willful misconduct where it has not actively participated in the acts causing harm and allowed plaintiffs to move forward against the contractor/developer despite that the ten-year limitations pCeriod had expired. Cross-Complaint for Indemnity Likewise, where a plaintiff sues for alleged defects, a defendant may bring a cross-complaint for indemnity even where the ten-year limitations period has passed, so long as the plaintiff filed its action prior to the expiration of the ten-year limitations period. In theory, liability based on a claim for indemnity could extend for years past the end of the ten-year limitations period. Such an exception is of particular relevance to subcontractors, who may not be named in the original complaint. Equitable Estoppel Finally, a court may employ equitable estoppel to extend the “absolute” ten-year limitations period. “Equitable estoppel addresses circumstances in which a party will be estopped from asserting the statute of limitations as a defense to an admittedly untimely action because his conduct has induced another into forbearing suit within the applicable limitations period. It…takes its life from the equitable principle that no man [may] profit from his own wrongdoing in a court of justice.” Bomba v. W. L. Belvidere, Inc. (1978) 579 F.2d 1067, 1070. Even though Bomba purports to require some contractor/developer wrongdoing, ” ‘[a]n estoppel may arise although there was no designed fraud on the part of the person sought to be estopped. To create an equitable estoppel, ‘it is enough if the party has been induced to refrain from using such means or taking such action as lay in his power, by which he might have retrieved his position and saved himself from loss.’” Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1152-1153. Accordingly, (1) if a contractor or developer represents, while the limitations period is still running, that all actionable damage has been or will be repaired, thus making it unnecessary to sue, (2) the plaintiff reasonably relies on this representation to refrain from bringing a timely action, and (3) the representation proves false after the limitations period has expired, the contractor or devleoper may be equitably estopped to assert the statute of limitations as a defense to the action. Thus, in such circumstances, a contractor or developer may find itself defending against an action after expiration of the ten-year limitations period. In sum, while the ten-year statute of limitations provides some protections against never-ending construction defect liability, the exemptions make up an important component of the “absolute” ten-year limitations period and knowing the exemptions is the first step to avoiding them. ERRATA – Land Use Note – Stimulus Package Moved to Jan. 14, 2010 Note that the first public hearing at the Planning Commission on the Mayor’s Real Estate Simulus Package has been moved to January 14, 2010.   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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.    

A proposed ordinance making its way through the Board of Supervisors would significantly restrict the ability of owners of newer rental properties to evict their tenants, which would then cause an indirect restriction on condominium sales. Currently, the city’s Residential Rent Stabilization and Arbitration Ordinance places strict controls on rental rates (rent control) and also restricts the ability to evict a tenant to a list of “just causes” for owners of rental properties constructed before June 13, 1979. Owners of rental properties constructed after that date are able to freely set rents and evict tenants for any reason that is otherwise permitted by state and federal law. The proposed ordinance would place the “just cause” eviction restrictions upon these post-1979 properties as well. It would not, however, impose rent control on these units. In other words, owners of post-1979 properties would continue to be able to set rents without restriction. However, tenants would be essentially entitled to “lifetime” leases, as long as there is no “just cause” for eviction, as defined by the ordinance. Commonly asserted “just causes” for eviction include: • Non-payment of rent or habitual late payment of rent; • Breach of a rental agreement or lease; • Owner move-in or an owner’s relative move-in; • To perform capital improvements which will make the unit temporarily uninhabitable while the work is being done; • To perform substantial rehabilitation of a building that is at least 50 years old, provided that the cost of the proposed work is at least 75% of the cost of new construction; • To withdraw the rental units from the rental market under the Ellis Act; • Creation of a nuisance or substantial interference with the landlord or other tenants in the building; and • To demolish or permanently remove a rental unit from housing use. One of these “just causes,” or any of the others specified in the ordinance, would be the only legal reasons to justify the eviction of a tenant in post-1979 properties if the ordinance passed. However, as a practical matter, it is often difficult to convince a court to find in favor of a “just cause,” and landlords typically pay substantial settlements to tenants that are fighting an eviction, even if the eviction is lawful, in order to expedite the eviction and avoid protracted legal battles. Supervisor David Chiu introduced an amendment to the draft ordinance during the last Land Use and Economic Development Committee hearing that would benefit condominium developers that are forced to rent their units for a time before selling due to market conditions. Under the amendment, a new “just cause” for eviction would be added that would allow eviction when the landlord intends to sell the unit, so long as the tenant has been notified of the landlord’s intent to sell the unit in the future, and that the landlord either give 90 days notice prior to the eviction or pay the tenant’s relocation costs. This is a significant change, as condominium developers will be able to rent units during the downturn in the housing market without the risk of being stuck with long-term leases when the sales market picks up again. However, any owner of a newly-constructed residential building who has, as of the date of the ordinance, rented out condo units to tenants with the intention of later evicting the tenant to sell the condo must notify the tenant within 90 days of the passage of the ordinance of such intention. On the other hand, owners of individual condo units that are rented out (as opposed to developers of an entire project), however, would have no ability to evict a tenant in order to sell their unit. That is, they could be stuck as a landlord unless they can find a buyer who is willing to purchase the unit subject to the lease, and then commence an owner move-in eviction process. Beyond merely restricting evictions to listed “just causes” for post-1979 rental properties, the ordinance would also require a “just cause” in order to remove any housing services, such as garages, laundry rooms or decks. Property owners would be required to pay relocation expenses of up to $14,825 per unit (based on the number of tenants) for certain evictions – and more if the tenant is elderly, disabled or the household includes a minor. Also, an owner cannot increase the rent unreasonably with the intent to force their tenant to move out. This limitation on rental increases could give rise to significant litigation over whether the rent was “reasonably” increased, and what the owner’s true motive was. Due to the way the ordinance is drafted, it may have other effects on post-1979 properties. If you have any questions regarding your rental property, or have questions regarding the ordinance, contact Kevin Rose or John Kevlin at 415-567-9000. We will continue to keep you updated on the progress of this proposed ordinance. Vacant Property Registration Ordinance Materials Released We reported to you a few months back that a new ordinance was passed by the Board of Supervisors last summer that placed substantial new requirements on owners of vacant buildings. The ordinance became effective October 1st, and the Department of Building Inspection is now taking steps to implement it. The Department sent out letters to owners of properties it believes are vacant this month, requesting they submit a registration form for their property. The registration form, along with the notification letter and other materials are located at “http://sfdbi.org/index.aspx?page=449.” Failure to comply will subject owners to increased fees and enforcement action. Contact John Kevlin at 415-567-9000 or if you have any questions about your building’s compliance.   Real Estate Stimulus Hearing Schedule ***Updated*** The real estate development industry needs this stimulus! Make sure you voice your support at one of these future hearings: December 10 – Planning Commission (rescheduled from December 3) December 19 – Building Inspection Commission January – Board of Supervisors Land Use and Economic Development Committee    

Last week, the Planning Department released the highly anticipated draft of the Transit Center District Plan (“Plan”). The comprehensive plan aims to transform the area surrounding the proposed Transbay Transit Center into the new heart of downtown. The Plan includes a package of zoning changes, including height increases, expanded protections for historic buildings, and the elimination of maximum floor area ratio (“FAR”) limits. The Plan also includes an ambitious program of public improvements to be financed by an equally ambitious package of impact fees and exactions on new development. Regional Smart Growth Goals According to the Association of Bay Area Governments, San Francisco needs to accommodate 23.5 million square feet of downtown office space over the next 25 years in order to meet goals for regional smart growth. This is the minimum amount of office space that San Francisco needs just to maintain its current share of regional employment, which declined from 27 percent in 1970 to just16 percent today. The amount of office space that can realistically be built downtown under existing zoning caps out at approximately 5.8 million square feet. The implications of the shortfall are significant. It means that San Francisco risks losing its preeminent position at the center of the Bay Area’s economy. Regional sustainability goals will be jeopardized as jobs move to suburban locations where workers generate far more greenhouse gas and other emissions. The combination of height increases and reduced FAR restrictions in the Plan will move the City closer to meeting its smart growth obligations. However, significant shortfalls will remain. The Plan proposes a modest increase of about 2.5 million square feet of new office development, or enough for roughly 10,000 workers. This would still leave the City 13 million square feet short of the projected citywide need for office space. Skyline Sculpting: Form Over Function? Height increases are among the most publicized aspects of the Plan. On the site of the proposed Hines-Pelli Transit Tower, the height limit will increase to nearly 1000 feet to make way for the City’s tallest building. Smaller increases, ranging from 50 feet to 300 feet, would allow a handful of buildings on other sites to exceed the area’s current 550-foot height limit. The Plan continues the Planning Department’s practice of deliberately “sculpting” the City’s skyline into a distinct “hill form” with the Transit Center at its peak. This configuration is intended to emphasize both the Transit Center as the center of downtown and to symbolize the City’s commitment to transit-oriented development. Heights on other properties were limited to achieve the desired effect, with height limits generally decreasing in 150 foot increments to create a distinctive mound of high rise development. On the flip side, the Plan requires that the Transit Tower reach a minimum height of 950 feet. If the developer were to downsize the project from the current proposal, it would have to “include an architectural feature that extends the effective height” up to the desired minimum. The practice of skyline sculpting has been criticized as an arbitrary constraint on development where dense development is key to meeting planning goals. According to the Plan, the singular height of the Transit Tower reinforces the “primacy of public transit in organizing the City’s development pattern.” Ironically, however, the symbolic gesture here comes at the expense of building height-and potential transit-oriented development-on other properties. New Development Controls The Plan includes new design guidelines and zoning controls to shape new development: • Rezoning to C-3-0(SD). The Plan will rezone most C-3-O (Downtown Office) properties in the district to C-3-O(SD) (Downtown Office Special District). The primary difference between the two is that the base FAR limit in the C-3-O(SD) is 6-to-1 and the base FAR limit in the C-3-O is 9-to-1. The practical effect of the change is to require project sponsors to purchase more transferable development rights (TDR’s) before they build. • Limits on Non-Commercial Uses. Projects on development sites larger than 15,000 sq. ft. that are within a core subdistrict and with an FAR over 6-to-1 would be required to provide at least three square feet of commercial space for every one square foot of residential, hotel, or cultural space. • New Minimum FAR Controls; FAR Maximums Eliminated. Developments sites larger than 15,000 sq. ft. in size would be subject to a minimum FAR of 9-to-1. Maximum FAR limits, currently 18-to-1 in most of the Plan Area, would be eliminated entirely. FAR above the base limit could only be built through the purchase of TDR and/or payment of impact fees. (See fee discussion below). • Bulk Controls. The Planning Code defines three key building sections for purposes of bulk controls: a base, a lower tower, and an upper tower. The Plan would require that the tower of a building be setback from the base by at least 10 feet for at least 60 percent of the buildings frontage. Bulk controls on towers over 600 feet would be reformed to account for their larger structural cores. The lower towers would have to be set back from the base, but other bulk controls would not apply to the lower tower. The average floor-plate size in the upper portion of such towers could be, at most, 75 percent of the average floor-plate size in lower towers. • Pedestrian-Oriented Design. Improving the “bleak” pedestrian environment is among the Plan’s major goals. Below 20 or 25 feet in height, buildings should include façade treatments that create a “pedestrian zone.” The street frontage devoted to lobbies would be restricted. Active retail or open space uses would be required at the rest of the ground-floor frontage. Certain non-active uses (notably banks and gyms) would not be allowed at the ground-floor. • New Historic Designations and TDR Reform. The existing New Montgomery-Second Street Conservation District would be extended to the west to include several properties along Mission and Hunt Streets. New individual ratings would be applied to buildings throughout the district. Although some newly designated historic buildings will be eligible to transfer development rights under

2010 San Francisco Condo Conversion Lottery Tickets to Go on Sale November 23rd The San Francisco Department of Public Works will begin selling tickets for the 2010 Condominium Conversion Lottery on Monday, November 23rd, in the office of the Bureau of Street Use and Mapping at 875 Stevenson Street, Room 410. The ticket cost is $250 per application. Ticket sales will end on Friday, January 22nd, 2010. The lottery drawing is scheduled to be held on Wednesday, February 3rd, 2010. Lottery information and applications may be obtained at the address referenced above, or at the DPW website: “www.sfgov.org/site/sfdpw.” If you have any questions or need assistance with the lottery process, contact Jay Drake at “jdrake@reubenlaw.com.” New Markets Tax Credits for Historic Rehabilitation Available The National Trust Community Investment Corporation (NTCIC), the for-profit subsidiary of the National Trust for Historic Preservation, was recently awarded $35 million in New Markets Tax Credits for investment in historic rehabilitation projects in low-income census tracts. NTCIC is looking for projects in need of such credits, and is especially targeting California for implementation. New Market Tax Credits could provide a valuable funding stream for projects with a historic component. Qualifying projects are typically commercial in use, or mixed use residential/commercial. Projects typically have a community benefit component, such as affordable housing, office space for nonprofits, or retail that meets an indentified community need. NTCIC is particularly interested in projects that set aside at least half of the leasable space for the community benefit component. NTCIC is also focused on twinning the New Markets credit with the Federal Rehabilitation Tax Credit, which offers up to a 20% reimbursement of costs for qualifying rehabilitations of historic properties. If you are interested and would like more information, feel free to contact Stephen R. Miller at Reuben & Junius, “smiller@reubenlaw.com,” or Brian Turner at the National Trust For Historic Preservation, “brian_turner@nthp.org,” to learn more. Historic Preservation Problems Ahead? A year ago San Francisco voters passed Proposition J, creating a powerful new Historic Preservation Commission to rule on all land use issues that involve historic buildings. Many are now wondering just how powerful the new HPC is. A recent skirmish at the HPC over the North Beach library shows the Commission is not afraid to take a controversial stand. Will the HPC end up blocking renovation or replacement of firehouses, schools, or other middle-aged facilities that must kept be safe, useful, and disabled-accessible? Check out the recent article by Mat Smith in the SF Weekly…”http://www.sfweekly.com/2009-11-11/news/historic-preservation-commission-stalls-library-renovations/.” New Disciplinary Rules in Effect for Electrical Contractors Employing Uncertified Workers For a number of years, California law has prohibited Class C-10-licensed electrical contractors from employing non-state-certified electricians. However, a new law that went into effect in July of this year adds specific disciplinary measures that the Contractors’ State License Board may take against offending contractors. Disciplinary proceedings, including suspension or revocation of the class C-10 license, may be initiated when a contractor willfully employs an electrician that is not certified by the state and when a contractor does not adequately supervise an electrician whom they employ that is not certified by the state. The purpose of the law is to ensure electricians that perform work requiring special skills are adequately trained. Contractors should be aware of this change in the law, and should make sure they are in compliance. For more information on this new law, contact Joel Koppel with the San Francisco Electrical Construction Industry at “jkoppel@ibew6.org.” Real Estate Stimulus Hearing Schedule Reminder The real estate development industry needs whatever help it can get these days. We support the Mayor’s stimulus package and urge you to voice your support at one of these upcoming hearings: December 3 – Planning Commission December 19 – Building Inspection Commission January – Board of Supervisors Land Use and Economic Development Committee  

The Mayor’s Stimulus Plan – which we first reported on in our October 2nd R&J update – was introduced to the Board of Supervisors on October 27th and November 3rd. Development Fee Simplification and Deferral The first part of the Plan simplifies the administration of development fees and allows for their deferral. A Development Fee Collection Unit would be established at the Department of Building Inspection that would administer all fees – including those charged by the Planning Department, DBI, the MTA (i.e., the transit fee, or TIDF), the San Francisco Unified School District, and the San Francisco Public Utilities Commission. All of these city agencies would have to agree to participate once the Plan is enacted. The Collection Unit will publish an annual Citywide Development Fee Register, which will combine all current development fees charged by all the various city agencies in one place. In addition, the Collection Unit will issue a fee report for each individual project, itemizing the various fees charged to the project. If a project sponsor disputes any of the fees in this report, they can appeal it to the Board of Appeals. Most significantly, the Plan would make all development fees due prior to issuance of the first construction document – normally a building permit or site permit addendum. Demolition permits or other site preparation permits would not trigger the fee payment. This at first seems like it is going in the wrong direction, as some of the fees (TIDF, school fee) are currently due at the end of the project, not prior to getting your building permit. The relief is that a project sponsor could defer the payment of all development fees until the issuance of the first certificate of occupancy (temporary or final). An annual deferral fee would be charged that would be equal to the City’s cost of funds. Specifically, this fee is “calculated monthly by the San Francisco Treasurer’s Office as 60% of the Two-Year U.S. FNMA Sovereign Agency Note Yield-to-Maturity and 40% of the Current Two-Year U.S. Treasury Note Yield-to-Maturity as quoted from the close of business on the last open market day of the month previous to the date when a project sponsor elects to defer the development fees owed on a development project.” Affordable Housing Transfer Fee Restriction Alternative The Plan would also allow project sponsors to defer 33% of their upfront inclusionary housing (below market-rate) requirements (for residential projects) or Jobs Housing Linkage Fee requirements (for office projects) requirements. The trade off is that the owner must record a Notice of Special Restrictions on the development property that requires a fee equal to 1% of the value of the property be paid on all future transfers of the property. If no transfer is made within the first 10 years of the issuance of the first certificate of occupancy, a one-time 1% of value fee must be paid; however, the transfer fee will continue to apply to all future transfers. The fee may be paid by the buyer or seller as negotiated by the parties. So in essence, the “deferral” is permanent, as portion of this major fee would be paid over time through property transfers rather than as one lump sum up front. A transfer would include a subdivision and sale of a condo unit (including the first sale by the developer), as well as a ground lease lasting more than 35 years. There are a number of transfers that are exempt from the transfer fee. Once the transfer fee restriction is recorded on the development property, it can be lifted at any future date if the “present value of the restriction to the city” is paid. The Transfer Fee Restriction alternative is not available to project sponsors who wish to fulfill their BMR obligations through land dedication. Schedule of Public Hearings Tentatively, the Stimulus Plan will be discussed at the following public hearings: December 3 – Planning Commission December 19 – Building Inspection Commission January – Board of Supervisors Land Use and Economic Development Committee For those of you who would like to see these measures enacted, or would like to comment on them as to their potential effectiveness, we urge you to attend one or more of these hearings and make yourself heard. Email John Kevlin at “jkevlin@reubenlaw.com” if you would like the text of any of the ordinances.  

Be on Alert for Bogus Business Solicitations The California Secretary of State has issued a warning regarding misleading solicitations sent to many business owners. These letters encourage business owners to comply with their California Corporations Code filing obligations by submitting fees and documents to a third party such as the “Business Filing Division” or “Corporate Compliance Center” rather than by filing directly to the Secretary of State’s office. These bogus solicitations appear similar to a Secretary of State Statement of Information form, quote specific statues and even contain an official-looking seal. They imply that failing to return the form and pay the requested fee may place the business in legal jeopardy. These companies have no affiliation with the Secretary of State, and charge much higher fees than required by the Secretary of State. Be advised that no business is required to go through another company in order to file its documents with the Secretary of State’s office. If you have made a payment in response to one of these solicitations, you should confirm that your business is in compliance with its filing obligations. If you have any concern that a form regarding your corporation or limited liability company (LLC) may be a bogus solicitation, you should contact your corporate attorney or Jay Drake at Reuben & Junius, LLP. Suspicious solicitations may also be reported to the California Attorney General’s office, Public Inquiry Unit, P.O. Box 944255, Sacramento, California 94244-2550. A complaint form, which can be completed online and printed to mail, is available on the California Attorney General’s website at www.ag.ca.gov/consumers/general.php California State Agency Issues New CEQA Regulations Regarding Greenhouse Gas Emissions… On October 23, the California Natural Resources Agency issued new CEQA regulations on greenhouse gas (“GHG”) emissions that have made it through one round of public comment and revision. This rulemaking process was initiated by the passage of SB 97 in 2007, guiding how GHG emissions would be analyzed by CEQA. The most recent revisions include requiring a lead agency’s GHG emission analysis be based on “scientific and factual data” as opposed to just “available information” and requiring that any GHG mitigation must be supported with substantial evidence and be subject to monitoring. There is the potential that these new regulations may impose considerable new entitlement burdens on even small projects. The comment period on this new round of proposed regulations runs through November 10. For a copy of the latest version of the regulations and other related information, go to http://ceres.ca.gov/ceqa/guidelines/. …And The First Court Opinion on CEQA Energy Analysis is Handed Down The Third District Court of Appeal has ruled that a city can determine that a project does not have a significant impact on energy consumption when it surpasses the California Building Energy Efficiency Standards. The project at issue was a proposed grocery store in Tracy. Opponents argued that the city could not rely on the state standards for the purposes of CEQA. The Court stated that an Environmental Impact Report did not have to discuss every factor listed in CEQA Appendix F, which contains energy use and conservation measures. The case is Tracy First v. City of Tracy (2009) 177 Cal.App.4th 912. Email John Kevlin if you’d like a copy of the decision. Inching Towards a Constitutional Convention From the budget crisis in February…to the budget crisis of June…to the water legislation crisis of September…there’s been a lot of talk of throwing out the whole State Constitution and starting anew in California. Now the Bay Area Council – a business-sponsored public policy organization – has taken the first of many steps towards accomplishing the rewrite. On October 28, the Council submitted paperwork with the Secretary of State to put two initiatives on the ballot next November. The first would amend the current State Constitution to allow citizens of the state to call a constitutional convention through the initiative process with a majority vote. The second actually lays out the specifics for the convention. The convention would be limited to revising the following areas of the Constitution: government effectiveness, elections and reduction of special interest influence, spending and budgeting, and governance. Any revisions approved by the convention would have to approved by another statewide initiative vote. 240 delegates would be selected at random, more than 200 would be selected by county political officials, and 4 will be selected by the federally-recognized Indian tribes in the state. Backers of the initiatives still need to collect enough signatures to qualify it for the November 2010 ballot. Go to http://www.sos.ca.gov/elections/elections_j.htm or email John Kevlin if you’d like a copy of the initiatives. 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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Earlier this year, the California Court of Appeal in Palmer vs. City of Los Angeles (2009) 175 Cal.App.4th 1396 (“Palmer“) issued a ruling that could have a major impact on how local inclusionary housing rules are applied to rental projects. Last week the California Supreme Court decided not to take the case up and therefore the Palmer decision stands. Below we discuss the case and what it might mean for the future of rental inclusionary rules Facts. A Los Angeles developer obtained approval in 2006 for a mixed-use residential project that included 350 residential units. The Planning Commission approved the project subject to the local inclusionary affordable housing rule, which required that the developer provide 60 replacement low-income dwelling units, either on-site, or pay an in-lieu fee, and execute an agreement with the City to maintain the rental restrictions for a period of 30 years after the Certificate of Occupancy was issued. The developer had requested waivers and otherwise exhausted his administrative remedies to avoid the fee. The Decision. The Superior Court held that the City’s affordable housing requirement, which required the building of on-site affordable housing, was pre-empted by the vacancy de-control provisions of the Costa Hawkins Rental Housing Act (Civil Code §§ 1954.50 et. seq.) (“Costa Hawkins”). The court also held that the ordinance’s in-lieu fee provision was preempted by Costa Hawkins and not severable from the invalid portions of the affordable housing requirements. The City then appealed from the judgment, which the Second Circuit Court of Appeal affirmed in its July 22, 2009 decision. Costa Hawkins, enacted in 1995, created what is commonly referred to as “vacancy de-control”: when a rental unit becomes vacant, the owner may establish whatever rent they choose at the commencement of the next tenancy. (See Palmer, 175 Cal.App.4th at 1405.) Costa Hawkins provides without ambiguity that “notwithstanding any other provision of law” all residential landlords may, except in specified situations, “establish the initial rental rate for a dwelling or unit.” (Civil Code § 1954.53(a)). Courts have consistently held that the effect of this provision was to permit landlords “to impose whatever rent they choose at the commencement of a tenancy.” (Cobb vs. San Francisco Residential Rent Stabilization and Arbitration Board (2002) 98 Cal.App.4th 345, 351; see also Action Apartment Association, Inc. vs. City of Santa Monica (2007) 41 Cal.4th 1232.) As Los Angeles’ affordable housing ordinance established the residential rental rate at the outset of the tenancy, it deprived the owner of the property of the right to set the rental rate at the outset of the tenancy as provided under Costa Hawkins, and thus was preempted by Costa Hawkins. (Palmer, 175 Cal.App.4th at 1411.) Applicability of Palmer. Palmer only applies to the rental component of inclusionary housing requirements; for sale units are not affected by Costa Hawkins, and therefore are outside of the reach of Palmer. (Id. at 1410-1412.) Costa Hawkins also does not apply to a project “where the owner has otherwise agreed by contract with a public entity in consideration for a direct financial contribution or any other forms of assistance.” (Civil Code § 1954.52(b); Palmer, 175 Cal.App.4th at 1402.) Therefore, if such financial assistance is taken, the City could impose the inclusionary housing requirements. While we believe that Palmer has broad applicability, those seeking to limit the application of Palmer have noted that it does have some facts particular to its situation, including: the fee was calculated based on the cost of subsidizing the City’s entire regional housing need, not just the affordable housing that would otherwise have been included in the project; and the court did not address the relation of the ordinance to impact fees. We believe that the preemption holding of the Palmer court rises above these limiting factors of circumstance; however, a sympathetic court could use such facts to try and limit Palmer‘s application. We believe the Los Angeles inclusionary requirements are very similar to those of San Francisco. However, San Francisco has done a nexus study to support its requirement, and Los Angeles had not.  This may be a distinguishing factor if San Francisco’s ordinance were challenged. If you would like to learn more about Palmer, let us know. 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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.    

Planning Commissioners Open to Entitlement Extensions, Looking for Affirmative Steps Taken by Developers Last Thursday, the Planning Commission held an informational hearing to discuss the Zoning Administrator’s consideration of an entitlement extension for an 88-unit project in Rincon Hill that was approved back in 2005. The entitlement expired in 2008. The Planning Commission ultimately signaled to the Zoning Administrator their support to extend the entitlement, but after some revealing discussion. Commissioners mainly expressed their desire to see developers affirmatively and voluntarily taking steps to beautify their vacant buildings and lots as much as possible. Specific suggestions included installing artistic fencing around lots, maintaining vegetation, “greening” project sites with aesthetically pleasing plants, and keeping sites clear of garbage and other debris. It appears the Commissioners will look more favorably upon extension requestors that have taken a proactive approach to at least keep their site clean and in good order. Also, Commissioners expressed their distress over projects whose entitlements have expired long ago are just now coming around to requesting extensions. The lesson: if your entitlement is approaching expiration, be sure to apply for an extension before the performance condition runs. California case law does not allow development entitlements to expire automatically at a certain time, but the Planning Commission can always revoke one. The Commission has yet to deny a request for an entitlement extension or discourage the Zoning Administrator from doing the same in 2009. But that doesn’t mean they can’t. Sign Company Brings Lawsuit Against City’s Sign Ordinance After its unique advertising program came under attack by the Planning Department, Contest Promotions LLC brought a federal challenge to San Francisco’s Sign Ordinance. The company’s program consisted of attracting shoppers to a store with an on-site sign promoting prize contests in which one must enter the store to fill out an entry form. The sign would also include an advertisement for a product that was not sold in the store, but was associated with the contest. The Planning Department began citing Contest Promotions, claiming its signs are violating the city-wide general advertising ban. In the lawsuit, the company asserts that the Sign Ordinance is unconstitutionally vague, as well as a deprivation of advertisers first amendment free speech rights. If the case proceeds to trial, it should provide some rare judicial comment on the City’s very strict signage rules. If you would like an electronic copy of the federal complaint, just email us.