Builder's Remedy

LA Court Weighs In on the Builder’s Remedy

| Sabrina Eshaghi

Until now, the notorious “builder’s remedy” had not been tested in court, leaving developers with serious questions about how it works and whether it’s worth potential legal challenges from unamenable cities. Recently, however, a superior court in Los Angeles referenced the builder’s remedy in a ruling that implied the remedy is available in the City of La Cañada Flintridge. This case, and others that are still in the pipeline, will have significant implications for developers who have filed builder’s remedy projects, or are considering doing so, as well as for cities across the state. Builder’s Remedy According to the HCD’s Housing Element Review and Compliance Report (as of 7/24/23), only 33 out of 109 Bay Area jurisdictions have adopted fully compliant Housing Elements. As discussed in our previous e-update, the deadline for Bay Area cities and counties to revise housing elements has passed, and those that remain noncompliant have opened themselves up to builder’s remedy projects. The builder’s remedy is a mechanism in the Housing Accountability Act that prohibits any city that has not adopted a compliant housing element by the required deadline from applying its general plan and zoning standards to reject certain housing development projects. To qualify for the builder’s remedy, a project must provide either 20% of the units as affordable to 80% AMI households (low-income), or 100% of the units as affordable to 120% AMI households (moderate-income). Because the builder’s remedy has never been tested in court, there is uncertainty about how the builder’s remedy applies in practice and how cities will process these projects. Many cities that failed to adopt compliant housing elements have openly defied state law by stating that the builder’s remedy doesn’t apply to them or by passing an ordinance banning builder’s remedy projects. La Cañada Flintridge Case Southern California jurisdictions were required to adopt their updated Housing Element by October 15, 2021. The City of La Cañada Flintridge adopted its Housing Element on October 4, 2022, which was determined to be inadequate by HCD. On February 21, 2023, the city adopted an amended Housing Element, which HCD again found to not be in substantial compliance with state law. While stopping short of confirming HCD’s finding and determining whether the substance of the city’s Housing Element complied with state law, the court found that the Housing Element is not in compliance with state law because the city missed mandatory deadlines. Specifically, the city failed to adopt a Housing Element within 120 days of the deadline and was therefore subject to the penalty requiring it to complete its rezoning within one year of the statutory deadline-i.e., by October 15, 2022- instead of the three years otherwise permitted. Because the city’s challenged Housing Element was not adopted until February 21, 2023, and the Housing Element had still not been certified by HCD, the court was required to find that the city’s Housing Element will not be in substantial compliance with the Housing Element Law until the required rezoning is complete. This appears to put to rest the idea that a city can avoid all the consequences of failing to obtain HCD certification by “self-certifying” its own Housing Element. Although the city argued that the timelines under the Housing Element Law are purely directory, the court disagreed and confirmed that the timelines are mandatory. In making that finding, the court looked to the penalties that apply for missing the deadlines and confirmed “there are at least two significant penalties for failing to timely adopt a housing element. First, there is the rezoning penalty…that is the subject of this litigation…Second, the HAA contains [the] builder’s remedy that limits a city’s ability to deny a development for low-cost housing unless its housing element…is in substantial compliance with the Housing Element Law.” To our knowledge, this is the first time a court has opined on or directly referenced the builder’s remedy by name. The court did not issue an explicit declaration that the builder’s remedy applies in the city because the organization that filed the lawsuit, Californians for Homeownership, did not have legal standing without a pending project. Nevertheless, the judge seemed to signal that a developer with a pending project may be able to obtain such a declaration. The court’s acknowledgment of the builder’s remedy is a positive sign for those with a pending builder’s remedy project. According to the Real Deal, the president of the California Association of Realtors said in a statement, “For far too long, certain cities and counties have treated compliance with state housing laws as optional. This decision sends a clear message: complying with these laws is not optional.” As discussed in our previous e-update, other housing advocacy groups have also filed lawsuits against jurisdictions that are out of compliance with the Housing Element Law. We will continue to keep you updated as decisions are issued in these cases.   Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi. 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.

permit

Update on Site Permit Reform

| Gillian Allen

On May 11, 2023, the San Francisco Planning Department gave a presentation on Permit Streamlining at a joint Building Inspection Commission and Planning Commission hearing.  The focus of the presentation was on ways that San Francisco agencies can improve on the existing permitting timelines which are known to be some of the longest in the State, due to lack of coordination, unclear steps for the applicants and use of outdated tools for tracking of workflows.  This is part of a key initiative to streamline and improve the project development and construction permitting process. The Planning Department and the Department of Building Inspecation are partnering to create a process which will improve upon the current “Site Permit” process by creating a Development Review Permit.  If this process is adopted, it will allow applicants to apply online with the Planning Department through the Accela portal with an early set of plans, get a plan check letter within a short amount of time that has review comments from all City agencies including Planning, Building, Fire, DPW, SFPUC and BUF, as well as one cohesive list of all agency applications needed for the process.  The applicant will then be able to respond with a revised set of plans and responsive comments and, upon approval of the responses as well as filing of any additional applications identified in the plan check letter, will receive an issued Development Review Permit once entitlements are complete.  This permit will be appealable to the Board of Appeals. After the Development Review Permit has been issued, construction level plans can be submitted through the Department of Building Inspection for review and issuance of construction permits through the addenda process.  Any construction documents submitted through the Addenda process will be protected from appeal as they are today. Leading up to this presentation, both the Planning Department and Department of Building Inspection held meetings with the public to seek information and suggestions on process improvement.  Several of the suggestions were echoed at the joint hearing and the agencies will continue to work together to integrate and create the best process possible.  Many applicants are interested in what level of design documents will need to be submitted.  The Department of Building Inspection and the Planning Department are proposing that, at minimum, plans should provide enough information for agencies to perform a preliminary review of accessibility compliance, construction type, size and height of the building, fire protection to evaluate setbacks from property line and firewall or other fire protective design needs, as well as egress.  The Planning Department is also incorporating a list of review criteria proposed by the American Institute of Architects while the Department of Building Inspection is working on further defining what criteria they need for early review.  Both agencies are working towards finalizing these efforts on July 20, 2023 and will be holding workshops with the public thereafter to receive further feedback.  For more information and updates, please go to the information page.   Authored by Reuben, Junius & Rose, LLP Manager, Post Entitlement Division Gillian Allen. 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.

fee

SF’s Proposed BMR and Impact Fee Changes

| Mark Loper

Late last month, Supervisors Peskin and Safai introduced long-awaited legislation lowering San Francisco’s affordable housing requirements for certain approved and proposed projects, as well as reducing impact fees. This week’s alert summarizes the proposal as it currently stands. Changes for pipeline projects Sponsors of projects with 25 or more units that were or are approved before November 1, 2023 and have not received a first construction document (usually the architectural addendum)—so-called “pipeline projects”—are allowed to apply for a lower affordable housing obligation, additional time to obtain a site permit, and changes to density bonus law compliance. The affordable rates are proposed to be reduced across the board as follows: Affordable housing fee. 16.4%, for both ownership and rental projects. If the project is in an area with a specific affordable housing fee, the applicable percentage is 54.5% of the rate for rental projects in the area or 16.4%, whichever is higher. On-site. 12% for both ownership and rental projects, with 8% for low-income, 2% moderate-income, and 2% middle-income. For projects in areas with specific on-site BMR requirements, the rate is 54% of the rate for rental housing projects in that area or 12%, whichever is higher. Off-site. 16.4%, for both ownership and rental projects. If the project is in an area with specific off-site BMR requirements, the applicable percentage is 54.5% of the rate for rental projects in the area or 16.4%, whichever is higher. Project sponsors can also request an extension of performance periods for their projects up to May 1, 2029. The legislation does not require the City to extend all performance periods to May 2029, though. The current practice is for three-year extensions starting on the date of City approval. The legislation has two “use it or lose it” provisions. First, the City needs to grant the request for reduced affordable rates by November 1, 2026. Because the deadline is not the date that the request is submitted to the City but the date of City approval, sponsors should make sure to apply comfortably before the end of the deadline. Also, sponsors need to get a first construction document—as noted above, usually the architectural addendum—on or before May 1, 2029. Finally, density bonus pipeline projects are allowed to request modifications to the number and type of concessions, incentives, and waivers, as well as the number of affordable units. This recognizes that density bonus projects may need to adjust their compliance with the density bonus law if the project’s on-site affordable unit count decreases. As noted above, sponsors must ask for a reduction; the changes do not apply automatically. Most projects will be approved by City staff administratively, assuming the Planning Commission agrees to delegate its authority. The legislation also would allow staff to extend the time to get a site permit, instead of going to the Planning Commission. Projects proposing “significant modifications” need to go to the Planning Commission, though. This includes projects whose unit count would change by more than 20%, floor area would change by more than 10%, and whose unit typology would change from dwelling units to group housing. Projects entitled between November 2023 and November 2026 The ordinance would also reduce the affordable housing requirements for non-pipeline projects entitled between November 1, 2023 and November 1, 2026. The rates are proposed as follows: Affordable housing fee. 20.5%, for both ownership and rental projects. If the project is in an area with a specific affordable housing fee, the applicable percentage is 68% of the rate for rental projects in the area. On-site. 15% for both ownership and rental projects, with 10% for low-income, 2.5% moderate-income, and 2.5% middle-income. For projects in areas with specific on-site BMR requirements, the rate is 68% of the rate for rental housing projects in that area. Off-site. 20.5%, for both ownership and rental projects. If the project is in an area with a specific off-site requirement, the applicable percentage is 68% of the rate for rental projects in the area. These projects also have a “use it or lose it” provision: their first construction document needs to be received within 30 months of entitlement approval or approval on appeal, whichever happens later, and building permit approval for projects that do not require discretionary entitlements. Permanent affordable housing changes The ordinance would make a third and permanent change to San Francisco’s affordable requirements: Affordable housing fee. For projects with 25 or more units, 27% for condos and 24.5% for rental projects. On-site. 15% for projects with 10-24 units. For projects with 25 or more units, 20% for condos and 18% for rentals. Condos need to be 10% low-income, 5% moderate income, and 5% middle income. Rentals need to be 10% low-income, 4% moderate-income, and 4% middle-income. Off-site. For projects with 25 or more units, 27% for condos and 24.5% for rentals. Condos need to have 12% low-income, 7.5% moderate-income, and 7.5% middle-income. Rentals need to have 12.5% low-income, 6% moderate-income, and 6% middle-income. UMU and Divisadero NCT. Different Affordable requirements would apply to UMU and the Divisadero NCT. Starting in 2028, the on-site percentage would increase by 0.5% annually, up to a maximum of 26% for condo projects and 24% for rentals. Impact fee reductions until November 2026 The ordinance also proposes to reduce most development impact fees by 33%, so long as the fees are assessed by November 1, 2026, and the project gets a first construction document within 30 months of entitlement approval or approval on appeal, whichever happens first, or building permit approval for projects that do not require discretionary entitlements. Pipeline projects need to receive a first construction document by May 1, 2029. The schools fee—which is imposed by SFUSD and outside of the jurisdiction of the City itself—would not be reduced. And any Community Facilities Districts (aka Mello-Roos assessments) will continue to apply to qualifying projects in areas such as Central SOMA and the Transit Center District. We will continue to track this important piece of legislation and its eventual implementation. In the meantime,

legislation

Proposed Legislation to Expand Allowed Commercial Uses

| Chloe Angelis

In the latest effort to ease longstanding zoning restrictions and encourage new business activity in San Francisco, Mayor Breed (along with Supervisors Engardio, Dorsey, and Melgar) have introduced legislation to expand the types of uses permitted in Neighborhood Commercial Districts (“NCDs”), streamline the change of use process in Eastern Neighborhood Mixed Use Districts, and incorporate numerous other Planning Code changes aimed at filling retail vacancies throughout the city. Unlike a number of other recently proposed changes, this legislation would not limit the amendments to Downtown. Instead, it focuses on neighborhood commercial corridors and on expanding permissible uses and streamlining the change of use process for certain use types across the city. With retail vacancies in San Francisco as high as 14.8%,[1] any change that allows more categories of business to occupy empty commercial storefronts in more zoning districts would be a welcome policy change. The 92-page ordinance has yet to be heard by the Planning Commission or the Land Use and Transportation Committee, so a lot could change between now and final passage, but here is a summary of some of the more meaningful changes proposed: Professional Services Uses: Arguably the most substantive and exciting change is a proposal to eliminate the distinction between Retail Professional Services and Non-Retail Professional Services. Currently, Non-Retail Professional Services include businesses that provide services to other businesses, like accounting, legal, insurance, advertising, and consulting offices. Retail Professional Services cover uses primarily open to the general public—in other words, offices where a member of the public can walk in to talk to a lawyer, travel agent, or accountant. As drafted, the legislation would principally permit all types of Professional Services Use (both retail and non-retail types), within all NCDs and Chinatown mixed use districts. This opens up the possibility of office-type uses operating in ground and upper-level spaces in neighborhood commercial corridors throughout the city. Section 311 Notice: The proposed ordinance would eliminate Section 311 notice for change of use projects in Eastern Neighborhoods Mixed Use Districts—doing away with the possibility of a discretionary review hearing for those projects. 311 notice would still apply to formula retail and substantial construction projects in those districts. Legalization of Existing Outdoor Activity Areas: The proposed ordinance would allow business owners citywide to legalize an Outdoor Activity Area via a building permit, provided the Zoning Administrator or Planning Staff determines that the outdoor space has been operating (mostly continuously) for the last 10 years. No Conditional Use (“CU”) Authorization would be required for these legalizations, but a building permit would need to be filed within one year from when the proposed ordinance becomes effective. Flexible Retail Uses: Previously limited to properties in Districts 1, 4, 5, 10 or 11 and zoned NCD, NCT or NCS, the legislation proposes to allow Flexible Retail Uses citywide. Flexible Retail Uses are defined as the combination of at least two of the following uses: Arts Activities, Limited Restaurant, General Retail Sales and Services, Professional Services, and Trade Shop. Formula Retail in Residential Districts: The legislation would allow Formula Retail uses in RH and RM districts with approval of a CU. Special Use District Controls: A number of proposed amendments ease controls on eating, drinking, and entertainment uses within Special Use Districts (“SUDs”). Here are a few highlights: Allow new Restaurant, Limited Restaurant, and Bar uses on the first story in the Jackson Square SUD, with approval of a CU. Allow a Music Entertainment Facility in the Mission Alcohol SUD to serve alcohol with an ABC Type 90 license. Non-Formula Retail Restaurants and Limited Restaurants would be principally permitted within the Taraval Street Restaurant Subdistrict (i.e., no CU for these uses). Permit Financial Service and Limited Financial Service uses with approval of a CU in the Chestnut Street Financial Service Subdistrict. Allow new Liquor Establishments with approval of a CU in the Haight Street Alcohol Restricted Use Subdistrict. Expedited CU Review: The legislation would allow Nighttime Entertainment and Non-Retail Sales and Services uses (including Professional Services) (that meet other eligibility criteria) to be eligible for the Community Business Priority Processing Program, which aims to schedule eligible projects for a consent calendar Planning Commission hearing within 90 days of the application being deemed complete. Many non-Formula Retail commercial uses are already eligible for this program. Miscellaneous Changes: Other one-off exciting changes include the following: Financial Services would be allowed on the ground floor with approval of a CU in many NCDs. Professional Services and Design Professional uses would be allowed at the ground floor in the North Beach NCD. The Sacramento Street NCD would permit Bars on the first story with a CU, and Gyms and Health Services would be principally permitted on the ground floor. The Union Street NCD and Pacific Avenue NCD would allow Bars on the first story with a CU. The West Portal NCD would permit Financial Services on the ground floor with a CU, and Health Services and Design Professional uses would be principally permitted on the first and second floor. Allow new Restaurants, Limited Restaurants, and Bars within the Mission Street NCT, up to an increased maximum of 197 locations (up from 167). Full-service Restaurants and Bars allowed within the cap would still require a CU. New Bars and Restaurants would be permitted in the 24th Street-Mission NCT with approval of a CU, subject to the limitation of the Calle 24 SUD. In the current market, any kind of storefront activation is good for the health of commercial corridors, and it seems that the prevailing political opinion finally agrees. This piece of legislation is just at square one of the process, and you can track its progress here. [1] See Cushman & Wakefield San Francisco North Bay Metro Retail Q1 2023 Report; available at https://www.cushmanwakefield.com/en/united-states/insights/us-marketbeats/san-francisco-north-bay-marketbeats (accessed June 21, 2023.)   Authored by Reuben, Junius & Rose, LLP Attorney Chloe Angelis. 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

SB 9

Sacramento Doubles Down on SB 9

| Thomas P. Tunny

In 2022, SB 9 took effect, imposing radical new requirements on local jurisdictions to approve new housing in single-family neighborhoods.  Although the results of SB 9 have been mixed (more on that later), Sacramento has seized upon the SB 9 playbook and looked to expand it. SB 684 seeks to “create new pathways to homeownership for middle-income Californians” by making it faster and easier to build smaller, more naturally-affordable “starter” homes near jobs, schools, transit, and other amenities.  The bill streamlines approvals for homes in infill developments of 10 homes or less, in multi-family zones, and on vacant lots in single-family zones.  (It’s worth noting that in San Francisco inclusionary requirements kick in at 10 units, so projects seeking 8 or 9 units under this bill may get some pressure to do 10 and fulfill the inclusionary requirement.) The bill supercharges the lot-split provisions of SB 9.  The bill amends the Subdivision Map Act, the state law that regulates the creation and improvement of subdivisions and lot splits, to make it faster and easier to build more housing on a single parcel of land. Specifically, SB 684: Requires ministerial approval of a subdivision map that creates up to 10 units on qualifying parcels in multi-family neighborhoods and on vacant lots in single-family neighborhoods. Shortens the timeframe development may begin by requiring local agencies to approve building permits once a tentative map has been approved under the Subdivision Map Act. Prohibits the removal of housing that is low income, rent-controlled, or occupied by tenants within the last 7 years. Ensures streamlined projects meet environmental sustainability standards. SB 684 was introduced by Anna Caballero, whose district is in the Salinas Valley, and recently was passed by the state Senate.  It now moves to the Assembly. Speaking of SB 9, the 2022 law was adopted with great fanfare.  A 2021 analysis by the Terner Center estimated that over 700,000 new homes could be newly feasible to build if SB 9 passed, and taking into account on-the-ground market dynamics.  But the reality has been different.  Many California cities passed urgency ordinances implementing additional regulations prior to implementing the benefits of SB 9.  Some jurisdictions still have yet to adopt the objective design standards needed to approve SB 9 projects. Local regulations—such as low maximum unit size, height limitations, and other design rules—can render the construction of SB 9 homes infeasible.  Not to mention high construction costs and/or lack of expertise with homebuilding.  As a result, few jurisdictions in California are seeing much SB 9 activity, and many are seeing none.  In San Francisco, only 34 applications have been submitted, and 16 approved (21 total units).  Los Angeles had the most overall activity in 2022, with 211 applications for new units under SB 9.  We will continue to monitor the progress of both SB 9 and SB 684.   Authored by Reuben, Junius & Rose, LLP Attorney Thomas P. Tunny. 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.

relocation

The Basics: Easements and Their Relocation

| Corie A. Edwards

When an easement is granted, a property owner gives another person an interest in and right to use the land which is burdened by the easement.  Easements are often conveyed, for example, to give an adjacent property owner a right to cross over the land, install utilities below the surface of the land, or otherwise use the land in a way that does not prevent the landowner from continuing to use its land.  In most cases, an easement runs to the benefit of an adjacent property, rather than benefitting a particular person.  Accordingly, easements are generally recorded in the official records of the county where the land is located, and are valid for an extended or unlimited period of time. A well-drafted easement agreement typically includes terms that identify the land which is burdened by and benefits from the easement, describes the location of the easement, outlines how the easement may be used (and any limitations on its use), states how long the easement will remain in place, and explains how and under what circumstances it may be terminated.  The agreement may also include terms about how the easement will be maintained and at whose cost, establish indemnity and insurance obligations, and provide for dispute resolution.  But the property owner who grants the easement should also consider how its property may be used going forward, and whether it may wish to relocate the easement in the future.  Unless relocation rights are reserved, the owner of the burdened property may be unable to relocate the easement in the future, unless it obtains consent from the owner of the easement.  That gives the easement owner considerable power to, for example, prevent development or otherwise interfere with the burdened property owner’s ability to use its land. In an effort to address this inequity, in July of 2020, the Uniform Easement Relocation Act (“Act”) was adopted by the Uniform Law Commission, also known as the National Conference of Commissions on Uniform State Laws.  Generally speaking, in jurisdictions where the Act is enacted, the owner of land burdened by an easement is allowed to relocate the easement without the consent of the easement owner.  The Act applies to easements conveyed before, on, or after the date when the Act is adopted.  And the Act does not allow the owner of the burdened property to waive or otherwise restrict by agreement its right to relocate the easement. The relocation rights established by the Act are not unlimited.  For example, the Act does not apply to public utility, conservation, or negative easements (i.e., an easement that restricts the use of property).  If an easement is of a type which may be relocated, the proposed relocation may not hinder the utility of the easement, increase the burden on the owner of the easement, impair the purpose for which the easement was created, or impair the physical condition of value of the easement owner’s property, among other requirements.  The owner of the land burdened by the easement is not permitted to disrupt the use of the easement during relocation, unless the nature and disruption of the disruption is “substantially” mitigated. A property owner who wishes to relocate an easement using the Act is required to file a lawsuit to obtain a court order to allow the proposed relocation.  The lawsuit must be filed against the owner of the easement, any lender that holds a security interest in the property, and any lessee of the easement owner’s property, at a minimum.  Assuming that the court makes the factual determinations required by the Act – i.e., that the easement is of a type that may be relocated and that the Act’s conditions on relocation are satisfied – it may issue an order approving the relocation.  A certified copy of the order must be recorded in the official records of the county in which the burdened land is located. When an easement is relocated pursuant to a court order issued under the Act, the owner of the burdened property is obligated to pay all reasonable expenses associated with the relocation.  The easement owner has a duty to cooperate with the relocation in good faith.  When the relocation is complete, the burdened property owner must record and serve a certification that the easement has been relocated.  But, if no improvements must be constructed in connection with the relocation, the recorded court order – alone – is sufficient to constitute the completed relocation. Thus far, only Nebraska, Utah, Washington and Arkansas have enacted the Act.  It is not clear whether the Act will be adopted in California or when.  But until such adoption, property owners who elect to convey easements to others should consider expressly reserving the ability to relocate the easement if circumstances warrant.   Authored by Reuben, Junius & Rose, LLP Attorney Corie A. Edwards. 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.

force majeure

Force Majeure and Covid: Implications on Tenancies and Rental Payments

| Lindsay Petrone

What happens when a tenant does not pay rent citing the financial impacts of the COVID pandemic?  Can such tenant rely on the force majeure provision in the lease to excuse the payment of said rent?  These questions arose in lease contexts throughout the pandemic and a recent Court of Appeal case weighed in on one such situation.  In West Pueblo Partners, LLC v. Stone Brewing Co., LLC (C.A. 1st, April 3, 2023.  Westlaw Cite: 2023 WL 3151827), the court found that West Pueblo Partners, LLC (“Landlord”) could bring an unlawful detainer action to evict Stone Brewing Co., LLC (“Tenant”) and Tenant was not excused from paying rent due to a force majeure event, specifically the COVID pandemic. In West Pueblo, Tenant operated a brewery and restaurant that was shut down in different capacities due to COVID restrictions during 2020 and 2021.  Tenant alleged they did not have to (and in fact did not) pay rent citing the force majeure provision in the lease which stated in relevant part “if a party is delayed from performing any of its obligations under the lease due to act of god or governmental act, then the time for performance of such party shall be extended for an equivalent amount of time.”  Tenant argued the governmental regulations and business interruptions triggered the force majeure provision and they were excused from paying rent during such time period. The Court of Appeal reviewed the force majeure provision in the lease (which, to note, did not include a typical qualification that the payment of rent is always required regardless of any force majeure event) and found that if the force majeure event had effectively stopped Tenant from paying rent, that is one thing (for example, a snowstorm blocked the ability to send a wire), but here they had the financial means and chose not to pay the rent due to COVID restrictions and negative impacts on their business.  The Court of Appeal also dug into prior cases analyzing force majeure provisions generally and reiterated that “the qualifying event must have still caused a party’s timely performance under the contract to become impossible or unreasonably expensive.”  The Court of Appeal found that force majeure events which merely make performance unprofitable or more difficult or expensive do not suffice to excuse a contractual obligation. The West Pueblo court did repeatedly note that Tenant admitted it had the financial means to pay the rent but elected not to do so.  This was a relevant consideration for the Court of Appeal when it reviewed other (out of state) cases on the subject which held certain tenants were excused from paying rent due to COVID and force majeure considerations.  In those cases, the tenants could not pay rent due to COVID because they did not have the financial ability to do so.  Here, Tenant was a company with multiple operations and admitted it could have paid the rental amounts due, but obviously had dramatically less income due to the restrictions. The West Pueblo case highlights that although a party’s performance may be delayed if they are unable to act due to the force majeure event, it does not necessarily excuse them from performing said action if it was just more expensive or much harder to do so.  It must be impossible or egregiously expensive to comply in order to warrant excusing a contractual obligation.  Even COVID restrictions, which decimated restaurants’ ability to make money, do not necessarily insulate such tenants from their obligations under their leases.  This is especially true if the tenant objectively has the means to make the rental payment otherwise.   Authored by Reuben, Junius & Rose, LLP Attorney Lindsay Petrone. 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.

HOAs

New State Laws Affecting Condo Homeowners Associations

| Jay Drake

There are relatively fewer new state laws affecting condominium homeowners associations (“HOAs”) in 2023 than in recent years. However, one particular bill was passed by the California State legislature that includes important changes condominium owners and HOAs should be aware of.  Assembly Bill 1410 made a few significant changes to the Davis-Stirling Common Interest Development Act, which is the primary state law affecting condos and HOAs.  These new laws became effective January 1, 2023. As we have previously reported over the past few years, the state legislature has been making an effort to increase affordable housing in the state.  To that end, the ability of HOAs to restrict rentals of condo units has been curtailed.  Assembly Bill 3182, passed in 2020, amended Civil Code Section 4740 to limit the power of HOAs to enforce restrictions on a homeowner’s ability to rent his or her unit.  AB 3182 also added new Civil Code Section 4741, which provides that HOAs cannot require a minimum rental term of greater than thirty (30) days.  Section 4741 also states that HOAs cannot enforce a cap on the number of units that may be rented at greater than 25%.  Units that are owner-occupied where only a portion of the unit is rented, or an accessory dwelling unit (ADU) that is part of the unit is rented, do not count towards any such rental cap.  The effect of this is to limit restrictions on rental of ADUs and a unit owner’s ability to rent rooms in his or her unit. AB 1410 furthers the state legislature’s objective of increasing affordable housing by adding a new section 4739 to the Civil Code.  Section 4739 provides that an HOA’s governing documents cannot prohibit an owner from renting out a portion of his or her unit so long as the owner occupies the unit and the rental term is for more than 30 days.  This has the effect of allowing more short term rentals so long as the rental period is for more than 30 days. AB 1410 also amends Civil Code Section 4515 to provide that an HOA’s governing documents cannot prohibit a member or resident from exercising free speech by using social media or other online resources to discuss certain matters, even if the content is critical of the HOA or its governance. Such matters include development living, HOA elections, proposed legislation, government elections, and other issues of concern to members and residents of the community.  This does not mean an HOA has to provide any social media or other online resources to its members, and an HOA does not have to allow members to post content on the HOA’s website.  This new law seems to be fixing a problem that is not widespread, but has become an issue in some HOA communities. Finally, AB 1410 prohibits an HOA from pursuing any enforcement actions for a violation of its governing documents during a declared state or local emergency if the nature of the emergency makes it unsafe or impossible for the owner to either prevent or fix the violation.  The only exception is an enforcement action relating to an owner’s nonpayment of assessments to the HOA.  This rule is clearly intended to give homeowners some leeway to comply with an HOA’s governing documents during government imposed emergency declarations.   Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake. 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.

ordinance

Details on San Francisco’s Proposed Housing Production Ordinance

| Mark Loper

Recently, Mayor London Breed and Supervisor Joel Engardio introduced an ordinance removing some of the Planning Code’s regulatory barriers to housing. A major implementing measure of San Francisco’s recent Housing Element, it is rich in detail and nuance and proposes a range of common-sense changes to increase housing production. Below, we summarize some of the major aspects of the proposal captured in the first draft of the ordinance, broken up into two sections: process streamlining, and relief from certain building design and density restrictions. Process Streamlining Eliminating conditional use requirement for certain developments. Automatic conditional use (“CU”) approvals for developments on certain “large lots” in neighborhood commercial districts would be eliminated. Similarly, CU requirements for buildings taller than 40-50 feet in RH, RM, RC, and Broadway NC districts would be eliminated, as would buildings taller than 50 feet along the Van Ness Special Use District. This would unlock the development potential of many sites where the height limit is comfortably above the 40-50 foot CU threshold. HOME–SF. HOME-SF would be modified to allow projects on sites where a single-family home exists and is proposed to be demolished, and to remove a requirement that the Planning Department’s Environmental Review Officer determine the project will not have any adverse wind, shadow, or preservation impacts. Dwelling unit demolitions. Outside of the “priority equity” areas of San Francisco—which are neighborhoods with a higher density of vulnerable populations; see the map at the bottom of this alert—some residential demolition projects will not require a CU. The project cannot remove more than two residential units; the units to be demolished cannot be tenant occupied or have a history of evictions within the last 5 years; the building cannot be an historic resource; the project needs to add at least one more unit than is proposed for demolition; and the unit needs to comply with the Housing Accountability Act’s protections for replacement units and recent tenants. Design and Density Regulation Changes Increased residential density in RH districts. The ordinance would eliminate the need for a conditional use (“CU”) to exceed the one- to three-unit base density in RH districts. And, it would principally permit one unit per 3,000 square feet of lot area in the three RH-1 districts; one unit per 1,500 square feet of lot area in RH-2; and 1 unit per 1,000 square feet of lot area in RH-3, exclusive of any ADUs. Also, residential projects in RH zones that meet certain eligibility criteria currently can have up to six units on corner lots, and up to four units on non-corner lots. The ordinance would add group housing to this potential density bonus on RH-1 zoned lots and eliminate an owner occupancy requirement, opening up the number of sites that could qualify for this density increase. Making senior housing easier and more widespread. Currently, senior housing—which generally allows increased residential density—is only permitted within ¼ mile of an NC-2 zoning district or higher. The ordinance would eliminate this restriction, opening a wider area of the city for this much-needed type of housing. It would also eliminate an automatic CU requirement for senior housing in RH and RM districts that are not close to neighborhood commercial districts. Minimum lot width and area. The City’s minimum lot width would be reduced from 25 feet in most districts to 20, and lot area reduced from 2,500 square feet to 1,200. This would allow more residential density on some larger lots. Reducing rear yard requirement. San Francisco’s rear yard requirements are notoriously complicated and a regulation that often requires exceptions or limits the development potential of a property. The ordinance would make the rear yard requirement 25% of lot depth or 15 feet in most zoning districts. In certain “R” districts, the requirement would be 30% or 15 feet. It also includes a common-sense option for corner lot developments to provide an interior corner open area, saving the need for a variance or other entitlement. We should note that the legislative digest flags a few aspects of the residential streamlining proposal that do not appear to be included in the first draft of the ordinance. These may be added to subsequent versions of the legislation, and it could be amended as it is brought to the Planning Commission and eventually the Board of Supervisors. We will continue to track this important ordinance as it moves forward. We will also track other legislation that seeks to further implement the Housing Element.   Authored by Reuben, Junius & Rose, LLP Attorney Mark Loper. 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.  

Berkeley

Up in Flames? Impact of Court Decision to Overturn Berkeley’s Natural Gas Ban

| Tara Sullivan

Last week, the Ninth Circuit struck down the City of Berkeley’s “Natural Gas Ban” in new construction regulations. The case, California Restaurant Association v. City of Berkeley, focused on whether the federal Energy Policy & Conservation Act, or EPCA, preempted Berkeley’s regulations. The Ninth Circuit broadly interpreted the EPCA’s preemption clause to prohibit state and local standards that interfere with “the end user’s ability to use installed covered products at their intended final destinations” (emphasis in original). Instead of directly banning natural gas products in new buildings, Berkeley took a more circuitous route and prohibited natural gas piping, rendering gas-used appliances useless. The court held that the EPCA expressly preempts State and local regulations concerning the energy use of many natural gas appliances. Energy use is defined by the EPCA as “the quantity of energy directly consumed by a consumer product at point of use” – i.e., at the place where the products are used. By prohibiting a type of energy hookup like natural gas, it is indirectly saying there can be “zero” of that type of fuel use, which the court held was in fact a quantity (Berkeley argued that zero was not a quantity so its ordinance was not an energy use regulation). Because zero is a quantity in the court’s view, not allowing it at all is regulating the “quantity,” or the energy use of a product. Further, the court held, the ban interferes with the end user’s ability to use the product(s), which, in essence, is regulating the use of the appliances themselves. The Ninth Circuit held that this was a violation of the plain text of the EPCA. What effect will this case have, if any, on San Francisco’s regulations covering natural gas appliances? Before discussing, here is some background: The EPCA was passed in 1975 and tasks the Department of Energy to issue regulations that certain household appliances demonstrate the products’ “energy efficiency ratings” (42 U.S.C. § 6294). In simpler terms, the EPCA sets energy efficiency standards for a range of consumer products, including refrigerators/freezers, air conditioning systems, water heaters/furnaces, dishwashers, kitchen ranges, and other products (42 U.S.C. § 6292) – all called “covered products”. EPCA contains a preemption clause that establishes that, once a federal energy conservation standard becomes effective for a covered product, “no State regulation concerning the energy efficiency, energy use, or water use of such covered product shall be effective with respect to that product” (42 U.S.C. § 6297). Passed in 2019, Berkeley’s natural gas ban was the first in the county that completely prohibited the use of natural gas infrastructure in new construction, in this case, the piping and connections of natural gas from the point of metering (the property line) to the point of use (the appliances themselves). Berkeley’s regulations are located in the city’s Health and Service Code. Chapter 12.80, Prohibition of Natural Gas Infrastructure in New Buildings. The California Restaurant Association sued the city, claiming that their members were harmed by Berkeley’s law and that it was preempted by the EPCA. The District Court held that the EPCA must be “interpreted in a limited manner” and local ordinances that do not “facially address any of the [energy conservation] standards” are not in violation of the EPCA’s preemption clause. It upheld Berkeley’s law. The CRA appealed this decision to the Ninth Circuit. The DOE filed an amicus brief supporting Berkeley’s ordinance, claiming that the EPCA only preempts “energy conservation standards” that operate directly on the covered products themselves. Since Berkeley’s ordinance did not prohibit any covered products, the DOE argued that it was not preempted by the EPCA. The Ninth Circuit overturned the District Court’s decision that Berkeley’s law was preempted by the EPCA for the reasons cited above. The EPCA contains several exceptions to preemption (42 U.S.C. § 6297). For example, if a regulation of a covered product does not exceed a state or national standard, or if there has been a waiver granted [to the government], then they are not preempted. There is also an important exemption for state and local building codes, allowing energy efficiency regulations if the code meets seven conditions (listed below).  Berkeley used its general police power to regulate natural gas, putting the regulations in their Health Code.  The city did not use its building code authority to regulate natural gas. San Francisco used their building code authority to regulate natural gas appliances (Ordinance 237-20, BOS File No. 2007-01). Instead of directly banning natural gas appliances, it requires “all-electric” buildings. There are exceptions for technical or physical infeasibility and for areas of a building that are specifically designed and occupied for commercial food service use. An “all-electric building” is defined as one that uses a permanent supply of electricity as the source of energy and does not “install natural gas or propane piping systems, fixtures or infrastructure for those purposes in or in connection with the building, structure, or within property lines of the premises, extending from the point of delivery at the gas meter.” It appears that San Francisco’s law runs afoul of the Ninth Circuit’s decision. Using the broad interpretation of the court, it could be held to be preempted. The court held that a regulation on energy use, defined as “the quantity of energy directly consumed by a consumer product at point of use”, encompasses an ordinance that eliminates the “use” of an energy source. San Francisco’s regulations require electric-ready (i.e. electric only) buildings. The electric-ready building definition explicitly states there can be no natural gas hookups or pipes. Meaning, no natural gas use – that’s zero – which the Ninth Circuit has held is a quantity. San Francisco’s definition of an electric-ready building does the same thing as Berkeley’s ordinance – it effectively prevents the use of a natural gas appliance through its mandate of all electric buildings. In other words, it regulates the energy use of natural gas, which the Ninth Circuit held runs afoul of the EPCA’s preemption clause. San Francisco could regulate natural

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