CEQA

2023 Legislation at a Glance – Part 1

| Justin A. Zucker and Sabrina Eshaghi

As we’ve previously reported, 2022 was a blockbuster year for housing legislation and it appears this legislative session is gearing up to be just as consequential. But, with approximately a quarter of the legislative body in their freshman year, it’ll be difficult to determine how the session will play out. In this two-part update, we will be providing a brief overview of some of the most significant bills introduced thus far impacting the California Environmental Quality Act (CEQA), State Density Bonus Law, housing, parking requirements, accessory dwelling units (ADUs), and other land use-related policies. CEQA Reform A substantial number of CEQA-related bills have been introduced this legislative session. Most significantly, meaningful CEQA reform appears to be a priority with multiple bills aiming to creatively address CEQA misuse. AB 978 (Patterson) Bond Requirements for CEQA Challenges to Housing Projects. This bill would require any person bringing a CEQA lawsuit against a housing project to post a bond of $500,000 to cover the costs and damages to the housing project incurred by the project sponsor or lead agency. The court would be permitted to waive or adjust the bond requirement if there is good cause to believe the requirement does not further the interest of justice. AB 340 (Fong) Written Comments Must be Submitted Ahead of Hearing. This bill would require project opponents to make any written comments challenging the project’s compliance with CEQA at least ten days before the public hearing on the project. Any written comments submitted after that time could not be used in a CEQA lawsuit against the project. Note that this would not restrict opponents’ ability to present oral comments at the hearing. SB 239 (Dahle) Limits on CEQA Litigation. First, this bill would only allow the Attorney General to bring CEQA lawsuits challenging certified Environmental Impact Reports (EIRs), Negative Declarations, or Mitigated Negative Declarations, meaning members of the public and community organizations would no longer have standing in cases involving these types of CEQA documents. Notably, it excludes other types of CEQA documents like exemptions. Challenges brought for non-environmental purposes would be subject to dismissal and award of attorney’s fees. Second, courts would be prohibited from stopping construction or operation of a project due to CEQA litigation, unless the project (1) presents an imminent threat to public health and safety or (2) contains unforeseen important Native American artifacts or unforeseen important historical, archaeological, or ecological value that would be materially, permanently, and adversely affected. Even in that case, the court can only stop specific activities related to those impacts. Third, for housing projects, the bill would limit subsequent CEQA actions challenging an agency’s remedial revisions to CEQA documents in response to a court’s ruling by prohibiting the court from considering new issues that were not raised in the original proceeding. Lastly, until January 1, 2030, lawsuits challenging certified EIRs for commercial, industrial, housing, or public works projects that meet certain standards and address longstanding critical needs in the project area must be resolved within 365 days, unless the court makes certain findings. These bills may indicate that the long-awaited first step toward CEQA reform is on the horizon. In addition, a couple of other CEQA-related bills have been introduced that would be helpful in limiting review: Two bills appear to be a response to the First District Court of Appeal ruling last month involving the UC Berkeley project that proposes to turn the People’s Park into student and homeless housing. In that case, the court held that the EIR failed to analyze potential noise impacts from loud student parties, among other inadequacies. AB 1307 (Wicks and Luz Rivas) would amend CEQA to clarify that for residential projects, noise generated by the unamplified voices of residents is not an impact on the environment. AB 1700 (Hoover) would clarify that for housing projects, in addition to noise impacts, population growth is also not an impact on the environment. Currently, aesthetic impacts are not considered significant effects on the environment for housing projects involving the refurbishment, conversion, repurposing, or replacement of an existing building. This existing law is set to expire January 1, 2024. AB 356 (Mathis) would make this provision permanent. State Density Bonus Updates Similar to last year, a number of bills proposing updates and tweaks to the current State Density Bonus Law have been introduced. AB 1287 (Alvarez) Additional Density Bonus. This bill would modify the State Density Bonus Law to supersede the California Coastal Act of 1976. This bill would also allow up to an additional 50% density bonus for projects that (1) maximize the very low income, low income, or moderate-income units permitted under the current State Density Bonus Law and (2) provide up to 15% additional moderate-income units. Projects that utilize this additional moderate-income bonus would also receive up to six incentives or concessions. AB 1630 (Garcia) Ministerial Student Housing. Dubbed the Student Housing Crisis Act of 2023, AB 1630 would require student and faculty and staff housing (with limitations) on property within 1,000 feet of a university campus to be ministerially approved if a minimum of 20% of the units are affordable to lower income households. In exchange, a local agency could not impose or enforce a minimum parking requirement, floor-to-area ratio requirement, rear or side setback requirements greater than four feet, or height limit below forty feet. This bill would require a range of wage and training standards, including paying prevailing wage, providing workers with health benefits, and giving graduates of state-approved apprenticeship programs first access to these jobs (similar to AB 2011, which is taking effect July 1, 2023). AB 323 (Holden) Restricting Use of For-Sale Units as Rentals. This bill would prohibit a developer from offering a for-sale unit constructed pursuant to a local inclusionary zoning ordinance to a purchaser that intends to rent the unit to families of extremely low, very low, low-, and moderate-income families, unless the developer can prove that none of the applicants for owner-occupancy can qualify for the unit. Any violation would be subject

appraisal

Partitions by Appraisal Now Easier in California

| Michael Corbett

A partition action is the procedure for segregating and terminating common interests in the same parcel of real property, resulting in either: (1) a physical division of the property; (2) a sale of the property and a division of the proceeds; or (3) a partition by appraisal whereby one cotenant acquires the interests of the other cotenants based on a court ordered and supervised appraisal.[1] California courts have established that consent by cotenants is not required to partition a property by sale because the right to partition is absolute. For owners of real property where title is held in a cotenancy capacity, the prospect of another cotenant seeking a partition and forced sale of the property can be nightmarish. The Partition of Real Property Act (“Act”), which applies to partition actions filed on or after January 1, 2023[2], should allow such non-petitioning cotenants to rest a little easier. The Act, codified at §§ 874.311-874.323 of the California Code of Civil Procedure, is designed to prevent dispossession of property by way of a forced sale by replacing the Uniform Partition of Heirs Property Act (“UPHPA”). The UPHPA applied to “heirs property” for which there was no written agreement governing partition among the owners. The UPHPA had preserved the right of a cotenant to sell their interest in inherited real estate, while ensuring that the other cotenants had the necessary due process to prevent a forced sale: notice, appraisal, and right of first refusal.[3] The Act maintains this same goal while expanding its application to “real property held in tenancy in common where there is no agreement in a record binding all the cotenants which governs the partition of the property.”[4] Put plainly, the Act removes the condition under the UPHPA that required the property to have been inherited property, thus expanding the scope of partition actions far beyond those included in the UPHPA and allowing for added opportunities for non-partitioning parties to purchase the partitioning parties’ interest through partition by appraisal. Except where (1) the cotenants have agreed in writing to the value of the subject property or (2) the court determines that the evidentiary value of an appraisal is outweighed by the cost of the appraisal, the court determines the fair market value of the property by ordering an appraisal.[5] Where the court orders an appraisal, the court must appoint a disinterested real estate appraiser licensed in the State of California to determine the fair market value of the property, assuming sole ownership of the fee simple estate.[6] Not more than ten (10) days after such appraisal is filed, the court then sends notice to each cotenant with a known address, stating all of the following: (1) The appraised fair market value of the property; (2) That the appraisal is available at the court clerk’s office; and (3) That a party may file with the court an objection to the appraisal not later than 30 days after the notice is sent, stating the grounds for the objection. Cal. Code Civ. Proc. § 874.316(e). Thereafter, the court conducts a hearing to determine the fair market value of the property at least thirty (30) days after a copy of the notice of appraisal is sent to each cotenant with a known address, whether or not an objection to the appraisal is filed.[7] In addition to the court-ordered appraisal, the court may consider any other evidence of value offered by a party. Finally, after the hearing but before considering the merits of the partition action, the court must determine the fair market value of the property and send notice to the cotenants of such value.[8] Whether used to resolve a dispute between co-owners, avoid potential issues with a new, unknown cotenant, or simply as a method of further investment, the Act now provides non-heir cotenants with a clear path to buy out their fellow cotenants’ property interest. As a practical matter, it is recommended that cotenants agree in writing to the method of valuation to be used in the event of a future partition action, rather than relying on the court and its chosen appraiser. [1] Cal. Code Civ. Proc. §§ 873.210-873.980. [2] Cal. Code Civ. Proc. § 874.311(c). [3] Conf. of Comm’rs on Uniform State Laws, The Uniform Partition of Heirs Property Act – A Summary, 2010. [4] Cal. Code Civ. Proc. § 874.311(b). [5] Cal. Code Civ. Proc. § 874.316(a)-(c). [6] Cal. Code Civ. Proc. § 874.316(d). [7] Cal. Code Civ. Proc. § 874.316(f). [8] Cal. Code Civ. Proc. § 874.316(g).   Authored by Reuben, Junius & Rose, LLP Attorney Michael Corbett. 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 Contemplates Major Reductions in Inclusionary Housing and Impact Fees

| Kaitlin Sheber

In the recently released Preliminary Controller Recommendations, the Inclusionary Housing Technical Advisory Committee (“TAC”) recommended reductions in San Francisco’s inclusionary housing requirements to make low- and mid-rise condo development feasible. Through its studies, TAC found no housing project prototype studied would be financially feasible under San Francisco’s 2022 inclusionary on-site requirements or at the current fee percentage requirements. In 2022, the inclusionary requirements for projects with 25 or more units were as follows: 5% for apartment units provided on-site. 5% for condominium units provided on-site. 30% in-lieu fee for apartment units. 33% in-lieu fee for condominium units. TAC recommended lowering the on-site requirement within the range of 12-16% and lowering the in-lieu fee within the range of 22-29% to make some housing project prototypes possible. The study suggested the reduction would make some low- and mid-rise condominium project prototypes under 8 stories feasible. However, the analysis acknowledged that under the recommended reduced inclusionary housing requirements, condominium project prototypes over 8 stories and all apartment project prototypes would remain infeasible. Overall, a greater proportion of low-rise condominium projects would likely be feasible than mid-rise condominium projects under TAC’s recommended reductions. If requirements were set in the lower portion of recommended ranges, additional mid-rise condominium projects may be feasible. TAC also outlined additional policy levers available to the Mayor and Board which could affect financial feasibility of housing development, including: Impact and other permanent regulatory fees. Timing of payment. Other city-imposed exactions. TAC recommended the reduced requirements remain in place through April 2026 and that current TAC membership not expire to ensure a fully-seated TAC during the next Triennial Review. Further, as of February 16, 2023, San Francisco’s Planning Department (the “Department”) updated its Bulletin on implementing the State Density Bonus Program (“SDBP”). The update clarifies and revises certain Department policies regarding the interaction of the SDBP and local inclusionary requirements. Two of the biggest takeaways include: SDBP projects (rental or ownership) can now use an incentive to substitute low-income units for required moderate or middle income units in the base project, lowering the base project overall affordability requirements. However, ownership projects must still include the required percentage of low-income (80% AMI) ownership units in both small and large projects and may not reduce the affordability level of those units below 80% AMI in order to qualify for greater bonus under state law. For SDBP projects with a base project under 25 units, the addition of density bonus units to the project will not trigger the City’s higher inclusionary requirements for projects with 25 or more units. We will continue to track San Francisco’s efforts to reduce constraints on housing development as the City implements its recently adopted updated housing element.   Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber. 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.

legislation

West Side Story: Proposed Legislation May Remove Barriers for Small Projects

| Chloe Angelis

Supervisor Myrna Melgar has introduced legislation that aims to incentivize much-needed family-sized housing on the west side of the city. While clearly in line with the City’s housing production goals, it includes some requirements that could make it inapplicable to most of the west side properties it aims to cover. The draft legislation would create the Family Housing Opportunity Special Use District, which shares a boundary with the Well-Resourced Neighborhoods Map included in the draft 2023-2031 Housing Element. The map covers the entire west side of the city, plus the Marina, Cow Hollow, and parts of North Beach. As drafted, the ordinance would expire eight years after it becomes effective. The proposed ordinance encourages the construction of two-to-four-unit projects that provide at least two 2-bedroom units within the new special use district. Qualifying projects would be exempt from an otherwise-required conditional use authorization (“CU”), including CUs that typically apply to the demolition of an existing residential unit. Eligible projects would also be exempt from Section 311 notice and the discretionary review process. Obtaining approval of a CU or having a project sent to the Planning Commission by a neighbor via discretionary review creates uncertainty and can add many months to a project’s approval timeline. Taking both CU requirements and Section 311/discretionary review off the table are meaningful incentives. The legislation does not automatically exempt these projects from CEQA—but small new construction projects should be eligible for Class 3 (new construction of small structures) categorical exemptions. Specifically, the new rules would apply to projects that construct two-unit buildings (including a two unit building with a third standalone unit outside the proposed building envelope) and three-unit buildings (including a three unit building with a fourth standalone unit outside the proposed building envelope). At least two of the units in a qualifying project must have at least two bedrooms. Projects must consist of ground-up new construction, and while they would be exempt from the otherwise-applicable density limit (up to four units per lot and not including any permitted accessory dwelling units), projects would not be exempt from the otherwise-applicable height limit for the property in question. As drafted, the legislation includes several other restrictions that will limit its potential impact: Qualifying projects cannot demolish a historic resource and must comply with the Residential Design Guidelines and the Planning Code, except for lot-based dwelling unit density limits. While requiring Code compliance in exchange for bypassing Planning Commission review is reasonable, the Residential Design Guidelines are not entirely objective, which will make it difficult for sponsors to assess whether Planning Staff will deem a particular project in compliance with the guidelines. It’s also difficult to imagine how a third or fourth unit constructed outside the main building envelope could comply with the Planning Code’s rear yard and obstruction controls. Additionally, projects cannot propose the demolition of any of the following: Units that are or were subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of lower or very low income within the past five years; Units that are or were subject to the Residential Rent Stabilization and Arbitration Ordinance (Chapter 37 of the Administrative Code) within the past five years; Units that are or were occupied by lower or very low income households within the past five years; or Units that were withdrawn from the rental market pursuant to the Ellis Act within the past 10 years. The requirement related to the Rent Stabilization and Arbitration Ordinance (i.e., the “Rent Ordinance”) is very limiting as drafted. Most residential units in San Francisco are subject to the Rent Ordinance, which has a rent control component and an eviction protection component. Units built after June 13, 1979, most single-family homes and condos, and units that have undergone substantial rehabilitation are subject to the Rent Ordinance, but only to the eviction controls (not the rent increase limitations that apply to other units). If the legislation intends to exclude these units and older units subject to rent control limits, there will be nothing left for redevelopment pursuant to the proposed Family Housing Opportunity Special Use District. Protecting affordable units from demolition is a logical policy choice, but hopefully the legislation will be amended to limit this restriction only to units subject to the Rent Ordinance’s rent control protections. Supervisor Melgar’s proposal has the potential to be an impactful piece of legislation to spur development on the west side of the city and we’ll be keeping an eye on its progress through the legislative process.   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 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.

appeals

Matt Haney Seeks To Eliminate Only-in-San Francisco Appeals

| Thomas P. Tunny

Housing developers in San Francisco no doubt recognize this entitlement moment of disbelief:  after a grueling, years-long process of working with staff, neighbors, and policy-makers, with numerous concessions made to address the potential impacts of their proposed project, the project finally receives its entitlement from the Planning Commission (a recent study found that a multifamily housing project takes 627 days on average to obtain a building permit) when lo and behold, the Board of Appeals sends notice that the project’s site permit has been appealed; and/or the demolition permit is appealed; and/or the grading permit; and/or the tree planting permit… Fueling the disbelief even further is that the appeal isn’t based on anything new.  The project has already gone through exhaustive review and revisions.  The permit appeal process simply gives project opponents one more “bite of the apple”, an opportunity to cause delay and gain leverage for further negotiations and concessions.  The standard of review for the Board of Appeals is merely whether the permit was issued in error.  And four out of five votes are needed to overturn the permit.  All of this highlights the City’s recognition that these appeals are superfluous; and yet, they remain allowed. Assembly Member Matt Haney seeks to change that.  This month he introduced AB 1114, a new bill that recognizes the absurdity (and steep costs to housing) of these appeals, and would eliminate them.  The bill would bar cities from allowing building-permit appeals after an applicant has navigated the long and winding road to entitlement.  Although the legislation would apply to all cities and counties in California, San Francisco is the only jurisdiction in the state that allows such appeals of entitled projects.  Hence, only San Francisco would be affected by the new law.  Only permits for projects that are at least 2/3 residential would be protected by the legislation. One potential hurdle for the legislation is the City’s Charter.  Arguably, this proposed change requires an amendment of the City’s Charter, which can be done only by San Francisco voters.  But Haney is seeking to bypass that requirement, relying on the state’s vested interest for all California jurisdictions to build more housing. The bill was introduced February 15 and is scheduled tentatively for a committee hearing on March 18.  State Senator Scott Wiener supports the bill, and the Housing Action Coalition was instrumental in its drafting.   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.

Noncompliance

Housing Element Fallout: From Noncompliance to Lawsuits

| Daniel J. Turner

The January 31, 2023 deadline for Bay Area cities and counties to revise and update their Housing Elements has passed, and only four of the Bay Area’s 109 local jurisdictions – San Francisco, City of Alameda, Emeryville, and San Leandro – have adopted fully compliant Housing Elements so far. While many of the Bay Area’s other jurisdictions have made substantial progress toward updating their Housing Elements, others have shown little effort in meeting their obligations under the state’s Housing Element Law. State law imposes a number of potential enforcement penalties and consequences on jurisdictions that fail to comply with the Housing Element Law, including the oft-discussed “Builder’s Remedy”, and housing advocacy groups have started turning to the courts to enforce these provisions against noncompliant jurisdictions. Background California’s Housing Element Law was enacted in 1969 and is intended to encourage housing development by requiring cities and counties to adopt Housing Elements as part of their General Plans. A Housing Element is a jurisdiction’s detailed plan for the development of housing within its borders, and it must meet various statutory requirements, such as identifying adequate development sites to meet the jurisdiction’s allocated housing need, creating programs to incentivize the production of affordable housing units, and describing the necessary measures to implement the plan. To achieve compliance with the law, the Housing Element must also receive certification from the California Department of Housing and Community Development (HCD) before the jurisdiction’s statutorily determined deadline. A jurisdiction that fails to do so is considered out of compliance and is exposed to certain penalties and other enforcement mechanisms until it adopts a compliant Housing Element. Penalties for Non-Compliance Among the potential consequence for noncompliance is the notorious Builder’s Remedy. Under the Builder’s Remedy, a jurisdiction is prohibited from denying an affordable housing project based on the project’s noncompliance with the jurisdiction’s General Plan or Zoning Ordinance. It effectively frees such projects from all local zoning and development controls, unless the jurisdiction can justify project modifications or disapproval by articulating specific, adverse impacts to health or safety. To qualify for the Builder’s Remedy, a project must provide either 20% of units as affordable to ≤80% AMI households (low-income), or 100% of units as affordable to ≤120% AMI households (moderate-income). While potentially very powerful, it should be noted that the Builder’s Remedy has had minimal real-world testing, with sparingly few examples of successfully entitled projects. Beyond the Builder’s Remedy, a noncompliant jurisdiction can experience a variety of other consequences. For example, a jurisdiction that does not become compliant within 120 days of missing its deadline is subject to tighter implementation and rezoning timelines once it does adopt a compliant Housing Element. Further, as long as a jurisdiction remains noncompliant, it may be subject to other statutory or judicial losses of zoning and permitting authority, it may be liable for court-imposed fines, and it may have reduced access to state funding and grants for housing, infrastructure, and municipal operations. Current Status of Bay Area Jurisdictions The 105 remaining Bay Area jurisdictions – beyond those four listed above – are in various states of noncompliance with the Housing Element Law. These jurisdictions range from those that have made substantial progress toward compliance and are undergoing review and certification by the HCD, to those jurisdictions that have barely begun preliminary drafts. Oakland, the Bay Area’s third-largest city, is among those jurisdictions that did not achieve compliance by the deadline after its Housing Element was denied certification on February 3rd. Despite having already undergone multiple revisions since it was first submitted in December 2022, a number of technical deficiencies were identified in Oakland’s Housing Element and HCD requested further edits. HCD’s denial letter to Oakland also commended the city’s overall efforts in completing the process. Oakland resubmitted its Housing Element on February 13th, and it is currently pending review. According to the HCD’s Housing Element Review and Compliance Report (as of 2/14/23), approximately 34 Bay Area jurisdictions are in a similar situation to Oakland’s, with an adopted Housing Element that is currently awaiting review and certification by the HCD. About three-fourths of these jurisdictions submitted their Housing Elements on or within a few days of the January 31st deadline, and given this large influx, the HCD’s review timeline is uncertain. While technically out of compliance, these jurisdictions are unlikely to experience the more severe enforcement consequences due to the substantial amount of progress they have already made and the high likelihood of achieving compliance within the next few months. Based on the Compliance Report, another 59 jurisdictions have submitted an initial or subsequent draft Housing Element to HCD for review but have not yet adopted it. Because the adoption process includes environmental review, public participation, and multiple hearings, these jurisdictions have a longer road ahead of them (although it will vary greatly for each individual jurisdiction). A further 12 jurisdictions have not yet submitted anything to HCD and may not have even begun the drafting process. Housing Advocacy Group Lawsuits In response to the numerous jurisdictions that failed to meet the Housing Element deadline, housing advocacy groups, including YIMBY Law, California Housing Defense Fund, and Californians for Homeownership, have started filing lawsuits against those jurisdictions that are furthest out of compliance. These lawsuits are requesting that the court compel each jurisdiction to bring its respective Housing Element into compliance and are asking the court to impose additional sanctions available to the court under the Housing Element Law, which range from fines to removal of permitting authority. Further, each lawsuit is seeking a judgment declaration regarding the provisions of the Builder’s Remedy, with the apparent intent of laying the groundwork for developers to take advantage of it without having to face extraneous judicial challenges. It is unknown whether these advocacy groups will expand their current litigation efforts, and it remains to be seen whether any developers will actually employ the Builder’s Remedy at risk of garnering the ire of local agencies for future projects. However, these lawsuits may provide helpful insight in

cotenancy

Cotenancy Provision Upheld and not Deemed an Unenforceable Penalty

| Lindsay Petrone

JJD-HOV Elk Grove v. Jo-Ann Stores, LLC (80 Cal.App.5th 409) (“JJD-HOV”)[1] highlights that a court is unlikely to intervene and insert terms in a negotiated contract even if one party receives a windfall upon the realization of the contract’s terms.  In JJD-HOV, a tenant in a shopping center, Jo-Ann Stores, had a lease with the owner, JJD-HOV Elk Grove, which provided that if a condition arose where the shopping center either had less than (i) three operating anchor tenants or (ii) 60% of the center leased, then Jo-Ann Stores would pay a stipulated lower rent until either or both conditions were resolved.  This is typically called a “cotenancy provision” and can be included in shopping center retail leases to encourage a bustling shopping center and customers on-site to shop.  Upon the occurrence of less than three operating anchor tenants, Jo-Ann Stores paid the reduced stipulated rent and JJD-HOV Elk Grove sued alleging that the cotenancy provision was an unenforceable penalty. JJD-HOV Elk Grove relied on a prior case, Grand Prospect Partners, LP v. Ross Dress for Less, Inc. (“Grand Prospect”) in which that court of appeal distinguished the general rule that courts enforce contracts as written and held the cotenancy provision in Grand Prospect was an unenforceable penalty because of a lack of a proportional relationship between the forfeiture compelled and the damages or harm that might actually follow from the failure to perform the covenant or satisfy the condition.  In Grand Prospect, they relied on the concept of a cotenancy provision as a liquidated damages provision since they are fixing the rent ahead of time upon the condition not being fulfilled.  There, the court found that the harm to Ross (which was essentially zero dollars) was not in any way proportional to the remedy (in that case, they paid no rent upon such cotenancy condition not being satisfied), thus the liquidated damages provision was deemed a penalty and unenforceable. Liquidated damages is a contract provision prescribing in advance the payment to one party as damages for a breach of the contract by the other party.  The damages amount should be reasonable for the applicable breach otherwise it could be deemed an unenforceable penalty.  In JJD-HOV, the court declined to find a cotenancy provision akin to a liquidated damages provision because the lease did not state that reduced occupancy in the shopping center resulted in JJD-HOV Elk Grove’s breach of the lease, only that the condition was not satisfied.  Further, unlike in Grand Prospect, this court held that the alternate rent paid should not be considered “damages”, just two different rental rates, similar to paying a higher amount when a tenant holds over in a space after the lease termination date.  Finally, the JJD-HOV court found that the parties negotiated the lease in an arms-length transaction and were hesitant to alter a negotiated contract, even if one party (in this case, Jo-Ann Stores) received a windfall when paying the lower stipulated rent. JJD-HOV declined to follow the Grand Prospect holding that a cotenancy provision could be held unenforceable if the predetermined reduction in rent did not have a reasonable relationship to the harm the parties anticipated to be caused by the failure in condition.  Instead, the court relied on the general rule that it will not alter a contract negotiated in good faith even if one party receives a windfall because of its terms.  JJD-HOV reminds us that courts may take a more laissez-faire approach if a contract is negotiated, even if inherently unfair, unless a provision expressly violates a specific law. [1] The JJD-HOV case is under review.  We will update if further action is taken.   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.

law

SF Housing Element Certified by State, adopted by the Board on Jan. 31 deadline

| Kaitlin Sheber

Today, the San Francisco Board of Supervisors (the “Board”) unanimously voted to adopt an ordinance that amends San Francisco’s Housing Element as required under California law. Today was the last day for the City to meet its deadline to adopt an updated Housing Element that complies with a variety of new state laws. The updated Housing Element plans for 82,069 new housing units in the next 8 years—nearly three times the units the City was expected and failed to construct over the past 8 years. Of the 82,069 new units, 32,881 units must be affordable to Low or Very Low Income households. To plan for the ambitious requirement and comply with new Housing Element Laws, the City has made extensive updates to its Housing Element, including the following: Housing production is being shifted towards small and mid-rise housing across all neighborhoods, particularly along transit corridors and the west side of the City. Programs and actions to affirmatively further fair housing have been added as newly required under state law. The Housing Element has been updated to reflect the City’s commitment to advancing racial and social equity in San Francisco. Environmental justice policies will address unique or compounded health risks in affected areas. As many jurisdictions across the Bay Area work to ensure their updated Housing Elements comply with state law to avoid consequences such as loss of state funding, fines, and potentially loss of local control, the California Department of Housing and Community Development (“HCD”) issued a letter on January 20, 2023 deeming San Francisco’s Housing Element update will comply with State Housing Element Law when it is adopted, submitted to, and ultimately approved by HCD. Now that the updated Housing Element has been adopted, the City will begin work on implementing its Housing Element to stay in compliance with State Housing Element Law. This will entail rezoning significant swaths of the west side of the City within the next 3 years to allow for more density, especially as HCD has indicated the City should pursue its most aggressive rezoning strategy. The City will also work to reduce governmental constraints in an effort to facilitate housing production under its new Housing Element.   Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber. 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.

code

Bigger Code Violation Fines In SF’s Future?

| Mark Loper

We kick off Reuben, Junius and Rose’s 2023 client updates by discussing a proposed San Francisco ordinance that would significantly enhance penalties for unpermitted work eliminating or adding residential units and significantly altering historic resources, and increase administrative and civil penalties for violations of the Building and Planning Codes. The legislation, co-sponsored by Supervisors Ronen, Peskin and Chan, was introduced in July 2022 (Board File No. 220878). In October 2022, the Building Inspection Commission voted unanimously to recommend approval. A Planning Commission hearing is scheduled for next Thursday, January 19th. After the Planning Commission, hearings would take place at the Board of Supervisors’ Land Use and Transportation Committee, followed by the full Board. The ordinance would increase the Zoning Administrator’s authority to impose significant monetary fines on property owners who carry out unpermitted work associated with a residential demo, merger, or change of use, and significant alterations to historic buildings. For unpermitted alterations, mergers, or demolition that eliminate one or more residential units, and also for unpermitted additions of more than two unauthorized units, the property owner would be liable for an administrative penalty of up to $250,000 for each unit. The owner also would be required to file a permit and request retroactive permission from the Planning Commission to eliminate the dwelling unit with a Planning Code Section 317 Conditional Use permit. The Planning Department’s Zoning Administrator would ultimately determine the amount of the fee; the ordinance directs the Planning Commission to adopt factors and criteria for the Zoning Administrator to consider. The ordinance would also punish property owners who carry out alterations that are tantamount to demolition without securing a Section 317 Conditional Use permit. For five years, no permits authorizing construction or alteration are allowed. There would be one exception: the permit would need to have the same or more residential units, with the same or higher proportion of residential to non-residential units as the building as it existed before the unpermitted work occurred. Also, the replacement units need to be at least 40% of the size of the largest unit in the project. They also could be subject to rent control; as written, this provision of the draft ordinance is unclear. The ordinance would also enhance the potential penalties for unpermitted damage to historic properties. For historic properties that are designated locally or on the California or National registers, a penalty of up to $500,000 is available for each structure that is “significantly altered or damaged,” or “demolished.” Similar to the unpermitted residential work, the Historic Preservation Commission would be tasked with adopting factors and criteria for the Zoning Administrator, and would also need to define the terms “significantly altered or damaged” and “demolished.” Also, for all Notices of Violation (“NOVs”)—not just NOVs relating to unpermitted work on residential or historic buildings—the ordinance would add the following additional factors when considering whether to uphold the NOV and whether to assess administrative penalties: if a violation was willful or intentional; the extent to which it resulted in financial gain; if tenants were displaced; if the violation is reversible; and if it created a nuisance, health hazard, or dangerous condition. Also, the daily administrative penalty would be increased from $100 to $200. On appeal to the Board of Appeals, if the Board upholds in whole or in part the Zoning Administrator’s decision on the amount of the penalty, it can reduce the penalty, but not below $50,000 for each residential unit or $100,000 for each historic property. The ordinance would also allow a court to assess a daily civil penalty of between $200 and $1,000 and adds criteria for a court to consider when assessing the amount of any civil penalty for any Planning or Building Code violation. They include: the nature and seriousness of the misconduct, number of violations, the persistence of the misconduct, length of time, willfulness of the defendant, if any tenants were displaced, if the violation is reversable, if the violation impacted an historic resource, the financial gain because of the violation, and the defendant’s net worth. Finally, the ordinance adds some procedural teeth. Any time after issuing an NOV, the Zoning Administrator can issue a “Notice of Additional Compliance Actions and Accrued Penalties” that requires a responsible party to perform additional abatement actions, and/or sets out the total penalties accrued to-date. Final NOVs or Notices of Violation and Penalty Decisions (“NOVPD”) may be recorded as an Order of Abatement on title, which also would spell out the steps necessary to abate the violation. The Ordinance would also make transferees responsible for daily penalties that accrue after the transfer if an NOV or NOVPD has been recorded on title; if not, the Zoning Administrator can only start assessing daily penalties if a notice and an opportunity to cure the violation are provided. We will continue to track this interesting piece of legislation as it moves forward.   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.

housing

Cars to Casas Nearing Adoption

| Tuija Catalano

Approximately a year ago we reported on Mayor London Breed’s introduction of the “Cars to Casas” legislation which proposed to make it easier to build housing on existing parking lots, gas stations and properties improved with certain other automotive uses.  The legislation has now been rebranded as “Automotive Uses to Housing Uses” and made significant progress in the last two weeks with a positive recommendation from the Land Use and Transportation Committee on Monday, December 5th, and unanimous votes at the full Board of Supervisors on first reading on Tuesday, December 6th and on second and final reading on Tuesday, December 13th.  The legislation will be forwarded next to the Mayor for her signature, and if signed, will become effective 30 days thereafter. The legislation has been pending since October 2021, in part due to the Land Use and Transportation Committee’s request for an economic analysis.  If adopted, the legislation will eliminate a conditional use authorization requirement that currently applies to conversion of existing gas station uses, and would create an exception to the permitted residential density at eligible sites.  Sites that are eligible under the legislation are those that are currently used for auto-oriented uses, allow residential uses as a principally permitted use but do not currently contain any residential uses, and have not had a Legacy Business on the site within four years prior to the application submittal date. As proposed, including amendments by the Land Use and Transportation Committee, the legislation will not apply to any properties that are zoned for the RM (Residential-Mixed) or RC (Residential-Commercial) district, or to properties that are located in a historic district. The permitted residential density for RH (Residential-House) districts is up to four units per lot, and for all other eligible sites density is unlimited provided the project complies with applicable height, bulk, setback and other Planning Code requirements.  That said, eligible sites can also utilize the state density bonus program, which can allow waivers and concessions from otherwise applicable Planning Code requirements. The legislation is one example of efforts by Mayor Breed and the City to make it easier to build more housing and to get entitlements and permits for development proposals, and as such, a welcome proposal.  If the legislation is signed by the Mayor in the next 10 days, it will become effective in approximately mid-January 2023.   Authored by Reuben, Junius & Rose, LLP Attorney Tuija Catalano. 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.

1 … 5 6 7 8 9 … 55