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

ordinances

Can New Rules Jumpstart Downtown?

| Melinda Sarjapur

Last week, two new ordinances were introduced, both seeking to encourage residential conversion projects downtown, which have been recently touted by the media and policy advocates as one potential solution to address San Francisco’s office vacancy; combat the housing crisis; and draw retail foot traffic back to the City’s core. The “Commercial to Residential Adaptive Reuse and Downtown Economic Revitalization” ordinance, sponsored by Supervisor Aaron Peskin and Mayor London Breed, proposes an expansive list of Planning, Building and Fire Code amendments that share a common goal of encouraging downtown residential conversions and revitalizing the downtown core. The “Development Impact Fees for Commercial to Residential Adaptive Reuse Projects” ordinance, sponsored by Supervisors Asha Safai and Matt Dorsey, is limited in scope but also seeks to incentivize residential conversions by exempting them from development impact fees. The Breed/Peskin ordinance proposes the following Code modifications, which, if adopted, would not only encourage downtown residential conversions but would also broaden the types of uses allowed downtown, streamline process, and reduce costs for new businesses: Creates a new definition for “Adaptive Reuse” project, which would apply to downtown projects that change existing GFA from non-residential to residential. Qualifying “Adaptive Reuse” projects must be located in a C (commercial) zoning district that is east of or fronting on Van Ness/South Van Ness Avenue and north of Harrison Street; can’t utilize California State Density Bonus Law; can’t propose an addition to the building envelope that exceeds 20% of the existing building’s GFA; can’t propose an addition of more than one vertical story; and must submit an application on or before December 31, 2028. Relaxes zoning controls for qualifying “Adaptive Reuse” projects. Such projects would be exempt from zoning requirements that often trigger discretionary exceptions through a Downtown Project Authorization entitlement and/or drive-up development costs, such as lot coverage (which the ordinance substitutes for rear yard setback in C districts); usable open space; streetscape and pedestrian improvements; bike parking; dwelling unit mix.  “Adaptive Reuse” projects would also be subject to reduced dwelling unit exposure, and Intermediate Length Occupancies would be principally permitted regardless of the number of units in the project.  In addition, eligible “Adaptive Reuse” projects would not be subject to public hearing requirements for Downtown Project Authorization entitlements, unless seeking Planning Code exceptions beyond those listed above. Raises the thresholds for public hearings of permits in Downtown Residential Districts and C-3 Districts so that public hearings are only triggered by proposed construction of new buildings or vertical additions greater than 120 feet in height (its currently triggered for any project of 75 feet in height or that adds 50,000 gsf of floor area). Changes dimensional limits on exemptions to height restrictions for mechanical equipment, elevator, stair, and mechanical penthouses on existing buildings; Proposes a range of zoning code tweaks intended to draw business back to the downtown core. These include creating a new definition for “Flexible Workspace” and allowing it as active ground floor commercial uses along certain street frontages in the C-3 District; authorizing large-scale retail uses (> 50,000 gsf) in the C-3 District; allowing window displays to be at least four-feet deep in the C-3 District; allowing accessory storage in the C-3 Districts; allowing temporary signs for 60 days in the C-3-R district; allowing temporary “pop-up” non-residential uses in vacant spaces for up to a year in certain C, NC, NCT, or Mixed-Use districts; principally permitting Lab, Life Science, Agricultural and Beverage Processing, and Animal Hospitals in C-2 Districts; principally permitting office and design professional uses on the second floor and above for C-3-R districts; and requiring consideration of office vacancy rates in consideration for granting code exceptions in the Transit Center Commercial Special Use District. Streamlines sign permit requirement in the C-3 District and Citywide by exempting existing business sings in the C-3 District from certain requirements and allowing non-conforming neon signs to be physically detached from a building for repairs or maintenance, under certain conditions. Streamlines Historic Preservation Review for administrative certificates of appropriateness and minor permits to alter for awnings. Allows for In Lieu Fee payment to satisfy POPOS requirements in certain C-3 Districts. Amends the Building Code by directing the Building Official and Fire Code Official to develop an alternative building standards manual, providing building standards specific to “Adaptive Reuse” projects. The Safai/Dorsey ordinance is focused solely on economic incentive.  It would exempt certain downtown residential conversion projects from all development impact fees except for Inclusionary Housing Program requirements. To qualify for these fee waivers, an “Adaptive Reuse” project would need to be located in a C zoning district that is east of or fronting on Van Ness/South Van Ness Avenue north of Harrison Street; can’t utilize California State Density Bonus Law; can’t expand an existing building envelope by more than 20% of the existing buildings GFA; and can’t add more than one vertical story.  Fee waiver would not apply to the area of any non-residential use proposed within a broader conversion project. The above ordinances clearly aim to incentivize downtown residential conversions, but it’s unclear whether they go far enough to trigger a significant up-tick in “Adaptive Reuse” projects. On April 3, 2023, the Board’s Land Use and Transportation Committee held a public hearing to review a Policy Analysis Report drafted by the Board’s Budget and Legislative Analyst’s Office on feasibility of repurposing existing commercial real estate for residential use in San Francisco.  While the Analysts report identified that zoning and policy changes in line with those under review could help to incentivize residential conversions, it also noted that “converting commercial properties to residential use is not a panacea for solving California’s housing shortage” because such conversions face a number of challenges “including architectural and building design limitations, municipal development approval processes that add time, cost, and uncertainty to conversions…”  Likewise, a recent policy paper issued by the San Francisco Policy and Urban Research organization (“SPUR”) found that given current economic conditions and development costs, most conversions of underperforming office buildings would not pencil. The Breed/Peskin and Safai/Dorsey

policies

2023 Legislation at a Glance – Part 2

| Justin A. Zucker and Sabrina Eshaghi

As reported last week, this legislative session is packed full of pending bills with far reaching changes to land use controls and local control of such. In Part 1, we discussed some of the most significant bills introduced impacting the California Environmental Quality Act (CEQA), the State Density Bonus Law, and removal of an only in San Francisco allowance to appeal a building permit after a qualifying residential project receives entitlement. Here, in Part 2, we discuss significant bills introduced related to housing, parking, accessory dwelling units (ADUs), and other land use-related policies. Accessory Dwelling Units Since their introduction into housing nomenclature by former Bay Area lawmaker Senator Bob Wieckowski (D-Fremont) in 2016 with SB 1069 along with companion AB 2299 (Bloom), ADUs have become somewhat of a darling child in the housing production world. Over the years, several bills have passed intended to increase the production of ADUs. A few include a package – AB 68 (Ting), AB 587 (Friedman), AB 670 (Friedman), AB 671 (Friedman), AB 881 (Bloom), and SB 13 (Wieckowski) – enacted in 2019 and another pair of bills from 2022 – AB 2221 (Quirk-Silva) and SB 897 (Wieckowski). This year, we see proposals for further relaxation of controls on ADUs, including: AB 1033 (Ting) would allow a local jurisdiction to permit condominiumization and sale of ADUs separate from the primary residence. AB 1332 (Carillo) would require jurisdictions, by April 2025, to publish six sets of permit ready floor plans (studio, 1-bedroom, and 2-bedroom, in both standard and reverse formats) for detached ADUs. AB 1661 (Bonta) would remove the requirement that an ADU be individually metered for electrical and gas service and allow for an ADU to use existing or upgraded meters on the property. AB 976 (Ting) would make permanent an existing prohibition to imposing an owner-occupancy requirement on an ADU that sunsets January 1, 2025. SB 477 (Committee on Housing) would create a new Government Code chapter to house state ADU regulations. Constitutional Amendments There are two noteworthy Constitutional Amendments being proposed this legislative session. ACA 1 (Aguilar-Curry) Affordable Housing Bond Approval Threshold. Would lower the necessary voter threshold for approving affordable housing bonds from a two-thirds supermajority to 55%. This appears to be a set up for a forthcoming affordable housing bond (AB 1657, Wicks), slated to go before the voters in fall of 2024. ACA 10 (Haney) Housing a Fundamental Right. Would amend the Constitution to declare that the state recognizes the fundamental human right to adequate housing for everyone in California. The amendment would impose a shared obligation on the state and local jurisdictions to respect, protect, and fulfill this right, by all appropriate means, including legislative action. Relaxing of Parking Controls In recent years, there has been an effort to reduce minimum parking controls. Last year, AB 2097 (Friedman) removed a local jurisdiction’s ability to impose any minimum parking requirements on residential or commercial development located within one-half mile of public transit (as defined). This year there is a trio of bills that will further relax parking controls local jurisdictions may impose: AB 1317 (Carrillo) would require landlords to “unbundle” parking costs from rent from leases or rental agreements for residential property commencing or renewed on or after January 1, 2024. AB 1308 (Quirk-Silva) would prohibit a local jurisdiction’s ability to increase the applicable minimum parking requirements of a single-family residence as a condition of approval to remodel, renovate, or add to a single-family residence. AB 894 (Friedman) would allow properties with underutilized parking (as defined) to share spaces with other users, which would count toward meeting any automobile parking requirement. Housing Policies AB 1485 (Haney) Attorney General Right To Intervene in Actions Involving Violations of State Housing Laws. This bill would grant the Attorney General an unconditional right to intervene in any lawsuit filed over a potential violation of an enumerated list of state housing laws, including, among others, the Housing Accountability Act, Housing Crisis Act of 2019, and the Density Bonus Law. AB 1532 (Haney) Streamlined Office to Residential Conversions. This bill would allow by-right, ministerial office to residential conversion projects statewide and limit fees and design requirements that local governments can impose on conversions. It would also allow an applicant to pay applicable impact fees over a ten-year period. It includes a skilled and trained workforce requirement. This bill has been converted to a two-year bill and we will likely not see any movement on it until next year. AB 1633 (Ting) Housing Accountability Act Protection Extended to CEQA Review. This bill would expand the Housing Accountability Act’s definition of “disapprove the housing development project” to include any instance when a local agency fails to issue an exemption, fails to adopt a negative declaration or addendum for the project, or certify an environmental impact report or another comparable environmental document. AB 281 (Grayson) Streamlining Post-Entitlement Permits. This bill would extend the post-entitlement permit timelines created by AB 2234 (2022, Rivas) to special districts. AB 2234 imposes the following timelines for review of post-entitlement applications for housing projects: (1) for projects with 25 units or fewer, a local agency shall complete first review and comment within 30 days of an application completion; and (2) for projects with 26 or more units, a local agency shall complete first review and comment within 60 days of an application completion. AB 821 (Grayson) General Plan Consistency. This bill would provide that, in the event a local jurisdiction fails to amend a zoning ordinance to be consistent with the general plan within 90 days of receiving written notice of the inconsistency, a proposed development project cannot be deemed inconsistent with that zoning ordinance and cannot be required to be rezoned, if there is substantial evidence that (1) the proposed project is consistent with objective general plan standards and (2) the zoning for the project site is inconsistent with the general plan. AB 919 (Karla) Stable Homes Act – Tenant Opportunity to Purchase. This bill would require a residential property owner, including

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.

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