While the focus in November is on the top of the ticket, Californians also face a long list of ballot measures. Here we focus on three major measures that impact California real estate: Propositions 15, 19 and 21.

Proposition 15: Split Roll Tax for Commercial/Industrial Properties. Proposition 15 would remove certain limitations established under Proposition 13 (passed in 1978) that place a 2 percent cap on increases to assessed property values. The proposed “split roll” would assess property taxes on certain commercial and industrial properties based on fair market value rather than purchase price. Commercial and industrial properties with a fair market value of $3 million or less would be exempt from Proposition 15 reassessment, but if an owner of such a property owns other commercial or industrial properties in California, those properties would also count against the $3 million limit for the exemption. The proposed split roll would not change the overall property tax rate, nor would it apply to residential or agricultural property.

Proposition 15 was placed on the ballot through signature collection. Supporters (including the California Teachers Association, the SEIU and the Chan Zuckerberg Initiative) say that Proposition 13 provided a significant tax break over a long period of time to businesses and that there are other priorities now for cities, counties and school districts. Opponents (including business and taxpayer associations) cite the significant new tax burden on businesses from this and other proposed local measures, particularly in light of the challenging economic climate and businesses leaving the state.

Proposition 19: Change Assessed Value Calculations for Residential Property. California law currently allows certain homeowners—such as those who are over age 55, severely disabled, or victims of wildfires or other natural disasters—to transfer their assessed property values to replacement residences intra-county, and to certain other counties that have adopted local ordinances allowing for reciprocity. Proposition 19 would expand the exemption to all replacement residences state-wide for these specified groups of homeowners. California law currently also allows exemptions from reassessment for two types of transfers between parents and children: (i) transfers of principal residences and (ii) transfers of up to $1 million worth of assessed value of other real property. Proposition 19 would limit the exemption available for (i) and eliminate it for (ii). It would allow a limited exemption from reassessment only for a transfer of a principal residence between parent and child where the property continues as the recipient’s principal residence. If the property value at the time of transfer exceeds the transferor’s assessed value by less than $1 million, the transfer would be exempt from reassessment. However, if the property value exceeds the transferor’s assessed value by $1 million or more, then the recipient’s assessed value would be the current value of the property less $1 million.

This measure was placed on the ballot by the State Legislature. Supporters (including realtors and firefighters associations) say that Proposition 19 will incentivize seniors to downsize and free up new housing inventory and flatten wealth inequality, and that limiting property tax exemptions will provide important funds to local governments, state firefighting and other uses. Opponents (including taxpayer associations) claim that Proposition 19 is driven by realtors who are focused on increased commissions, and cite the new property tax laws as unduly burdensome.

Proposition 21: Expansion of Local Residential Rent Control. Proposition 21 is one of several measures proposed in recent years by the voters and in the Legislature to expand local rights to enact residential rent control. State law currently limits local rent control laws by exempting single-family housing units with separate, alienable title (such as condos, townhouses and single-family homes) and newly constructed housing completed on or after February 1, 1995. It also allows landlords to reset rent after a tenant vacates. For tenants in place, the Tenant Protection Act of 2019 limits annual rent increases statewide for most rental housing that is more than 15 years old, to the lesser of (i) 5 percent plus inflation, or (ii) 10 percent, excluding single-family housing units (unless the owner is a real estate investment trust, corporation, or LLC with a corporate member).

Proposition 21 would expand local rights to enact rent control by allowing local governments to: (1) enact rent control on all housing units except (a) housing first occupied within the last 15 years, and (b) homes owned by natural persons who own no more than two single-family housing units; and (2) prohibit landlords from raising rental prices by more than 15 percent cumulatively during the first three years following a vacancy.

Proposition 21 was placed on the ballot by signature collection. Supporters (including various tenant advocacy and social justice groups and the AIDS Healthcare Foundation) say that Proposition 21 would allow local control and allow cities to put measures in place to address the state’s homelessness and housing affordability crisis. Opponents (including the California Apartment Association and other real estate advocacy and investment groups) claim that it will constrain housing supply by creating a chilling effect on investment and will decrease tax revenues for city and state government.

Like so much of this unprecedented year, the 2019-2020 California Legislative Session ended with unexpected twists and pointed disappointments as the Assembly and Senate wrestled with the coronavirus pandemic, social distancing protocol, and friction between Assembly and Senate leadership in the final hours of the session, ultimately resulting in a number of highly anticipated housing bills failing to pass.  High profile bills that died include SB 995 (extending the former AB 900 expedited CEQA review process for environmental leadership development projects through 2024); SB 1120 (providing ministerial approval and subdivision processes for residential duplexes on single-family zoned lots); and SB 1085 (expanding the Density Bonus Law to include qualifying moderate-income rental projects and student housing projects, among other changes).

Despite the failure to pass key bills, there were some notable developments regarding housing-related bills, several of which are heading to the Governor’s desk for signature.  The Governor has 30 calendar days, ending on September 30, 2020, to sign these proposals into law.  Key bills include:

AB 2345 (Gonzalez, Chiu): AB 2345 makes a number of important changes to the state Density Bonus Law, which was originally adopted in 1979 and has recently gained traction as a critical tool for increasing housing production across the state. The existing Density Bonus Law requires local governments to grant additional residential density and to provide relief from certain development standards that would result in project cost savings (referred to as “concessions” or “incentives”) for projects that incorporate qualifying amounts of income-restricted units.

Among other changes, AB 2345: increases the maximum density bonus from 35% to 50%; reduces the qualifying thresholds of total affordable units to qualify for both two and three incentives or concessions; and reduces the amount of parking a local government can require of a developer requesting a density bonus.  AB 2345 also requires that local governments include information regarding the total number of density bonus applications received and approved that year in their state-mandated annual progress reports to the Department of Housing and Community Development.

AB 725 (Wicks): AB 725 is intended to make a dent in California’s “Missing-Middle” housing crisis, by requiring that many jurisdictions across the state plan for moderate-density housing (e.g., duplexes, fourplexes, garden apartments, townhomes, etc.) through their state-mandated general plan housing elements.  AB 725 requires that qualifying jurisdictions allocate at least 25% of their state-mandated Regional Housing Needs Allocation for moderate and above-moderate units to housing sites zoned for at least four units, with moderate income sites being capped at a density of 100 units per acre.  These sites must be identified in the housing element inventory of land suitable for residential development.  Accessory dwelling units or junior accessory dwelling units do not count towards the 25% requirement.  AB 725 will apply only to housing elements due after January 1, 2022.

AB 831 (Grayson): AB 831 provides several important clarifications to SB 35 (Wiener), the housing streamlining bill adopted in 2017 that established a ministerial approval process for qualifying housing projects in jurisdictions that are not meeting their state-mandated goals for above-moderate and lower-income housing production.  Consistent with SB 35, AB 831 clarifies the limits of local government discretion in implementing projects already approved under SB 35.  AB 831 limits local agency discretion regarding its review and approval of public improvements necessary to complete an SB 35 project, such as installation of utilities, pedestrian and bicycle connections, and landscaping.  It also clarifies that SB 35 projects may be modified following SB 35 approval and limits local agency discretion in reviewing such modification requests.

AB 831 also clarifies the applicability of the SB 35 requirement that two-thirds of a qualifying mixed-use project must be dedicated to residential uses.  In response to a superior court determination, AB 831 clarifies that the two-thirds residential requirement is intended to apply to the proposed project itself, not to the underlying zoning.  AB 831 is urgency legislation that will take effect immediately upon the Governor’s signature.

AB 168 (Aguiar-Curry): AB 168 establishes a mandatory consultation process with Native American Tribes for projects intending to utilize SB 35 streamlining to determine if the proposed project would impact a tribal cultural resource.  Prior to submitting an SB 35 application, AB 168 requires that developers submit a pre-application that triggers a “scoping consultation” process between the local agency and any California Native American Tribe traditionally and culturally affiliated with the proposed project site.  An SB 35 application may then be submitted under the following circumstances: if no California Native American Tribe seeks to engage in consultation; if no potential tribal cultural resource impact is identified during the scoping consultation period; or if a potential tribal cultural resource impact is identified and the parties can agree to methods, measures, and conditions to treat the resource. However, an SB 35 application may not be submitted if a potential tribal cultural resource impact is identified and the parties cannot agree to such measures, or if a tribal cultural resource is identified that is listed on a designated register.

Please contact a member of the Coblentz Real Estate team for additional information and any questions related to the impact of these new bills on land use and real estate development.

 

As previously reported on the Unfamiliar Terrain blog, San Francisco Mayor London Breed declared a moratorium on evictions of small and medium-sized businesses (those having worldwide receipts of $25 million or less) impacted by COVID-19 for non-payment of rent. By supplemental declaration on April 1, Mayor Breed ordered that the moratorium also applies to non-replenishment of security deposits. The April 1 supplemental declaration is the eighth of ten supplemental declarations (as of April 21, 2020) to the Mayor’s Proclamation of Local Emergency.

Although this supplement to the Mayor’s Proclamation discourages landlords from deducting delinquent rent from existing security deposits during the moratorium, landlords are not prohibited from doing so. Landlords may not, however, require small and medium-sized business tenants to increase their security deposits during the moratorium or evict such tenants based on failure to replenish security deposits, if such failure is caused by the financial impacts of COVID-19. Instead, landlords and tenants must follow the same notice and cure process for replenishment of security deposits as required for non-payment of rent pursuant to the original order for a commercial eviction moratorium. Landlords are barred from evicting such tenants due to failure to replenish security deposits until 6 months after the moratorium expires (currently scheduled to expire on May 17).

The Coblentz Real Estate team and authors of our real estate and land use blog, Unfamiliar Terrain, will continue to monitor these developments. Visit our COVID-19 Business Resource Center for additional information, or contact Real Estate attorneys Barbara Milanovich at bmilanovich@coblentzlaw.com or Caitlin Connell at cconnell@coblentzlaw.com.

We last reported on the Unfamiliar Terrain blog that California Governor Gavin Newsom banned the enforcement of residential evictions against qualified California tenants who fail to pay rent. Less than two weeks later, on April 6, the California Judicial Council substantially expanded statewide tenant protections and eliminated the qualifications for protection. With the Council’s action, residential and commercial tenant eviction lawsuits cannot be initiated during the state of emergency and for 90 days after, regardless of the cause and regardless of the financial condition of the tenant. Eviction actions already in process will be postponed by at least 60 days. The only exceptions are evictions that are necessary for the public health or safety.

Governor Newsom’s March 27 Executive Order N-38-20 granted authority to the Council and its Chairperson to issue emergency orders or statewide rules to maintain the safe and orderly operation of the courts in response to the COVID-19 pandemic. The Council’s sweeping action relies on the March 27 Executive Order, amending the California Rules of Court to address overwhelmed caseloads and calendars during the COVID-19 pandemic. The Council’s amended rules relating to eviction lawsuits and foreclosure actions are summarized below.

Residential and Commercial Eviction Lawsuits Postponed

For the period of the state of emergency and for 90 days thereafter:

1. State courts are prohibited from issuing an unlawful detainer summons, which is the document required to initiate an eviction lawsuit, unless the court finds the action necessary to protect the health and safety of the public. This rule temporarily prevents any new eviction actions, other than for the public health and safety exception.
2. State courts may not enter a default or default judgment against a defendant for failure to appear, unless the court finds action necessary to protect public health and safety and the defendant has not appeared in the action within the time provided by law.
3. If a defendant has appeared in an eviction action, trial dates must be set at least 60 days after a request for trial is made (instead of the statutory 20 days), unless the court finds that an earlier trial date is necessary to protect the health and safety of the public.
4. Any eviction trial date already set as of April 6, 2020 must be continued at least 60 days from the initial trial date.

As it is very unlikely that the state of emergency will be lifted before April 30, no new eviction lawsuits may be initiated statewide through, at a minimum, July (other than for the public health and safety exception). The rules do not provide guidance on what might qualify under the public health and safety exception.

The Council’s rules result in broader limitations on eviction actions than earlier State orders and most local ordinances. Where a local ordinance provides greater or additional protections to tenants, those protections will continue to be available.

Judicial Foreclosure Actions Stayed

The Council’s emergency rules also provide that all actions for judicial foreclosure are stayed during the state of emergency and for 90 days after, unless the court finds that action is required to further the public health and safety. The statute of limitations for filing foreclosure actions is tolled for the same period of time.

The Coblentz Real Estate team and authors of our real estate and land use blog, Unfamiliar Terrain, will continue to monitor these developments. Visit our COVID-19 Business Resource Center for additional information, or contact Real Estate attorneys Tay Via at tvia@coblentzlaw.com or Caitlin Connell at cconnell@coblentzlaw.com.

As we previously reported, in the past two weeks, the federal government, the state of California, and many local governments have taken action to provide tenant and homeowner protections in response to the COVID-19 pandemic.

Federal Homeowner Protections

On March 18, President Trump announced a suspension of foreclosures and evictions by the Department of Housing and Urban Development through April 30. The moratorium will apply only to homeowners with mortgages insured by the Federal Housing Administration.  Also on March 18, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days.

California Homeowner Protections

At the state level, on March 25, California Governor Gavin Newsom announced that Wells Fargo, US Bank, Citigroup, JP Morgan Chase, and almost 200 state-chartered banks and credit unions will provide mortgage relief to California property owners.  Newsom announced during a news conference that they “have all agreed to 90 day waiver of payments for those that have been impacted by COVID-19.” The waivers will apply to single-family homes and properties with 1-4 units. Californians struggling with the COVID-19 crisis may be eligible for relief upon contacting their financial institution.

California State and Local Tenant Protections

On March 27, Governor Newsom issued Executive Order N-37-20 banning the enforcement of evictions statewide against qualified California residential tenants who fail to pay rent between the date of the Order and May 31, 2020. To qualify, residential tenants must give notice to the landlord of inability to pay all or part of their rent as a result of COVID-19 within seven days after the rent is due. The tenant would then have 60 days (instead of the statutory 5 days) to respond to an eviction lawsuit, and law enforcement would be prohibited from enforcing an eviction against such tenant while the Order is in effect. Tenants would remain obligated to repay full rent in a timely manner after the moratorium is lifted.

The March 27 Order builds on Governor Newsom’s prior Executive Order N-28-20, which authorizes local governments to pass their own stricter bans on residential or commercial evictions. The prior Order also makes it unlawful through May 31 to evict a residential tenant and subsequently rent or offer to rent to another person at a rental price greater than the evicted tenant could be charged.

Under the authority granted by Executive Order N-28-20, a number of local governments have passed broader eviction moratoriums, including moratoriums that aim to protect commercial tenants. The statewide eviction moratorium does not override stricter measures that local governments have already enacted or may enact going forward.

Locally, San Francisco Mayor London Breed issued a 30-day moratorium on residential and commercial evictions related to financial impacts caused by the COVID-19 pandemic that is more expansive than the statewide moratorium. Residential tenants will have up to six months after the end of the emergency declaration period to pay the total of their missed rent. The moratorium on commercial tenants is limited to small and medium-sized businesses (those with worldwide gross receipts in 2019 of $25 million or less). Landlords must provide such business tenants at least one month to cure a failure to pay rent. If the business tenant provides documentation of a financial difficulty related to COVID-19, the cure period is automatically extended for successive periods of one month, up to a total of six months. During the applicable cure period, landlords must negotiate a payment plan in good faith. Landlords may proceed with eviction after a tenant fails to pay all outstanding rent within the applicable cure period.

Legislation passed by other Cities and Counties in California is summarized in the chart to the left. The chart is a summary only, and legislation must be consulted for details. It is illustrative as the situation is fluid and other jurisdictions may have enacted, considered, or are in the process of considering legislation. In some cases the local restrictions are more stringent that the Governor’s Order, and in those cases the more restrictive local provisions apply. A common thread through the various jurisdictions is that tenants are not relieved of their duty to (eventually) pay rent. Click on the image to the left to view the full chart.

The situation and responses continue to evolve quickly, and other local jurisdictions are considering similar controls. The Governor’s Office may also provide further guidance on these issues. The Coblentz Real Estate team and authors of Unfamiliar Terrain will continue to monitor these developments.

 

In recent days, the federal government, the state of California, and many local governments have taken action to provide tenant and homeowner protections in response to the COVID-19 pandemic.

On March 18, President Trump announced a suspension of foreclosures and evictions by the Department of Housing and Urban Development through April 30. The moratorium will apply only to homeowners with mortgages insured by the Federal Housing Administration.

Also on March 18, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days.

At the state level, on March 16, 2020, California Governor Gavin Newsom issued Executive Order N-28-20 prohibiting rent hike evictions, authorizing local governments to implement further protections against evictions, delaying foreclosures by mortgage lenders, and monitoring customer service protections delivered by utility providers. Unless extended, the protections under the order are in effect until May 31, 2020 and are intended to address the challenges for many Californians to pay rent, mortgages, and utility bills as a result of the COVID-19 pandemic. A summary of protections included in the order is as follows:

• It is unlawful to evict any residential tenant through May 31, 2020 (as may be extended) and subsequently rent or offer to rent to another person at a rental price greater than the evicted tenant could be charged. Landlords may continue an eviction process that was lawfully initiated prior to March 4, 2020.
• Local governments may impose substantive limitations on residential or commercial evictions through May 31, 2020 (as may be extended) where the basis of the eviction is nonpayment of rent or a foreclosure, and the tenant or homeowner can demonstrate economic hardship caused by the COVID-19 pandemic.
• Public housing authorities are requested to extend deadlines for housing assistance recipients and applicants to deliver documents.
• Home and commercial mortgage lenders are requested to immediately place a moratorium on foreclosures and evictions that arise out of economic hardship caused by the COVID-19 pandemic.
• The California Public Utilities Commission (CPUC) is requested to monitor and report the customer service protections provided by utility providers for electric, gas, water, internet, landline telephone, cell phone service, and other critical utilities, in response to COVID-19.

The order contemplates that a quarantine or similar public health measure could also prohibit an eviction if it compels an individual to remain physically present in a particular residential property.

The order does not relieve a tenant from its obligation to pay rent, nor does it restrict a landlord’s ability to recover rent.

On March 17, 2020, the CPUC confirmed that, retroactive to March 4, 2020, utility companies under CPUC’s jurisdiction (including PG&E, AT&T and Comcast) will not be allowed to suspend service for customers who cannot pay their bills during the COVID-19 state of emergency.

Cities in California that have moved to impose temporary moratoriums on evictions include San Francisco, Oakland, San Jose, Los Angeles, Santa Monica, San Diego, Santa Barbara, South Pasadena, and Suisun.

• On March 13, San Francisco Mayor London Breed issued a 30-day moratorium on residential evictions related to financial impacts caused by the COVID-19 pandemic. Tenants will have up to six months after the end of the emergency declaration period to pay the total of their missed rent. Guidance for tenants and landlords, including tenant obligations to provide notice of inability to pay rent, can be viewed here.
• On March 14, Santa Monica issued a temporary moratorium on evictions for non-payment of rent by residential tenants financially impacted by COVID-19 during the period of local emergency. A landlord also cannot pursue a no-fault eviction during the period of local emergency unless necessary for the health and safety of tenants, neighbors, or the landlord. On March 18, Santa Monica added a moratorium on commercial tenant evictions through April 30, 2020.
• On March 15, Los Angeles Mayor Eric Garcetti issued a moratorium on residential evictions through March 31, 2020 where the tenant can demonstrate economic hardship caused by the COVID-19 pandemic. Tenants will have up to six months following the expiration of the local emergency period to repay any back due rent. The Mayor is considering a halt to commercial evictions as well.
• A proposed ordinance for a residential eviction moratorium in Oakland will be considered at the Oakland City Council’s next meeting on April 7.
• San Jose City Council is moving forward with a temporary ban on COVID-19-related residential evictions, which is expected to receive final approval in the next week. Council members will consider adding small businesses under commercial leases to the moratorium.
• San Diego city leaders voted on March 17 to draft an emergency ordinance aimed at preventing residential rental evictions triggered by the COVID-19 pandemic.
• Santa Barbara City Council will vote on a draft ordinance pausing evictions on March 24, 2020. It is undetermined whether the pause will extend to both residential and commercial evictions, or one or the other.
• On March 18, South Pasadena considered a resolution that would establish special protections for residential and commercial tenants and property owners.
• Suisun City Council is poised to pass a resolution that would prohibit any new residential or commercial evictions due to financial impacts caused by the COVID-19 pandemic.

The situation and responses are evolving quickly, and other local jurisdictions are considering similar controls. The Governor’s Office may also provide additional guidance on this issue. We will continue to monitor these developments.