Category: Real Estate

What’s in a Name Anyway? Trademark Basics for Community Associations

This article explores the essentials of trademark rights, their relevance for community associations, and the balance between protecting these trademarks versus respecting the free speech of homeowners.

I. What is a Trademark?

A trademark is a word, phrase, symbol, design, or any combination thereof that identifies and distinguishes the source of the goods or services of one party from the goods or services of another.

  1. Common Law Trademark Rights

    Common law trademarks arise from the exclusive, continuous use of a mark in commerce. It is not necessary to have a registration to use or protect these designations. However, rights in a common law (or unregistered) trademark are generally limited to the geographic area where the mark has been used. Trademark ownership is perpetual if the owner continues to use the trademark to identify its goods or services.

  2. Registered Trademark Rights

    Registered trademarks provide broader protection. There are two levels of trademark registration: state and federal.

    State registration provides protection within the boundaries of the state where the trademark is registered. This is a simpler and less costly process compared to federal registration, making it suitable for businesses that operate primarily within one state. For North Carolina, state trademark registration is done through the North Carolina Secretary of State.

    Federal registration, managed by the United States Patent and Trademark Office (USPTO), offers nationwide protection and several advantages, such as a legal presumption of ownership and the exclusive right to use the mark on or in connection with the goods/services listed in the registration.

II. Can a Community Association Have a Federally Registered Trademark?

Yes, a community association can register a trademark to protect its name, logo, or other identifying symbols for use in connection with the community association services offered.

  1. What is the Process?

    The process of registering a trademark involves several steps:

  2. Search: Conduct a trademark search to assess if the mark is available for registration.
  3. Application: File an application with USPTO, including a description of the mark, the goods/services it will cover, the dates of first use, and examples of such use.
  4. Examination: The office examines the application to ensure it complies with all legal requirements. If there are any issues, the applicant will receive an initial refusal (called an “Office Action”). There is a three-month window to respond or file a three-month extension to respond. If a Final Office Action is issued, the applicant has the option to request reconsideration and/or file to appeal the Examiner’s decision.
  5. Publication: If approved, the mark is published in the Official Gazette, allowing others to oppose the registration.
  6. Registration: If no opposition is filed, the mark is registered, and the owner receives a certificate of registration.
  7. How Time-Consuming is it?

The federal registration process typically takes about a year from filing, but the process can be longer if there are complications or opposition. State registrations are usually quicker, often taking a few months, but the resulting protection is limited to the state.

  1. What are the Benefits?

Trademarks offer several benefits to community associations. For example, the owner of a registered trademark has the exclusive right to use the mark in commerce. Therefore, the community association can prevent other community associations from using a confusingly similar mark and misleading prospective residents as to source, affiliation, or endorsement as a result. For further example, registered trademarks are listed in the USPTO database. A subsequent application for a similar mark for the same or related services will be blocked by the community association’s registration. Finally, the use of the registration symbol (“®”) acts as increased deterrence against other associations from using similar trademarks.

  1. What Does it Protect?

A registered trademark protects the association’s name, logo, and other branding elements from being used by others in a way that could cause confusion. It helps maintain the association’s reputation and ensures that its identity remains distinct.

  1. What Does it Not Protect?

Trademarks do not protect against every type of use. Notably, they do not protect against non-commercial commentary or criticism, which falls under fair use and is safeguarded by the First Amendment. This means that while trademarks prevent individuals or entities from misusing the trademark, they cannot stop individuals from expressing opinions or criticisms.

III. How does a Community Association Enforce its Trademark?

Enforcing a trademark involves monitoring its use and taking action against unauthorized usage.

  1. Monitoring: Keep an eye on how the trademark is used in the marketplace.
  2. Cease and Desist Letters: If unauthorized use is detected, a cease and desist letter can be sent to the infringing party to resolve the matter without litigation.
  3. Litigation: If the cease-and-desist letter is ignored, litigation may be necessary to

When it comes to property owners using the trademark of a community association, the line between trademark infringement and nominative fair use can be tangled. Property owners using the trademark to offer competitive services or confuse residents into thinking that their use is sponsored by the community association are examples of infringement. Only the community association can use its trademark to offer community association services. Only the community association can market the community to prospective residents. Finally, the community association must monitor and enforce against any uses of the trademark that could tarnish its valuable reputation.

Yet, while enforcing trademark rights is important, it is crucial to consider the potential backlash from property owners and the broader community. Even if there is a legitimate claim, aggressive enforcement actions may jeopardize community trust and invite public criticism. Such efforts, especially against gripe sites, can lead to stronger reactions and widespread publication of enforcement efforts online, further damaging the reputation. Put another way, a community association attempting to protect its reputation must consider if its enforcement efforts do the opposite.

Sometimes, directing energy elsewhere and addressing concerns through dialogue and engagement can be more effective and less costly than legal battles.

IV. Value Proposition for Community Association

Trademark rights are crucial for protecting the identity and reputation of a community association. They help prevent confusion among property owners and prospective residents by ensuring that the association’s name and symbols remain distinct. However, while trademarks are valuable tools for community associations to deter unauthorized use, they cannot be used to silence opinions or criticisms. Understanding this balance is essential for effectively managing and enforcing trademark rights in a manner that respects both legal protections and fundamental freedoms of the property owners.

© 2024 Ward and Smith, P.A.. All Rights Reserved.
For more on Trademarks, visit the NLR Intellectual Property section

Mass. Appeals Court Declares Winner in Longstanding Land-Use Dispute Between Northeastern University and Town of Nahant

The Nahant Preservation Trust, the town of Nahant, and certain Nahant residents have suffered another loss in their years-long legal battle to stop Northeastern University from expanding its Marine Science Center, located on East Point in Nahant. The Massachusetts Appeals Court recently affirmed the dismissal of the legal actions, finding that the plaintiffs had no reasonable expectation of proving that Northeastern dedicated the 12 acres of land at issue to the public for use as an ecological preserve.

The dispute – and the Appeals Court decision – required an analysis of the “public dedication doctrine” to determine whether the land was subject to Article 97 of the Amendments to the Massachusetts Constitution. Art. 97 provides, in part, that property “taken or acquired” for conservation purposes “shall not be used for other purposes” without approval by a two-thirds vote of each branch of the state legislature. In Nahant Preservation Trust v. Northeastern University (pdf), the Appeals Court concluded that the land at issue is not subject to Art. 97.

Land is dedicated to a public purpose when the landowner’s intent to do so is clear and unequivocal, and when the public accepts the dedication by actually using the land for the public purpose. In 2017, the Supreme Judicial Court (SJC), in Smith v. City of Westfield, expanded the reach of Art. 97 by concluding that municipal parkland may be protected even if not officially taken or acquired, as long as it was “designated” for an Art. 97 purpose.

The Nahant dispute arose when Northeastern announced plans to expand its Marine Science Center located on a peninsula known as East Point. The plaintiffs contended that Northeastern had permanently dedicated the 12 undeveloped acres of its land to the public for use as an ecological preserve and for passive recreation. Therefore, they argued, the land was subject to Art. 97 and the project could not proceed without legislative approval. The plaintiffs compiled and presented to the superior court judge a substantial record, including historical documents concerning Northeastern’s acquisition of the land, which had been used for military purposes by the United States Army and Navy in the 1940s and 1050s. The evidence also included documents that reflected the Town of Nahant’s decision in 1964 not to acquire the property, despite the conservation commission’s desire to have at least a scenic pathway along the shoreline of the property.

Although the summary judgment record contained conflicting evidence regarding the extent of public access and use of Northeastern’s property by town residents, the courts accepted that some town residents had used the area for general recreation over the years. There was evidence that Northeastern had permitted some recreational use of the land. The Appeals Court noted in its decision, however, that the plaintiffs must prove that the disputed land was actually dedicated to the public.

In rejecting the plaintiffs’ arguments, the Appeals Court stated that the public dedication doctrine requires a property owner’s acts and declarations to be “deliberate, unequivocal and decisive, manifesting a clear intention permanently to abandon his property to the specific public use.” The Court noted that the SJC’s finding in Smith that there had been a dedication was based on an acceptance of Federal funds to rehabilitate a playground with the proviso that the city was surrendering its ability to convert the playground to a use other than public outdoor recreation.

The Appeals Court parsed the evidence on which the plaintiffs relied to demonstrate that Northeastern had “clearly and unequivocally” intended to dedicate the disputed land to the public. The plaintiffs pointed to the public’s use of the land as evidence of Northeastern’s intent to dedicate the property. Citing precedent from 1873 to Smith, the Appeals Court stated that “public use, alone, is not enough to prove a public dedication, particularly in circumstances like those present [in Nahant].”

Based on its review of the extensive summary judgment record, in the light most favorable to the plaintiffs, the Appeals Court concluded that the plaintiffs had no reasonable expectation of proving that Northeastern dedicated the 12 acres at issue to the public for use as an ecological preserve. It appears that Northeastern may finally proceed with its plans announced in 2018 to build a new research facility at its Marine Science Center in Nahant.

©2024 Pierce Atwood LLP. All rights reserved.

by: Michelle N. O’Brien of Pierce Atwood LLP

For more news on Environmental Land Dedication Disputes , visit the NLR Environmental, Energy, & Resources section.

Massachusetts SJC Rules in Favor of Insureds for Ambiguous Insurance Policy Term

In Zurich American Insurance Company v. Medical Properties Trust, Inc. (and a consolidated case[1]) (Docket No. SJC-13535), the Supreme Judicial Court of Massachusetts ruled in favor of insureds in a dispute over an ambiguous term in two policies insuring Norwood Hospital in Norwood, Massachusetts. A severe storm with heavy rain caused damage to the hospital basement and to the hospital’s main buildings caused by seepage through the courtyard roof and parapet roof. The owner of the Hospital, Medical Properties Trust, Inc. (“MPT”) and the tenant, Steward Health Care System LLC[2] (“Steward”), both had insurance policies for the Hospital, MPT’s coverage being through Zurich American Insurance Company (“Zurich”), and Steward’s through American Guarantee and Liability Insurance Company & another (“AGLIC”). Both policies had coverage of up to $750 and $850 million but lower coverage limits for damage to the Hospital for “Flood” at $100 and $150 million (“Flood Sublimits”). Both Steward and MPT submitted proof of loss claims to their respective insurers that exceeded $200 million; the insurers responded that damage to the hospital was caused by “Flood”, which limits both MPT and Steward to their respective Flood Sublimits. The policy provision “Flood” is defined as “a general and temporary condition of partial or complete inundation of normally dry land areas or structures caused by…the unusual and rapid accumulation or runoff of surface waters, waves, tides, tidal waves, tsunami, the release of water, the rising, overflowing or breaking of boundaries of nature or man-made bodies of water.”

The insurers, and MPT and Steward had differing opinions on the definition of “surface waters.” Litigation commenced to determine the extent of coverage available to MPT and Steward for damage to the hospital. The parties agreed that the damage to the basement was caused by Flood, and therefore subject to the Flood Sublimits. However, the parties disagreed as to whether the damage caused by rain seeping in through the courtyard roof and parapet roof was caused by “Flood” because of ambiguity in the definition of Flood. The United States District Court for the District of Massachusetts held that the term “surface waters” in both policies’ definition of “Flood” included rainwater accumulating on the rooftop. The judge allowed an interlocutory appeal due to the substantial difference in opinion of the term “surface water” under the definition of “Flood.” The Court noted that case law across the country is divided on this issue. MPT and Steward appealed, and the First Circuit certified a question to the Massachusetts Supreme Judicial Court (SJC), “Whether rainwater that lands and accumulates on either (i) a building’s second-floor outdoor rooftop courtyard or (ii) a building’s parapet roof and that subsequently inundates the interior of the building unambiguously constitutes ‘surface waters’ under Massachusetts law for the purposed of the insurance policies at issue?”

The SJC concluded that the meaning of “surface waters” and the definition of “Flood” under the policies are ambiguous in regard to the accumulation of rainwaters on roofs, finding that ambiguity is not the party’s disagreement of a term’s meaning but rather where it is susceptible of more than one meaning and reasonably intelligent persons would differ as to which meaning is the proper one. The SJC noted there is no consistent interpretation in case law for “surface waters” to include rainwater accumulating on a roof. Reasoning that if the policy language is ambiguous as to its intended meaning, then the meaning must be resolved against the insurers that drafted the terms, as they had the opportunity to add more precise terms to the policy and did not do so.

This case is an example of the importance for all parties to closely review the language of their insurance coverage to ensure that coverage is consistent with their lease obligations. Additionally, this dispute also draws attention to the importance of casualty provisions in leases. It is important to negotiate the burden of costs in the event of caps or insufficient insurance, along with termination rights for each party.

[1] Steward Health Care System LLC vs. American Guarantee and Liability Insurance Company & another.

[2] Apart from this litigation, the future of Norwood Hospital as a hospital is uncertain as it has not been open for four years and Steward Health Care System LLC has filed for bankruptcy protection.

© 2024 SHERIN AND LODGEN LLP
For more news on Massachusetts SJC Rulings, visit the NLR Real Estate section.

The New Paradigm in Mexico for Damage Claims in Industrial Property.

The Federal Law for the Protection of Industrial Property, in force since the 5th of November of 2020, is distinguished from its predecessor, among other things, by the particularities in the claims of a compensation for damages caused by the infringement of industrial property rights.

Currently, individuals may claim a compensation for damages through the administrative venue, before the Mexican Institute of Industrial Property (IMPI), or through the civil venue before the corresponding Courts in the matter. This implies that the holder of infringed exclusive rights may opt for two procedures and authorities of different nature, which has its benefits and disadvantages.

Before the IMPI, the compensation action is exercised in an ancillary proceeding, provided that such authority has previously issued a declaration of administrative infringement that is enforceable. Alternatively, it is still possible for the action to be brought directly before the Civil Courts, once the resolution from IMPI is final.

Although the exercise of the action for compensation before the administrative authority implies that a specialized authority in the matter is to hear the case, it has the disadvantages that its ancillary proceeding requires the prior prosecution of an administrative infringement claim before the same administrative authority (IMPI) and the lack of experience to quantify damages and losses. Additionally, the time required for the enforcement of the resolution issued by the IMPI before the Federal Courts in Civil Matters must be added to the time required for the substantiation of the action.

Thanks to the entry into force of the new Law, individuals may also resort directly to the civil Courts to claim infringement of their industrial property rights and compensation for damages, without the need for a prior declaration of infringement by the IMPI. This implies that a Judge, an expert in civil law, will have to delve into complex, specialized and technical issues, specific to industrial property.

Additionally, it is provided that the proceeding of the civil action will be suspended if an invalidity claim is filed before the IMPI against the right basis the civil claim, as long as the administrative authority does not issue a final resolution to such nullity action. This counteracts the advantage of a civil proceeding whose resolution may be quicker than before IMPI.

The new landscape for the claim for damages requires a careful study of the particularities of each specific case to determine the suitability of each route, since this is influenced, among other factors, by the complexity, the sophistication of the counterparty, the causes and technical considerations of the violation caused, among others.

© 2005-2024 OLIVARES Y COMPAÑIA S.C.
For more news on Damage Claims in Industrial Property in Mexico, visit the NLR Real Estate section.

This Michigan Supreme Court Case Has the Potential to Guide Drone and Air Rights Law for the Nation

While at first glance the Michigan Supreme Court case of Long Lake Township v. Maxon, appears to be a simple zoning dispute with a Fourth Amendment twist, the real impact of the case may ultimately fall on drones and air rights law, particularly the rights of landowners to exclude drones from flying in the airspace immediately above their land, and relatedly the ability of state and municipal governments to regulate such flights.

The history of the case is straightforward. When the Michigan municipality of Long Lake Township sought to enforce a zoning ordinance against Todd Maxon, Mr. Maxon asked the trial court to exclude all evidence obtained by flying a drone over Mr. Maxon’s land. After the trial court refused to exclude the evidence on the grounds that the photographs did not violate the Fourth Amendment, an appellate court ruled that the Fourth Amendment issue was irrelevant because a legal proceeding to enforce a local zoning ordinance is not required to exclude evidence obtained in violation of the Fourth Amendment (the requirement to exclude such evidence is known as the “exclusionary rule”).

Now, we await the Michigan Supreme Court’s decision as to whether the exclusionary rule applies, and if so, whether the use of the drone to inspect Mr. Maxon’s land for zoning compliance violated the Fourth Amendment’s prohibition of unreasonable searches.

A decision on that second question will center on landowners’ right to exclude drones from the airspace immediately above their land, because a warrantless search violates the Fourth Amendment if there is a reasonable expectation of privacy in the searched area that society recognizes as reasonable. It follows then, that, if a landowner has no legal right to exclude drones from flying over his or her land, then it would be inherently unreasonable to expect privacy in portions of their property that can be observed from such public drone flight paths above their land, as courts routinely rule that there cannot be a reasonable expectation of privacy in land that can be observed from adjacent, publicly-accessible space.

As drone technology developed from a curious, niche hobby into a potential billion-dollar business with the ability to change the way packages are delivered to our homes and offices, legal debates quickly followed about whether all airspace above the blades of the grass constitutes “publicly navigable airspace” that is beyond the control of the landowners below, or if those landowners maintain some residual control over some airspace above their land. A decision from the Michigan Supreme Court on this issue would be one of the highest level state or federal courts to confront this question.

Hopefully, the exclusionary rule will not prevent a thorough analysis of the issue, as its resolution will ultimately be necessary to confirm the permissibility of local government regulation of the time, place, and manner of drone flights, and landowners’ airspace control rights, and only when those questions are resolved will drone technology be able to fully flourish in the United States as part of a legal regime that acknowledges and respects the traditional property rights of landowners.

This is a bellwether. This decision will affect the course of not just Michigan, but all of America about how it treats drone surveillance.
Copyright 2024 Goulston & Storrs PC.
For more news on Drone Air Regulations and Zoning Rights, visit the NLR Real Estate section.

Supreme Court Holds That the Eighth Amendment Does Not Prevent Enforcement of Local Camping Bans, Authorizing a Significant Shift in Local Policies on Homelessness

Until recently, local policies on homelessness have been guided by two controversial rulings from the Ninth Circuit Court of Appeals: Martin v. Boise (9th Cir. 2019) 920 F.3d 584 and Johnson v. City of Grants Pass (9th Cir. 2022) 50 F.4th 787.[1] However, the Supreme Court’s decision in City of Grants Pass v. Johnson(2024) 603 U.S. ____, is likely to transform local jurisdictions’ policy approaches to managing homelessness. In a 6-3 decision, the Supreme Court upheld the city’s ban on camping and parking overnight on public property.

By way of background, in Martin, the Ninth Circuit held that the Eighth Amendment’s restriction against cruel and unusual punishment barred cities from imposing criminal penalties for violations of public-camping ordinances whenever the number of homeless individuals exceeds the number of “practically available” shelter beds in a jurisdiction. In Johnson, the Ninth Circuit expanded on Martin and held that a city cannot enforce its camping ban or impose fines or civil penalties unless the city has enough shelter beds for its entire population. Since then, affected cities and states have widely criticized these two Ninth Circuit rulings, which effectively blocked the enforcement of local ordinances prohibiting or regulating camping and sleeping outdoors.

In the Supreme Court’s decision in Johnson, the Court rejected the Ninth Circuit’s rulings and held that ordinances prohibiting camping, overnight parking, or sleeping outdoors do not violate the Eighth Amendment’s protections against cruel and unusual punishment because these ordinances regulate “conduct” and “actions”, rather than “mere status.”

The Court focused on the practical implications of Martin and Johnson, finding that the Ninth Circuit created an unworkable and confusing test to evaluate public camping ordinances, based on subjective and vague determinations of who is “involuntarily” homeless. The Court also criticized judicial injunctions prohibiting the enforcement of public camping ordinances, finding that these determinations are “public policy responses” best handled by local governments and the legislature (not courts).

In doing so, the Court agreed with local jurisdictions that complained that the Ninth Circuit inappropriately limited available policymaking tools and “undermined” local efforts to address homelessness. The Court emphasized that local governments have “broad power” over the substance and enforcement of their laws and must be afforded “wide latitude” and “flexibility” to address homelessness.

Although the Court’s ruling authorizes the enforcement of public camping ordinances, it does not grant unfettered power to local jurisdictions. The Court acknowledges that public camping ordinances could still implicate other constitutional concerns, including potential violations under the Due Process Clause. The Court further notes that local governments are not required to adopt public camping ordinances, and may choose to narrow such laws by imposing relevant time, place, and manner restrictions.

Even with these limitations, the Court’s decision is likely to significantly alter the future of local policies on homelessness, especially throughout California. Local governments are now authorized to take more aggressive actions to enforce existing ordinances (or enact new ones) prohibiting or otherwise regulating overnight camping and parking on public property. Ordinances that include relevant time, place and manner restrictions (e.g., regulating when, where, and how people sleep in public) are likely to be particularly insulated from constitutional challenges.

We will continue to monitor updates to local policies on the homeless in response to this decision and provide updates as they become available.

FOOTNOTES

[1] See prior article here.

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Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.

by: Alexander L. Merritt, Kathryn C. Kafka of Sheppard, Mullin, Richter & Hampton LLP

For more news on the Supreme Court’s decision in City of Grants Pass v. Johnson, visit the NLR Real Estate section.

Office Tenants: Do Due Diligence on Your Landlord

Office markets from coast-to-coast are struggling mightily, especially in major urban downtowns. Chicago’s downtown business district (i.e. the Loop) is no exception. Right now, Chicago’s Loop office vacancy rates are the highest since such rates have been recorded.

In April of this year, Crain’s Chicago Business reported that downtown office vacancy broke 25% for the first time on record, landing at 25.1%. This number reflects seven consecutive quarters of increasing vacancy.

What does this mean for tenants? Well…a lot.

It means opportunity as landlords feel pressure to fill vacant office space. Lease concessions that never would have been considered three years ago, might be available now. These days, on most office deals, tenants enjoy considerable leverage. While this market brings tenant’s many benefits, it also brings significant risks. Here are a few risks for tenants to consider before signing a lease:

1. Is your landlord in financial distress? Landlords will always vet an incoming tenant’s financial condition. The same often does not happen in reverse. Many office landlords face financial pressure now. If the landlord is at risk of foreclosure, or otherwise in financial peril, the tenant should have a number of concerns ranging from how well the building will be maintained to whether or not they will be staying in a bank-owned building soon. Tenants should fully inquire into landlord’s financial condition, especially if meaningful tenant allowances have been agreed to.

2. Subordination and Non-Disturbance Agreements are more important now than ever. “SNDAs” can go a long way towards protecting tenant’s lease rights in the event of a foreclosure.

3. Will “creative” uses come to the building? Never underestimate the ingenuity of the commercial real estate industry. All kinds of ideas have sprouted up as to what could be done to fill empty downtown office space. Indoor dog parks, pickle ball courts and the often tossed about notion of converting vacant office space into residential apartments are good examples. Tenants should find out before signing if the landlord has any designs on filling vacant space with uses that the tenant might find objectionable.

4. Co-tenancy provisions and the careful review of how operating costs will be allocated are critical. Who bears the risk of vacancy as to operating expenses? Tenants needs to know if fewer tenants means they will have a higher share of operating costs. Tenants also need to know if they have any way out of the lease if the building really struggles. No one wants to be alone in an empty tower.

© 2024 Chuhak & Tecson P.C.
For more on Office Tenants, visit the NLR Real Estate section.

New Florida Law Requires HOAs to Adopt Hurricane Protection Measures

Last week, Florida Gov. Ron DeSantis signed into law House Bill 293 in an effort to help protect Florida’s single-family homes. Effective immediately, all homeowners associations in the state are mandated to establish hurricane protection specifications along with any other pertinent factors as determined by the association’s board of directors. These specifications should be adopted to ensure a cohesive external appearance for buildings within the HOA – including considerations such as “color and style” – while adhering to relevant building codes and affording exceptional protection to Florida homes.

The primary objective of House Bill 239 is to safeguard the welfare and safety of the state’s residents, as well as to guarantee consistency and uniformity in the implementation of hurricane protection measures by parcel owners. It is imperative to note that, except in cases where violations to these specifications occur, HOAs are prohibited from preventing homeowners from installing or upgrading hurricane protection products. This legislation applies universally to all homeowners associations, regardless of when the community was created.

Hurricane protection products under House Bill 239, include but are not limited to:

  • Roof systems recognized by the Florida Building Code which meet ASCE 7-22 48 standards
  • Permanent fixed storm shutters
  • Roll-down track storm shutters
  • Impact-resistant windows and doors
  • Reinforced garage doors
  • Erosion controls
  • Exterior fixed generators
  • Fuel storage tanks
  • Other hurricane protection products used to preserve and protect the structures or improvements on a parcel governed by the association

Most weather analysts have projected an above average hurricane season for 2024, predicting one of the busier hurricane seasons on record. This increase in activity has been attributed to record warm water temperatures and the influence of La Niña. As such, it underscores the critical importance of proactive measures to safeguard property and ensure the well-being of residents.

It is strongly encouraged that all homeowners associations begin the process of considering the standards for hurricane protection that are right for their communities and adopt a resolution encompassing these guidelines immediately.

© 2024 Varnum LLP
For more news on Protecting Florida Homes during Hurricane Season, visit the NLR Real Estate section.

CFPB Launches Public Inquiry into Rising Mortgage Closing Costs and ‘Junk Fees’

Go-To Guide:
  • The Consumer Financial Protection Bureau (CFPB) has launched a public inquiry into rising mortgage closing costs, seeking to understand the reasons behind the increase, identify who benefits, and find ways to reduce costs for both borrowers and lenders.
  • This inquiry, part of a broader effort against “junk fees,” aims to gather public input on the impact of these fees on consumers’ financial health and the mortgage lending market, with a focus on third-party costs, fee beneficiaries, and the evolving nature of these expenses.

On May 30, 2024, the CFPB issued a new request for information (RFI) from the public regarding “why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered.”

As part of a wider effort targeting what both the CFPB and the Biden administration refer to as “junk fees,” the CFPB is focusing on evaluating how these fees affect consumers’ financial health and the broader impact on mortgage lenders. This follows the CFPB’s continued expression of interest in “junk fees,” on which GT reported in a May 2024 blog post.

“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” CFPB Director Rohit Chopra said in a separate press release. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”

The Request for Information

According to a recent CFPB analysis, mortgage closing costs surged by over 36% from 2021 to 2023. The CFPB alleges that these unavoidable fees can strain household budgets and limit the ability to afford a down payment, while also hindering lenders from offering competitive mortgage options due to the higher costs they must absorb or pass on.

The CFPB is seeking public input to address these concerns and make mortgage costs more manageable. Some key areas of interest include:

  • Competitive pressure. The CFPB aims to evaluate the extent to which consumers or lenders currently apply competitive pressure on third-party closing costs, seeking to understand market barriers that limit competition.
  • Fee beneficiaries. The CFPB aims to identify the beneficiaries of required services and determine whether lenders have control or influence over the third-party costs that are transferred to consumers.
  • How fees are evolving and their impact on consumers. The CFPB seeks details on which expenses have surged the most in recent years and the factors driving these increases, such as the higher prices for credit reports and credit scores. Additionally, the CFPB is interested in understanding how closing costs affect housing affordability, access to homeownership, and home equity.

Takeaways

The CFPB oversees numerous laws and regulations concerning mortgage lending and real estate settlement, such as the Truth in Lending Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act. The insights gained from this inquiry are poised to shape rulemaking, guidance, and various policy initiatives moving forward.

The CFPB invites comments and data from the public and stakeholders within 60 days of the RFI being published in the Federal Register.

We have provided ongoing analysis and commentary on this issue as it has developed. See below more context on legislative and regulatory efforts to curb “junk fees”:

Zeba Pirani contributed to this article

©2024 Greenberg Traurig, LLP. All rights reserved.
For more on the CFPB, visit the NLR Financial Institutions & Banking section.

Recently Effective & Pending State Housing Laws: 2024 Land Use, Environmental & Natural Resources Update

Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.

The recently effective state housing laws are also summarized below.

PART I: RECENTLY EFFECTIVE STATE HOUSING LAWS

Governor Newsom approved multiple state housing bills passed by the State Assembly and Senate during the last legislative session. The following is an abbreviated summary of a few of the key bills that are expected to benefit mixed-income multifamily housing developers, with a more detailed summary available in our prior legal alert.

SENATE BILL 423 — EXPANSION AND EXTENSION OF SENATE BILL 35

SB 423 (Wiener) extends the sunset provision for and makes other substantive changes to SB 35. As explained in our prior legal alert, SB 35 provides for a streamlined ministerial (i.e., no CEQA) approval process for qualifying housing development projects in local jurisdictions that have not made sufficient progress towards their state-mandated Regional Housing Needs Allocation (RHNA), as determined by the California Department of Housing and Community Development (HCD).

SB 423 made the following key amendments to SB 35:

  • Extended SB 35 to January 1, 2036
  • Expanded SB 35 to apply when a local jurisdiction fails to adopt a housing element in substantial compliance with state housing element law (regardless of RHNA progress), as specified and as determined by HCD
  • Revised the coastal zone development prohibition to allow for projects in specified urban coastal locations (e.g., property not vulnerable to five feet of sea level rise or within close proximity to a wetland) where the property is zoned for multifamily housing and is subject to a certified local coastal program or a certified land use plan
  • Removed skilled and trained workforce requirements for projects below 85 feet in height and imposes modified skilled and trained workforce requirements, as specified, for projects at least 85 feet in height. In exchange, projects with 50 or more dwelling units and using construction craft employees to meet apprenticeship program requirements and provide health care expenditures for each employee, as specified

Please see our prior legal alert for information about other SB 35 amendments made by SB 423, including San Francisco-specific amendments.

ASSEMBLY BILL 1287 — ADDITIONAL DENSITY BONUS UNDER STATE DENSITY BONUS LAW

AB 1287 (Alvarez) amended the State Density Bonus Law (Government Code § 65915) by incentivizing the construction of housing units for both the “missing middle” and very-low-income households by providing for an additional density bonus, and incentive/ concession for projects providing moderate-income units or very-low-income units.

The project must provide the requisite percentage of on-site affordable units to obtain the maximum density bonus (50%) under prior law: 15% very-low-income units, or 24% low-income units, or 44% moderate-income (ownership only) units (the Base Bonus). To qualify for an additional density bonus (up to 100%) and an additional incentive/concession under AB 1287, the project must provide additional on-site affordable units, as specified (the Added Bonus). The Added Bonus may be obtained by adding moderate-income units to either a rental or ownership project, but that is capped at a total maximum of 50% moderate-income units.

ASSEMBLY BILL 1633 — EXPANSION OF HOUSING ACCOUNTABILITY ACT PROTECTIONS: CEQA

AB 1633 (Ting) closed a loophole in the Housing Accountability Act (HAA) (Government Code section 65589.5 et seq.) by establishing when a local agency’s failure to exercise its discretion under CEQA, or abuse of its discretion under CEQA, constitutes a violation of the HAA.

To qualify under AB 1633, the project must be a “housing development project” under the HAA and meet other specified requirements, as summarized in our prior legal alert. Under AB 1633, the following circumstances constitute “disapproval” of the project, in which case the local agency could be subject to enforcement under the HAA:

  • CEQA Exemptions. If (i) the project qualifies for a CEQA exemption based on substantial evidence in the record (and is not subject to an exception to that exemption) and (ii) the local agency does not make a lawful determination, as defined, on the exemption within 90 days (with a possible extension, as specified) of timely written notice from the applicant, as specified.
  • Other CEQA Determinations. If (i) the project qualifies for a negative declaration, addendum, EIR, or comparable environmental review document under CEQA; (ii) the local agency commits an abuse of discretion, as defined, by failing to approve the applicable CEQA document in bad faith or without substantial evidence in the record to support the legal need for further environmental study; (iii) the local agency requires further environmental study; and (iv) the local agency does not make a lawful determination, as defined, on the applicable CEQA document within 90 days of timely written notice from the applicant, as specified.

AB 1633 includes a limited exception to enforcement where a court finds that the local agency acted in good faith and had reasonable cause to disapprove the project due to the existence of a controlling question of law about the application of CEQA or the CEQA Guidelines as to which there was a substantial ground for difference of opinion at the time of the disapproval.

ASSEMBLY BILL 1485 — STATE ENFORCEMENT OF HOUSING LAWS

AB 1485 (Haney) granted the California Attorney General the “unconditional right to intervene” in lawsuits enforcing state housing laws, whether intervening in an independent capacity or pursuant to a notice of referral from HCD. Under prior law, the Attorney General and HCD were required to petition the court to be granted intervenor status and join a lawsuit, which can be a “lengthy and onerous process.”

PART II: PENDING STATE HOUSING LAWS

Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. AB 2243 (Wicks) would amend AB 2011 (the Affordable Housing and High Road Jobs Act of 2022). AB 1893 (Wicks) and AB 1886 (Wicks and Alvarez) would amend Builder’s Remedy provisions under the HAA. AB 2560 (Alvarez) and SB 951 (Wiener) would help facilitate housing development in the coastal zone. AB 3068 (Haney) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses. SB 1227 (Wiener) would help facilitate middle-income housing and other projects in the San Francisco Downtown Revitalization Zone.

The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.

ASSEMBLY BILL 2243 — AB 2011 AMENDMENTS

AB 2243 (Wicks) would amend AB 2011 (operative as of July 1, 2023). As explained in our prior legal alert, AB 2011 provides for “by right” streamlined ministerial (i.e., no CEQA, no discretion) approval of qualifying mixed-income and affordable housing development projects along commercial corridors in zoning districts where office, retail, and/or parking uses are principally permitted.

As currently proposed, AB 2243 would:

Project Review and Approval
  • Require the local government to approve the AB 2011 project within a specified timeframe. Once the project is deemed to be consistent with applicable objective planning standards, the local government would be required to approve the project within 180 days (for projects with more than 150 housing units) or 90 days (for projects with 150 or fewer housing units).
  • Require the local government to determine project consistency or inconsistency with applicable objective planning standards within 30 days when a project is resubmitted to address written feedback. The otherwise applicable timeframe is within 60 or 90 days, with the longer timeframe applying to projects with more than 150 housing units.
  • Provide that a density bonus under the State Density Bonus Law, including related incentives, concessions and/or waivers, “shall not cause the project to be subject to a local discretionary government review process” even if the requested incentives, concessions and/or waivers are not specified in a local ordinance. This is important because some local governments purport to require discretionary approval for specified “off menu” incentives, concessions and waivers despite the fact that AB 2011 provides for a ministerial (i.e., no CEQA) project approval process and specifically contemplates utilization of the State Density Bonus Law in conjunction with AB 2011.
  • Provide that the Phase I Environmental Assessment (ESA) requirement would be imposed as a condition of project approval versus prior to project approval. If any remedial action is required due to the presence of hazardous substances on the project site, that would need to occur prior to issuance of a certificate of occupancy (as specified).
Residential Density
  • Provide that the AB 2011 (base) residential density, which varies depending on the location and size of the project site, is now the “allowable” density (prior to any density bonus) instead of a minimum (“meet or exceed”) density requirement.
  • Impose a new minimum residential density requirement, which would be 75% of the greater of the applicable “allowable” residential density.
  • Specify that the imposition of applicable objective planning standards shall not preclude the “required” (minimum) AB 2011 residential density (prior to any density bonus) or require a reduction in unit sizes. It appears that this new provision is instead intended to apply to the “allowable” AB 2011 residential density pursuant to the cross-referenced subsections.
Commercial Corridor Frontage Requirements
  • Revise the definition for “commercial corridor” based on the applicable height limit. Where local zoning sets a height limit for the project site of less than 65 feet, the right-of-way would need to be at least 70 feet, which is the current AB 2011 requirement. For all other project sites, the right-of-way would now only need to be at least 50 feet.
  • Clarifies that the width of the right-of-way includes sidewalks for purposes of determining whether it is a “commercial corridor.”
  • Expand eligible sites to include conversions of “existing office buildings” that meet all other AB 2011 requirements, even if they are not on a commercial corridor.
Project Site Size Requirements
  • Waive the current 20-acre project site size limitation for “regional malls” that are up to 100 Regional malls is defined to include malls where (i) the permitted uses on the site include at least 250,000 square feet of retail, (ii) at least two-thirds of the permitted uses on the site are retail, and (iii) at least two of the permitted retail uses on the site are at least 10,000 square feet. Additional criteria for the redevelopment of regional mall sites is expected to be added to the bill.
Setback Requirements
  • Provide that density bonus incentives, concessions, and waivers permitted under the State Density Bonus Law may be utilized to deviate from specified AB 2011 setback requirements related to existing adjacent residential uses. The HCD previously opined that under existing AB 2011, only the AB 2011 height and density maximums can be modified via the density bonus approval process.
Freeway, Industrial Use, & Oil/Natural Gas Facility Proximity
  • Eliminate the freeway proximity and active oil/natural gas facility proximity prohibitions and replace those with specified air filtration media requirements.
  • Revise the AB 2011 limitation on project sites dedicated to industrial uses. Currently, project sites are disqualified where more than one-third of the square footage is dedicated to industrial use or the project site adjoins a site exceeding that threshold. “Dedicated to industrial use” would no longer include sites (i) where the most recently permitted use was industrial, but that use has not existed on the site for over three years; or (ii) where the site is designated industrial by the general plan, but residential uses are a principally permitted use on the site or the site adjoins an existing residential use.
  • Revise the definition of “freeway” to specify that freeway on-ramps and off-ramps are not included.
Coastal Zone Projects
  • Newly prohibit AB 2011 projects in the coastal zone that do not meet SB 35 coastal zone siting requirements (as recently amended by SB 423) under Government Code section 4(a)(6), exclusive of the requirement for the project site to be zoned for multifamily housing (since AB 2011 allows for multifamily housing on commercially zoned properties), including (but not limited to) where the applicable area of the coastal zone is not subject to a certified local coastal program or a certified land use plan.
  • Provide that the public agency with coastal development permitting authority, as applicable, shall approve the permit if it determines that the project is consistent with all objective standards of the local government’s certified local coastal program or certified land use plan, as applicable.
  • Provide that any density bonus, concession, incentive, waiver, and/or (reduced) parking ratios granted pursuant to the State Density Bonus Law “shall not constitute a basis to find the project inconsistent with the local coastal program.”
Residential Conversion Projects
  • Eliminate the residential density limit for the conversion of existing buildings to residential use, except where the project would include net new square footage exceeding 20% of the “overall square footage of the project.”
  • Prohibit the local government from requiring common open space beyond “what is required for the existing project site” versus required pursuant to the objective standards that would otherwise apply pursuant to the closest zoning district that allows for the AB 2011 residential (base) density, where applicable.
  • Exempt the conversion of “existing office buildings” from the commercial corridor frontage requirement.
Clarifications
  • Clarify that the AB 2011 on-site affordable housing requirement only applies to new housing units created by the project.
  • Clarify that the number of on-site affordable housing units required under AB 2011 is based on number of housing units in the project prior to any density bonus (i.e., the “base” project), which is consistent with the State Density Bonus Law.
  • Clarify the process for calculating the on-site affordable housing requirement under AB 2011 where the local jurisdiction requires a higher percentage of affordable units and/or a deeper level of affordability.
  • Clarify that the “allowable” density under AB 2011 is calculated prior to any density bonus under the State Density Bonus Law.
  • Clarify that “urban uses” includes a public park that is surrounded by other urban uses.
Implications

AB 2243 would make important clarifications in advance of the to-be-provided HCD guidance document on the implementation of AB 2011. The bill would make important amendments to the prior freeway and oil/natural gas facility proximity prohibitions by instead requiring installation of air filtration media, consistent with Senate Bill 4 (Affordable Housing on Faith and Higher Education Lands Act of 2023). The bill would also help facilitate AB 2011 projects in specified coastal zone areas. Under existing law, a qualifying AB 2011 project would be subject to streamlined ministerial approval at the local level, but not by the Coastal Commission, which could separately trigger a discretionary (i.e., CEQA) review and approval process. AB 2243 partially addresses that, but only in qualifying coastal zone areas (pursuant to SB 423, as modified) that are subject to a certified local coastal program or certified land use plan, which excludes various coastal zone areas.

ASSEMBLY BILL 2560 & SENATE BILL 951 — COASTAL ZONE PROJECTS

Assembly Bill 2560

AB 2560 (Alvarez) would amend the State Density Bonus Law to partially address coastal zone projects. Currently, the State Density Bonus Law explicitly provides that it “does not supersede or in any way alter or lessen the effect or application of the California Coastal Act of 1976” (Public Resources Code § 30000 et seq.). As currently proposed, AB 2560 would revise that provision to instead provide that any density bonus, concessions, incentives, waivers, or reductions of development standards, and (reduced) parking ratios to which an applicant is entitled under the State Density Bonus Law “shall be permitted notwithstanding the California Coastal Act of 1976” but only if the development is not located on a site that is any of the following:

  • An area of the coastal zone that is not subject to a certified local coastal program
  • An area of the coastal zone subject to paragraph (1), (2), or (3) of subdivision (a) of Section 30603 of the Public Resources Code (i.e., within a specified distance of the sea, estuary, stream, coastal bluff, tidelands, submerged lands, public trust lands, or sensitive coastal resources area)
  • An area of the coastal zone that is vulnerable to five feet of sea level rise, as determined by the National Oceanic and Atmospheric Administration, the Ocean Protection Council, the United States Geological Survey, the University of California, or a local government’s coastal hazards vulnerability assessment
  • A parcel within the coastal zone that is not zoned for multifamily housing
  • A parcel in the coastal zone and located on either of the following: (i) on, or within a 100-foot radius of, a wetland, as defined in Section 30121 of the Public Resources Code or (ii) on prime agricultural land, as defined in Sections 30113 and 30241 of the Public Resources Code
Implications

AB 2560 should help facilitate density bonus projects in coastal zone areas, but the coastal zone area would need to be subject to a certified local coastal program (versus either that or a certified land use plan pursuant to SB 423). Again, that excludes various coastal zone areas.

Senate Bill 951

SB 951 (Wiener) would amend the State Housing Element Law (Government Code § 65580 et seq.). Existing law requires rezoning by a local government, including adoption of minimum density and development standards (as specified), when the local government’s Housing Element site inventory does not identify adequate sites to accommodate the applicable state mandated RHNA. As currently proposed, SB 951 would require local governments in the coastal zone to make “any necessary local coastal program updates” to meet the applicable RHNA.

SB 951 would also amend the California Coastal Act to target the City and County of San Francisco. Existing law provides that approval of a coastal development permit by a “coastal county” with a certified local coastal program may be appealed to the California Coastal Commission under specified circumstances, including where the approved use is not “the principal permitted use” under the local zoning ordinance or zoning map. As currently proposed, SB 351 would provide that for purposes of that provision, “coastal county” does not include a local government that is both a city and county.

Implications

SB 951 would effectively require consistency between local coastal programs and any upzoning or rezoning required under State Housing Element Law. The appealability of coastal zone permits approved by the City and County of San Francisco would also be limited by the bill, which could help facilitate new housing development projects.

ASSEMBLY BILL 1893 & ASSEMBLY BILL 1886 — BUILDER’S REMEDY AMENDMENTS

As explained in our prior legal alert, the Builder’s Remedy applies when a local jurisdiction has not adopted an updated Housing Element in compliance with State Housing Element Law (Gov. Code § 65580, et seq.), in which case the local jurisdiction cannot deny a qualifying housing development project even if it is inconsistent with the local general plan and zoning ordinance (subject to limited exceptions).

To qualify for the Builder’s Remedy, the project must currently (i) fall under the definition of a “housing development project” under the HAA (i.e., a project consisting of residential units only, mixed-use developments consisting of residential and non-residential uses with at least two-thirds of the square footage designated for residential use, or transitional or supportive housing) and (ii) dedicate at least 20% of the dwelling units in the project as lower income (or 100% of the units as moderate income), as defined in the HAA.

Assembly Bill 1893

As currently proposed, AB 1893 would (i) reduce the required percentage of affordable units for mixed-income Builder’s Remedy projects from 20% lower income to 10% very low-income; (ii) impose new size and location guardrails on Builder’s Remedy projects; and (iii) authorize local jurisdictions to require compliance with other specified objective development standards so long as they do not reduce the “allowed” residential density or result in an increase in “actual costs.” AB 1893 would also eliminate the affordability requirement for Builder’s Remedy projects consisting of 10 units or fewer, so long as the project site is smaller than one acre with a minimum density of 10 units per acre.

New Basis for Denial & New Project Requirements

AB 1893 would significantly amend the most controversial component of the Builder’s Remedy, which is that a local jurisdiction without a substantially compliant Housing Element (“Non-Compliant Jurisdiction”) cannot deny a qualifying Builder’s Remedy project unless specified findings are made, which are intended to create a high threshold for denial by local jurisdictions.

As currently proposed, AB 1893 would newly authorize a Non-Compliant Jurisdiction to deny a qualifying Builder’s Remedy project if the project fails to meet any of the following “objective” standards. In other words, Builder’s Remedy projects would need to meet all the following new requirements (unless the project is “grandfathered” as explained below):

  • The project site must be designated by the general plan or located in a zone where housing, retail, office, or parking are “permissible” uses. Alternatively, if the project site is designated or zoned for agricultural use, at least 75% of the perimeter of the project site must adjoin parcels that are developed with urban uses, as defined under AB 2011. Recall that AB 2243 would amend the AB 2011 definition of “urban use” to clarify that urban use includes a public park that is surrounded by other urban uses.
  • The project site must not be on a site or adjoined to any site where more than one-third of the square footage on the site is “dedicated to industrial use,” as defined under AB 2011. Recall that AB 2243 would amend the AB 2011 definition of “dedicated to industrial use” to no longer include sites (i) where the most recently permitted use was industrial, but that use has not existed on the site for over three years; or (ii) where the site is designated industrial by the general plan, but residential uses are a principally permitted use on the site or the site adjoins an existing residential use.
  • The residential density for the project must not exceed the “greatest” of the following density calculations, as applicable, prior to any density bonus under the State Density Bonus Law (there is no codified limit under existing law):
    • For project sites within “high or highest resource census tracts” (as defined): (i) 50% greater than the “maximum” density deemed appropriate to accommodate (lower income) housing for the local jurisdiction as specified in Government Code section 65583.2(c)(3)(B) (e.g., for a local jurisdiction in a metropolitan county, “at least” 30 dwelling units per acre); or (ii) three times the density allowed by the general plan, zoning ordinance, or state law (prior to any density bonus under the State Density Bonus Law), whichever is greater.
    • For other project sites, (i) the “maximum” density appropriate to accommodate (lower income) housing for the local jurisdiction as specified in Government Code section 65583.2(c)(3)(B) (see above); or (ii) twice the density allowed by the general plan, zoning ordinance, or state law (prior to any density bonus under the State Density Bonus Law), whichever is greater.
    • For project sites located within one-half mile of a major transit stop, up to 35 dwelling units per acre more than the “amount allowable” specified above, as applicable.
    • The project must comply with “other” objective development standards (as defined) imposed by the local jurisdiction that apply in closest zone in the local jurisdiction for multi-family residential use at the “allowed” residential density If no such zone exists, the applicable objective standards shall be those for the zone that allows the greatest density within the city, county, or city and county, as applicable.

AB 1893 would provide that in no case may the local agency apply any objective development standards that will (i) have the effect of physically precluding the construction of the project at the “allowed” residential density (see above) or (ii) result in an increase in “actual costs.” The local agency would bear the burden of proof under these circumstances.

Project “Grandfathering”

As currently proposed, the foregoing new requirements would not apply to Builder’s Remedy applications that are “deemed complete” on or before April 1, 2024. Under existing law, “deemed complete” is defined to mean that the applicant has submitted a SB 330 preliminary application or, if that has not been submitted, a complete development application (as defined) has been submitted. AB 1893 would add that the local agency shall bear the burden of proof in establishing that the applicable application is not complete.

Implications

AB 1893 is an attempt to “modernize” the Builder’s Remedy by providing clarity to developers, local jurisdictions, and courts to avoid the “legal limbo” described by Attorney General Rob Bonta. As part of that compromise, significant new requirements would be imposed on Builder’s Remedy projects, including a new “cap” on residential density where no codified limit currently exists. In return, the clarifications made by AB 1893 and the reduced affordability requirement for mixed-income projects could help facilitate Builder’s Remedy projects in Non-Compliant Jurisdictions.

Assembly Bill 1886

A recent Builder’s Remedy lawsuit exposed some ambiguity regarding when a Housing Element is deemed “substantially compliant“ with State Housing Element Law. Opposing sides of the litigation disputed where (retroactive) self-certification by the local jurisdiction was sufficient. The court ruled that it was not. See our prior legal alert for our coverage of this ruling, which appears to be the impetus for the amendments proposed under AB 1886 (Alvarez and Wicks).

As currently proposed, AB 1886 would:

  • Clarify the point at which a Housing Element is deemed substantially compliant with State Housing Element Law: (i) the Housing Element has been adopted by the local jurisdiction and (ii) the local jurisdiction has received an affirmative determination of substantial compliance from HCD or a court of competent jurisdiction.
  • Clarify that the Housing Element shall continue to be considered in substantial compliance with State Housing Element Law until either: (i) HCD or a court of competent jurisdiction determines that the adopted Housing Element is no longer in substantial compliance (e.g., where any required rezoning is not approved in a timely manner) or (ii) the end of the applicable Housing Element cycle.
  • Specify that Housing Element compliance status is determined at the time the SB 330 Preliminary Application is submitted for the qualifying Builder’s Remedy project, which is consistent with HCD’s prior determination that the Builder’s Remedy is vested on that filing date. If a SB 330 Preliminary Application is not submitted, then the compliance status would be determined when a complete development application (as defined) is filed for the Builder’s Remedy project.
    • Require a local jurisdiction that adopted its Housing Element despite HCD’s non-compliance determination to submit the required findings, as specified, to HCD. In any legal proceeding initiated to enforce the HAA, HCD’s determination on the required findings would create a rebuttable presumption of substantial compliance or lack thereof.
Implications

AB 1886 would make it clear that a local jurisdiction cannot “self-certify” its Housing Element. Rather, an affirmative determination must be granted by HCD or, if a local jurisdiction adopts its Housing Element notwithstanding HCD’s determination to the contrary, a court of competent jurisdiction would need to agree with the local jurisdiction, notwithstanding the “rebuttable presumption” in favor of HCD’s non-compliance determination, where applicable.

ASSEMBLY BILL 3068 — ADAPTIVE REUSE PROJECTS

AB 3068 (Haney, Quirk-Silva, and Wicks) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses, as specified. Qualifying adaptive reuse projects would be deemed “a use by right” regardless of the applicable zoning district, with the exception of any proposed non-residential uses.

As currently proposed, the following requirements would need to be met:

Threshold Requirements
  • The project must retrofit and repurpose an existing building to create new residential or mixed-uses (Adaptive Reuse). The Adaptive Reuse of light industrial buildings is prohibited unless the local planning director (or equivalent) determines that the “specific light industrial use is no longer useful for industrial purposes.”
  • At least 50% of the Adaptive Reuse project must be designated for residential use, which is defined to include housing units, dormitories, boarding houses, and group housing. For purposes of calculating total project square footage, underground spaces, including basements or underground parking garages, are excluded.
  • Any nonresidential uses must be “consistent with the land uses allowed by the zoning or a continuation of an existing zoning nonconforming use.”
  • If the existing building is a listed historic resource or is over 50 years old, specified requirements must be met.
Affordability Requirements
  • For rental projects, either (i) 15% of the units must be lower income (as defined) or (ii) 8% of the units must be very low income and 5% of the units must be extremely low income (as defined), unless different local requirements apply.
  • For ownership projects, either (i) 15% of the units must be lower income (as defined) or (ii) 30% of the units must be moderate income (as defined), unless different local requirements apply.
  • Where different local requirements apply, the project must include the higher percentage requirement and the lowest income target, unless local requirements require greater than 15% lower income units (only), in which case other specified requirements apply.
  • For rental projects, the affordable units must be restricted for 55 years and for ownership projects, the affordable units must be restricted for 45 years.
  • Affordable units in the project must have the same bedroom and bathroom count ratio as the market rate units, be equitably distributed within the project, and have the same type or quality of appliances, fixtures, and finishes.
Project Site Requirements
  • The Adaptive Reuse project site must be in an urbanized area or urban cluster (as defined and specified) and at least 75% of the perimeter must adjoin (as defined) parcels that are developed with urban uses (not defined in AB 3068 but separately defined in AB 2011).
  • Required Phase I ESA and if a recognized environmental condition is found, specified requirements must be met.
Labor Requirements
  • All construction workers must be paid at least the general prevailing wage of per diem wages for the type of work in the geographic area (as specified), except that apprentices registered in approved programs (as specified) may be paid at least the applicable apprentice prevailing rate.
  • The prevailing wage requirement must be included in all construction contracts, and all contractors and subcontractors must comply with specified requirements.
  • If the Adaptive Reuse project would include 50 or more dwelling units, additional requirements would apply (as specified), including but not limited to participation in an approved apprenticeship program and health care expenditures for any construction craft employees.
Project Approval Process
  • If the Adaptive Reuse project is determined by the local planning director (or equivalent) to be consistent with the foregoing requirements (referred to collectively as “objective planning standards”), the local agency must approve the project. That consistency determination must be based on whether there is “substantial evidence that would allow a reasonable person to conclude that the project is consistent with the objective planning standards.”
  • If the project is deemed to conflict with any applicable objective planning standards, the local agency must notify the project sponsor within 60 to 90 days of submittal of the development proposal, depending on whether the project contains more than 150 dwelling units. If the local agency fails to provide the required documentation (as specified), the project shall be deemed to satisfy applicable objective planning
  • Design review may be conducted by the local agency but must be objective (as specified) and must be concluded within 90 to 180 days of submittal of the development proposal, depending on whether the project contains more than 150 dwelling units.
Development Impact Fees

Adaptive Reuse projects would be exempt from all development impact fees “that are not directly related to the impacts resulting from the change of use of the site from nonresidential to residential or mixed-use” and any development impact fees charged must be “proportional to the difference in impacts caused by the change of use.” The project sponsor may also request that payment of development impact fees be deferred to the date that the certificate of occupancy is issued, subject to a written agreement to pay the development impact fees at that time.

Adjacent Projects

A qualifying Adaptive Reuse project “may include the development of new residential or mixed-use structures on undeveloped areas and parking areas on the parcels adjacent to the proposed adaptive reuse project site” if specified requirements are met.

Implications

AB 3068 would be another tool in the growing toolbox available to real estate developers to encourage the adaptive reuse of underutilized commercial buildings, including office buildings. Financial feasibility is likely to remain an issue due to high interest rates and construction costs. There are well-documented design challenges associated with the conversion of existing buildings to residential use due to required compliance with the strict provisions of the California Building Code, the California Residential Code, and local amendments to those codes. Even if alternate buildings standards are available for adaptive reuse projects (see the directive under AB 529), it not clear yet whether alternative standards would be available for required seismic upgrades, which are often cost-prohibitive.

Financial feasibility would be partially addressed by AB 3068, which would authorize local agencies to establish an Adaptive Reuse Investment Program funded by ad valorem property tax revenues (as specified), which could be transferred to the owners of qualifying Adaptive Reuse projects for the purpose of subsidizing the on-site affordable housing units required by AB 3068. The bill would also “align program requirements to encourage the utilization of existing programs such as the Federal Historic Tax Credit, the newly adopted California Historic Tax Credit, the Mills Act, and the California Historical Building Code.”

SB 1227 — SAN FRANCISCO DOWNTOWN REVITALIZATION ZONE PROJECTS

SB 1227 (Wiener) aims to speed the recovery of downtown San Francisco by creating a new CEQA exemption for qualifying student housing and mixed-use residential projects (along with commercial and institutional projects) in the Downtown Revitalization Zone, which includes the Financial District, Union Square, Eastern SOMA, Mid-Market, and Civic Center neighborhoods. Projects that do not meet all the requirements for the new CEQA exemption could qualify for the new CEQA streamlining process proposed under the bill. SB 1227 would also create a new property tax exemption for moderate-income housing in the Downtown Revitalization Zone.

Qualifying Downtown Revitalization Zone Projects

As currently proposed, the following threshold requirements would need to be met:

  • The project site must be in the San Francisco Downtown Revitalization Zone.
  • The general plan land use and zoning designations for the project site must allow for commercial, institutional, student housing, or mixed-uses (as specified below), as applicable to the project.
  • The project must not include any hotel uses, and if residential uses are proposed, the residential square footage must be less than two-thirds the total project square footage (i.e., the project cannot be a “housing development project” already protected under the HAA). The foregoing square footage limitation (see specified calculation requirements) would not apply to student housing.
  • To the extent that residential uses are proposed, the project must comply with applicable San Francisco inclusionary affordable housing requirements.
  • The project must not require the demolition of restricted affordable units, rent-controlled units, or a hotel (as specified). See also the specific requirements that apply to other existing and prior tenant-occupied housing.
  • The project must comply with 24 enumerated San Francisco ordinances related to development impact fees and environmental protection (including but not limited to the reduction of greenhouse gas emissions and water and energy consumption) and specified provisions of the California Green Building Standards Code.
  • The project site must not be environmentally sensitive, e.g., a delineated earthquake fault zone, habitat for protected species, or a hazardous waste site (as defined and specified).
  • The project must not result in net additional emissions of greenhouse gases from demolition or construction.
New CEQA Exemption

As currently proposed, the following additional requirements would need to be met to qualify for the new CEQA exemption:

  • Prevailing wage, skilled and trained workforce, and/or health care expenditure and apprenticeship requirements must be met (as specified), depending on the size of the project.
  • The project must not include any warehouse uses.
  • The project must not require the demolition of a building that is over 75 years old (regardless of its historic status) or result in “substantial harm” to a building on a federal, state, or local historic registry.
  • The project must be LEED Platinum certified (if over 1,000 square feet).
  • The project must be in an area with a per capita vehicle miles traveled (VMT) level 15% lower than the city or regional VMT.
New CEQA Streamlining Pathway

As currently proposed, San Francisco Downtown Revitalization Zone projects that meet the threshold requirements above, but not all of the additional requirements for the new CEQA exemption, could instead pursue CEQA streamlining whereby the project could be certified by the Governor prior to certification of an EIR for the project pursuant to the Jobs and Economic Improvement Through Environmental Leadership Act of 2021 (Leadership Act), which authorizes the Governor to certify qualifying projects (before January 1, 2032) for CEQA streamlining. One of the benefits of CEQA streamlining under the Leadership Act is that any CEQA litigation must be resolved (to the extent feasible) within 270 days, as specified.

As currently proposed, the following additional requirements would need to be met to qualify for CEQA streamlining:

  • Prevailing wage, skilled, and trained workforce requirements must be met (as specified).
  • The project must be at least LEED Gold certified (versus Platinum) if the project contains residential, retail, commercial, sports, cultural, entertainment, or recreational uses.
  • The project must not demolish a historic structure that is placed on a national, state, or local historic register (versus a building that is over 75 years old, regardless of its historic status).
  • The project must avoid a substantial adverse change to the significance of a historical or cultural resource.
  • The project must avoid or minimize significant environmental impacts in a disadvantaged community (as defined) and any required mitigation measures must be undertaken in, and directly benefit, the affected community.
  • The project must not result in any significant and unavoidable impacts under CEQA that would require adoption of a statement of overriding considerations by the lead agency.
  • The lead agency must approve a project certified by the Governor before January 1, 2031.

Please see the text of SB 1227 for more information about the proposed CEQA streamlining provisions for qualifying San Francisco Downtown Revitalization Zone projects.

New Property Tax Exemption for Moderate-Income Housing

This new (welfare) property tax exemption would allow for a partial exemption equal to the percentage of the value of the property that is equal to the percentage of the number of units serving moderate-income households. As currently proposed, the following requirements would need to be met to qualify:

  • The project must be in the San Francisco Downtown Revitalization Zone.
  • The project must include moderate-income rental units, as defined and specified.
  • The project must be owned and operated by a charitable organization (as defined), which includes (but is not limited to) limited partnerships in which the managing partner is an eligible nonprofit corporation or eligible limited liability company meeting specified requirements.
  • A building permit or site permit for the residential units on the property must be filed before January 1, 2035, and the property owner must claim the exemption within five years following the issuance of the first building permit. The new property tax exemption would also apply with respect to lien dates occurring on or after January 1, 2025.
Implications

SB 1227 should help facilitate the development of new housing for the “missing in the middle” in the San Francisco Downtown Revitalization Zone by providing for a new property tax exemption for projects that include moderate-income rental units. That could in turn help increase the financial feasibility of converting underutilized commercial buildings to mixed-uses, including residential uses.

SB 1227 would impose robust labor requirements for both the new CEQA exemption and CEQA streamlining pathway for qualifying projects in the San Francisco Downtown Revitalization Zone, which could inhibit the utilization of those benefits.

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