BB&K's New Law Guidance for a Happy New Year

At the start of each new year, Best Best & Krieger LLP provides critical legal updates for public agencies and businesses based on new laws and court decisions from the previous year. In the weeks to come, we will be providing roundups on new California laws involving housing, local government, the California Public Records Act, labor and employment, law enforcement, land use, the Brown Act, telecommunications and more.

In Part One of our “In With the New” series, we cover a number of important new laws related to California’s Housing Plan reporting, affordable housing, density bonus, housing element and more. Our attorneys have authored takeaways and analysis of the following new laws: AB 68, AB 571, AB 634, SB 290, SB 728, AB 491, AB 721, AB 1043, AB 215, AB 787, AB 1029, AB 1304, AB 1398, SB 478 and SB 1174.

Housing and Community Development’s Housing Plan Annual Reporting Bill

AB 68

Assembly Bill 68 amends various Health and Safety Code sections regarding the Department of Housing and Community Development’s (HCD) annual reporting requirements and California’s quadrennial Statewide Housing Plan.

Noteworthy features of AB 68 include:

• Existing Health and Safety Code provisions are collapsed into a new chapter dedicated specifically to the Plan. (Health & Saf. Code, § 50420 et seq.).
• HCD is mandated to publish the Plan on its website. (Health & Saf. Code, § 50425).
• Every Plan update made after Jan. 1, 2023 must include an inventory of the number of affordable units needed to meet California’s affordable housing needs and recommendations for modernizing statutory and regulatory terminology. (Health & Saf. Code, § 50426).
• HCD is directed to publish an annual report on its website by Dec. 31 of each year that includes specified information regarding HCD-administered grant programs. Among other things, the report must compare how the time between award letter, standard agreement and standard agreement execution varies across HCD-administered grant programs. (Health & Saf. Code, § 50408.1(a)(1)-(5).)
• HCD is directed to publish an annual report on its website by Dec. 31 of each year that includes specified information regarding housing element oversight actions that were active in the previous year. The report must describe: the number oversight actions taken against cities and counties; the outcomes of those oversight actions; and the median time between the initiation of each oversight action and its resolution. (Health & Saf. Code, § 50408.1(b)(1)-(3).)

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Density Bonus Housing Laws

AB 571
AB 634
SB 290
SB 728

As part of the California State Legislature’s push to remove local barriers for creating additional affordable housing units, Assembly Bill 571, Assembly Bill 634, Senate Bill 290 and Senate Bill 728 revise the requirements placed on local agencies required to grant density bonuses to qualifying housing development projects. State Density Bonus Law (DBL) (Gov. Code §§ 65915-65918) requires a city or county to provide a housing developer with a “density bonus,” beyond what is permitted by the local agency’s adopted base density applicable to the project, and other incentives, waivers or concessions for the production of lower income housing units, covenanted affordable over a designated number of years.

AB 571 and AB 634
Both bills add new requirements under the DBL statutes, removing barriers to the creation of affordable density bonus units and allowing greater control for local agencies to go beyond the affordability term otherwise required. Specifically, AB 571 adds a new Section 65915.1 to the Government Code, which provides that affordable housing impact fees, including inclusionary zoning fees and in-lieu fees, must not be imposed on a housing development's affordable units. Those affordable units are used under DBL to receive a density bonus that would allow the housing developer to build more market rate units. AB 634 applies to cities and counties that have adopted inclusionary housing ordinances that mandate an affordability mix of new residential units beyond what is required under the DBL. Under existing DBL, developers are required to record 55-year affordability covenants on the affordable housing units that qualify the development for the density bonus. AB 634 clarifies that for units in a housing development required to comply with a city or county’s inclusionary housing ordinance, the city or county may impose an affordability covenant longer than 55 years, provided that the development is not financed with low-income housing tax credits.

SB 290
SB 290 makes a series of changes to DBL that further incentivize housing developers to utilize California laws to qualify for increased density on residential projects. SB 290 clarifies that an inclusionary unit, to the extent required under a local agency’s municipal code, is added to the total number of units of the project for purposes of determining the specific density bonus provided beyond the local agency’s base density, plus in the calculation used to determine the number of concessions or waivers provided to the housing developer for the affordable units.

Additionally, SB 290 adds a new project eligible for a density bonus: student housing development projects where at least 20% of total units are devoted to lower income students, based on the household income and asset level required for recipients of a Cal Grant A or Cal Grant B, verified by affidavit, award letter or letter of eligibility. To qualify under DBL, the student housing development needs to be used exclusively for full time undergraduate, graduate or professional students at an accredited institution and there must be an operating agreement or master lease between the developer and the institution. Under SB 290, this type of qualifying project results in one incentive or concession under DBL from the otherwise applicable development standards, and a 35% density bonus to the number of student housing units.

SB 290 also amends DBL to clarify that qualifying, for-sale moderate units no longer need to be included in a common interest development in order to be eligible for a density bonus. SB 290 adds certain moderate-income qualifying DBL projects for a parking incentive that previously only applied to projects with a certain percentage of low-income or very-low units. Now, if a DBL qualifying project supplies at least 40% moderate-income units, the developer can seek a parking incentive that requires as few as 0.5 parking spaces per unit bedroom, provided the development is within a half mile of a major transit stop. Finally, the bill removes the right of local agencies to deny requested DBL incentives, waivers or concessions for a specific adverse impact on the physical environment. However, local agencies may still deny a DBL qualifying project based on a specific adverse impact on health or safety.

SB 728
When a project qualifies for a density bonus, DBL requires the developer and the city or county to ensure that the initial occupant of a for-sale unit that qualified the developer for the award of the density bonus is a person or family of very low, low or moderate income.

This bill requires the developer and the city or county to ensure that a for-sale unit that qualified the developer for the award of the density bonus is either:

• initially occupied by a person or family of very low, low or moderate income, as required, and is offered at an affordable housing cost, as defined, and is subject to an equity sharing agreement, as specified; or
• a qualified nonprofit housing organization purchases the unit pursuant to a specified recorded contract that includes a repurchase option requiring a subsequent purchaser that desires to sell the property to first offer the nonprofit corporation the opportunity to repurchase the property; an affordability restriction (for at least 45 years for owner-occupancy); and an equity sharing agreement, as specified.

With regard to the equity sharing agreement, the city or county may allow the qualified nonprofit to recapture any initial subsidy and its proportionate share of appreciation provided that the nonprofit is required to use 100% of the proceeds to promote homeownerships for lower income households within the jurisdiction. The city or county is not required to enforce the equity sharing agreement if it is conflict with the requirements of another public funding source or law. The changes provide some additional flexibility regarding developments involving qualified nonprofits.

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Affordable and Market Rate Housing Laws

AB 491
AB 721
AB 1043

AB 491 – Equal Access to Common Areas and Amenities
Assembly Bill 491 adds Section 17929 to the Health and Safety Code, and requires that a mixed-income multifamily structure provide occupants of the affordable housing units and occupants of the market rate housing units with equal access to common entrances, areas and amenities. The bill also prohibits the structure from isolating the affordable housing units within the structure to a specific floor or an area on a specific floor. These additions do not constitute a change in, but are declaratory of, existing law.

AB 721 – Recordation of Covenant Modifications to Revise Illegal Restrictions
Assembly Bill 721 adds Section 714.6 to the Civil Code, and allows the owner of a property that the owner thinks is the subject of an unlawfully restrictive covenant to record a Restrictive Covenant Modification. The Modification would correct the illegal covenant by providing the original covenant document, with the illegal language stricken. If an approved Modification has been recorded in the public record, illegal covenants are unenforceable against the owner of an affordable housing development unless a specified exception applies.

The bill requires that before recording the Modification, the county recorder submit the Modification document and original document to county counsel. Counsel will then be required to determine whether the original document contains an unlawful restriction and if the property qualifies as an affordable housing development.

Examples of recorded covenants that shall not be enforceable against the owner of an affordable housing development if an approved Modification has been recorded are:

• Covenants that contain limits on the use of private or publicly owned land, contained in any deed, contract, security instrument or other instrument affecting the transfer or sale of any interest in real property, which restricts the number, size, or location of the residences that may be built on the property.
• Language that restricts the number of persons or families that may reside on the property.

The bill specifies its provisions do not apply to restrictive covenants that:

• Relate to purely aesthetic objective design standards;
• Provide for fees or assessments for the maintenance of common areas;
• Provide for limits on the amount of rent that may be charged to tenants;
• Are conservation easements that meet certain conditions;
• Are a recorded interest in land comparable to a conservation easement held by a political subdivision;
• Are a settlement, conservation agreement or conservation easement for which certain conditions apply; or
• Are a recorded deed restriction, public access easement, or other similar covenant that was required by a California agency for the purpose of compliance with a state or federal law under certain circumstances.

AB 1043 – Adds “Acutely Low Income” to List of Income Categories
Assembly Bill 1043 amends Health and Safety Code section 50053 to add “acutely low income households” to the list of income categories for purposes of defining affordable rents. Aimed at capturing the lowest income households in California, the new “acutely low income households” category is defined to include persons and households with incomes not exceeding 15% of area median income (AMI), adjusted for family size and revised annually. The bill provides that “affordable rent” for “acutely low income households” is the product of 30% times 15% AMI adjusted for family size appropriate to the unit. The new income category applies only to leases entered into on or after Jan. 1, 2022.

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Housing Element Laws

AB 215
AB 787
AB 1029
AB 1304
AB 1398
SB 478

In September 2021, Gov. Newsom signed into law six new laws that change the way local agencies must prepare and submit Housing Element updates in order to keep the State abreast of efforts to ameliorate the housing crisis at the local level.

Assembly Bill 215 amends GC 65585 by building in a 30-day public comment period for draft Housing Element updates, plus a 10-business day period for the planning agency to consider and incorporate comments before it may submit the update to HCD. Upon receipt of a first draft submittal for a Housing Element revision, HCD now has 90 days to review the draft and report its written findings to the planning agency. For subsequent draft amendments and adoption, HCD has 60 days from receipt of submittals. In addition, AB 215 adds other housing-related laws, including the Housing Crisis Act of 2019 (SB 330), that when violated, requires HCD to notify the local agency and refer the matter to the Attorney General for enforcement proceedings. AB 215 eliminates requirements that HCD first provide two consultations and written findings to a non-compliant jurisdiction.

Assembly Bill 787 adds GC 65400.2, which authorizes jurisdictions to include in their April 1 annual reports all units in an existing multifamily building that were converted to deed-restricted rental housing for moderate income households by imposing affordability covenants and restrictions – up to 25% of their moderate income Regional Housing Need Allocation (RHNA). In order to qualify, the units must not have been previously affordable to very low, low or moderate income households; the initial post-conversion rent for the unit must be at least 10% less than the average monthly rent charged during the 12 months prior to conversion; and the units must be subject to a 55-year recorded regulatory agreement that restricts affordability to moderate-income households. HCD is not required to implement this law until Jan. 1, 2023, but for annual reports issued after Jan. 1, 2023, planning agencies may report conversions that occurred on or after Jan. 1, 2022.

Assembly Bill 1029 amended GC 65589.9 to reward local agencies with “prohousing” Housing Elements by providing additional points or other preference in the scoring of competitive housing and infrastructure programs whose aim is to help local agencies preserve existing affordable housing units. AB 1029 defines “prohousing local policies” with a non-exclusive list of types of policies that facilitate the planning, approval or construction of housing – like local financial incentives for housing (e.g. local housing trust fund), reduced parking requirements for sites zoned for residential development, adoption of by-right zoning for residential and mixed-use development, and many more. This is an urgency statute that went into effect upon Gov. Newsom’s signature on Sept. 28, 2021.

Assembly Bill 1304 amends the Housing Element law (GC 65583 et seq.) to clarify a local agency’s mandatory duty to administer its programs and activities relating to housing and community development in a manner that “affirmatively furthers fair housing,” and not in any way that is materially inconsistent with this obligation. More specifically and as one example, AB 1304 requires local agencies, when compiling its inventory of land suitable and available for development of housing, to analyze the relationship of the sites identified in the inventory to the jurisdiction’s duty to affirmatively further fair housing. “Affirmatively furthering fair housing,” as defined in GC 8999.50(a)(1), means “taking meaningful actions, in addition to combating discrimination, that overcome patterns of segregation and foster inclusive communities free from barriers that restrict access to opportunity based on protected characteristics. Specifically, affirmatively furthering fair housing means taking meaningful actions that, taken together, address significant disparities in housing needs and in access to opportunity, replacing segregated living patterns with truly integrated and balanced living patterns, transforming racially and ethnically concentrated areas of poverty into areas of opportunity, and fostering and maintaining compliance with civil rights and fair housing laws. The duty to affirmatively further fair housing extends to all of a public agency’s activities and programs relating to housing and community development.”

Assembly Bill 1398 amends GC 65583(c)(1)(A) to change the penalty for a local agency’s failure to timely adopt a Housing Element that is in substantial compliance with California law. Under prior law, the local agency was threatened with rezoning of its inventory sites to accommodate its RHNA allocation by no later than 3 years and 120 days from the statutory deadline for adoption of the Housing Element, and revision of the Housing Element every 4 years (rather than every 8) until the local government had adopted at least two consecutive revisions by the statutory deadline. This penalty for non-compliance proved ineffective and incentivized local agencies to adopt deficient housing elements months after the deadline with no consequences. Some local agencies even adopted non-compliant housing elements by the deadline to avoid the penalty of having to revise the element every four years. AB 1398 reduces the rezoning timeframe to no later than one year from the statutory deadline for adoption of the Housing Element; and maintains revision of the Housing Element every 4 years (rather than every 8) until the due date for the sixth revision of the Housing Element. This new accelerated rezoning requirement, combined with other recent laws requiring agencies to make more realistic housing production assumptions and meet ever-increasing housing targets, present a significant opportunity for by-right processing within jurisdictions that do not meet applicable deadlines.

Senate Bill 478 adds GC 65913.11 to prohibit local agencies from imposing a floor area ratio standard that is less than 1.0 on a housing development project that consists of three to seven units, or less than 1.25 on a housing development project that consists of eight to 10 units. It also prohibits local agencies from imposing lot coverage requirements that would physically preclude a housing development project from achieving these floor area ratios; and denying a housing development project located on an existing legal parcel solely on the basis that the lot area of the proposed lot does not meet the local agency’s requirements for minimum lot size. These restrictions only apply to housing development projects that are located in multifamily residential zones or mixed-use zones. The law is intended to stop cities from using minimum lot size and floor area ratios to block multifamily housing development and allow builders to pay for smaller pieces of land to develop multifamily housing for the “missing middle” (i.e., three to 10 homes). But some affordable housing advocates criticize the new law as one that will displace and do nothing for lower income households who will not be able to afford these “small lot” condos.

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Amendment to SB 35

SB 1174

In 2017, Senate Bill 35 created a streamlined-approval process for certain multifamily housing projects, under Gov. Code 65913.4. In 2021, the Legislature tinkered with the law once again, mostly to allow earlier vesting and longer approval shelf-life. Instead of having to start vertical construction to vest, the project needs only to start “construction activity,” including demo and grading. And now, the validity of a project approval is extended if the developer requests a modification (extended by number of days between request and final approval, plus 180 days). This modification-extension can only be used once. Both changes apply retroactively to pre-2022 projects.

Other changes include:
• Underground space is now omitted from square footage calculations.
• Current building standards may now be applied only to modifications made prior to the first building permit (before it was subject to any modification) … unless the developer agrees otherwise.
• Subsequent permits are now considered in light of the standards that were in place “when the original development application was submitted” … unless the developer agrees otherwise.
• The definition of “affordable rent” for large, pre-2019 projects is now modified to allow 70% of the units to be rented at the maximum rent levels allowed under Low-Income Housing Tax Credit projects.

Overall, SB 1174 is considered to be more of a fine-tuning of the same streamlined-approval process rather than a broad change.

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