In a decision partially published on November 30, 2022, Save Lafayette v. City of Lafayette[1], the First Appellate District Court of Appeal upheld the City of Lafayette’s approval of the Terraces of Lafayette (the “Project”), a 315-unit housing development project, 20% of which will be affordable to lower-income tenants. That opinion—now final, as the California Supreme Court has denied review[2]—allows an affordable housing project that drew national press attention to move forward.

Background

In early 2011, the City received the developer’s application for the Project, on an approximately 22-acre site adjacent to State Highway 24 north of the Pleasant Hill Road entrance/exit. At that time, the City’s General Plan land use designation and zoning for the Project site allowed multi-family development at a greater density than proposed. The City certified the Environmental Impact Report (“EIR”) prepared for the Project in 2013, but did not vote on whether to approve the Project at that time.

Instead, City staff and the developer entered into a “Process Agreement,” which allowed the City to devote its time and resources towards consideration of an alternative project, with 44 single family homes, a playfield, dog park, tot lot, and associated parking. Under this Agreement, the developer agreed that the City could suspend processing of its Project application, on the condition that the City would resume processing it at the developer’s request.

The City approved the alternative, 44-home project in 2015, but over the next three years opponents of that project successfully blocked its development through the referendum process and associated legal challenges.

In 2018, shortly after project opponents’ efforts to stop the 44-home project succeeded, the City Council changed the General Plan land use designations and zoning of the Project site (so as to no longer permit multi-family housing) and the developer terminated the Process Agreement and asked the City to resume processing the original Project. Around that time, the City engaged Coblentz Patch Duffy & Bass to serve as its legal counsel with respect to the Project. The City resumed processing the Project application, and prepared an addendum to the 2013 EIR. The Planning Commission approved the addendum and the Project on July 1, 2020, and the City Council affirmed the approvals on appeal in the early morning hours of August 25, 2020, after a long public meeting.

Courts Reject Challenges to the City’s Approval of the Project

One month later, Save Lafayette filed a writ petition to challenge the Project’s approval. It argued that the City had no power to process the developer’s 2011 Project application in 2018, because the Permit Streamlining Act (“PSA”) had required the City to process the application within 180 days. According to Save Lafayette, the City should have processed the Project as if the application had been submitted in 2018, not 2011. If Save Lafayette were correct, the General Plan and land use designations in effect in 2018 would have barred the Project. Save Lafayette also claimed that the addendum to the 2013 EIR violated the California Environmental Quality Act (“CEQA”), because the City should have instead prepared a supplemental EIR. The trial court rejected both arguments.

Save Lafayette appealed the trial court’s decision, and the First District Court of Appeal unanimously affirmed the trial court’s decision, a sound rejection to Save Lafayette’s claims. In the published portion of its decision, the Court explained that the Housing Accountability Act (“HAA”) prohibits a local agency (such as the City) from disapproving an affordable housing project unless it makes one of certain findings, such as that the project is inconsistent with the general plan land use designation and zoning that existed when the project application was deemed complete. The Court of Appeal concluded that the Project application was deemed complete in 2011 and rejected Save Lafayette’s arguments that the Project’s application had been withdrawn.

The Court explained that the PSA did not affect this determination, for four reasons.

• First, even if the City failed to meet the PSA’s deadlines, nothing in the PSA results in an application being deemed withdrawn, disapproved, or resubmitted at a later date. To the contrary, the PSA expressly states that the potentially available remedies for a violation of its deadlines are that the application is deemed complete or deemed approved.
• Second, the Project application had been deemed complete in 2011 and no resubmission was required or had occurred.

• Third, Save Lafayette’s interpretation of the PSA conflicted with its express provision requiring agencies to make findings specifying reasons for the disapproval of development applications other than the agency’s failure to act within the PSA’s deadlines.
• Fourth, the HAA’s protections against land use redesignations and rezonings occurring after a project is deemed complete, and the Legislature’s intent in curbing local agencies’ ability to deny housing projects, weighed in favor of relying upon the City’s 2011 determination that the Project application was deemed complete, rather than Save Lafayette’s preferred later date after the City had down-zoned the project site.

In an unpublished portion of its decision, the Court upheld the adequacy of the City’s 2013 EIR and the 2020 addendum, and held that substantial evidence supported the City’s decision to prepare an addendum rather than a supplemental EIR.

The Court of Appeal’s decision—left intact by the Supreme Court—is the first appellate decision considering the relationship between the PSA’s deadlines and the HAA’s protections for qualified housing projects, including affordable housing developments. Its analysis makes clear that projects can obtain the benefits of the Housing Accountability Act even after expiration of the Permit Streamlining Act’s deadlines. It is also another important published decision that gives full weight to the stated legislative intent in the HAA that it be “interpreted and implemented in a manner to afford the fullest possible weight to the interest of, and the approval and provision of, housing.” The Legislature in recent years has strengthened housing laws, particularly the HAA, and Save Lafayette is the latest affirmation that those changes have real impact.

[1] (2022) 85 Cal. App. 5th 842.

[2]https://appellatecases.courtinfo.ca.gov/search/case/dockets.cfm?dist=0&doc_id=2464538&doc_no=S277983&request_token=OCIwLSEmLkw8WyBZSCM9SENIUEg0UDxTJCMuIzJTTDtLCg%3D%3D

The land use entitlement process in California is notoriously complicated, lengthy, and fraught with uncertainty. Less attention is paid to the process of receiving building permits, post-entitlement. Generally, this process is more straightforward because the local agency’s review is limited to ensuring state and local building code compliance. Accordingly, the issuance of building permits is typically a ministerial act, not subject to the discretion of city or county officials and not appealable. In San Francisco, however, post-entitlement building permits are shielded from appeal to the Board of Appeals only if the project has received a Conditional Use Authorization from the Planning Commission, per Charter section 4.106(b). AB 1114, introduced by Assemblymember and former San Francisco Supervisor Matt Haney, would extend this protection to other residential projects that have received, for example, only a Downtown Project Authorization or a Large Project Authorization.

AB 1114 provides that building permits for projects that are “at least two-thirds residential” are not subject to appeal. It builds on prior legislation, AB 2234, which set strict timelines for local agencies to respond to and issue post-entitlement building permits for housing development projects that comply with existing application requirements. If adopted, the bill would apply these timelines to qualifying San Francisco housing projects and protect them from building permit appeals, regardless of the underlying entitlement obtained.

In the Assembly Committee reports, Assemblymember Haney stated that the legislation is necessary because it can take almost two years to obtain a post-entitlement building permit in San Francisco, in part because of the potential for building permit appeals, and that as a result, the city “is struggling to build housing and is falling behind the rest of the State on its affordable housing goals.” The Committee reports cite California Department of Housing and Community Development data indicating that it can take an average of 450 days to obtain entitlements in San Francisco and an average of 524 days to get permits to commence construction for an entitled project—the longest of any jurisdiction that permitted more than 10 projects.

The bill recently passed the Assembly and is moving through the Senate. We will continue to track its progress and provide status updates.

In an Executive Directive dated February 7, 2023, Mayor London Breed declared that “San Francisco needs to fundamentally change how we approve and build housing.” The Directive, titled “Housing For All,” comes on the heels of the Board of Supervisors’ January 31^st adoption of its updated Housing Element, addressing San Francisco’s Regional Housing Needs Allocation (RHNA) of a daunting 82,000 housing units for the next eight-year cycle. (See earlier posts here and here).

With high construction costs and lengthy project approval processes, San Francisco produces only a few thousand units each year. Combining these ongoing challenges with the steep decline in demand for office space resulting from the pandemic, San Francisco is facing both an ongoing housing crisis and a less vibrant Downtown. The Mayor’s Executive Directive pointedly acknowledges these issues, identifies office-to-residential conversions in Downtown as one potential way to help resolve them, and directs that City officials and departments take specific, immediate actions to facilitate more housing development in the City.

The following are the key actions regarding housing production, generally listed by implementation deadlines:

• Create New Funding Mechanisms: By February 14, 2023, the Office of Economic and Workforce Development was directed to advance legislation to create new financing opportunities for pipeline projects that have been unable to move forward due to financing constraints, including authorizing the creation of new infrastructure financing districts (IFD). On that date, legislation was introduced by the Mayor and Supervisor Walton to create and establish rules for an IFD for the Potrero Power Station project site south of Pier 70, which would allow construction to commence on the project’s first 105 residential units.
• Remove Barriers for Office-to-Residential Conversions: By April 1, 2023, the Planning Department and DBI are directed to propose legislation to amend code requirements to facilitate the conversion of existing office uses to residential uses in Downtown San Francisco to spur pandemic recovery efforts. (Recognizing the opportunity that office-to-residential conversions present to help both the housing crisis and Downtown’s vibrancy, the Board of Supervisors also adopted a resolution on February 14, 2023 asking the Planning Department to report on potential candidates for conversion in the Downtown core, and to issue public facing criteria for office to residential conversions.)
• Reduce Procedural Requirements that Impede Housing Production: By May 1, 2023, the Planning Department is directed to advance an initial package of legislation that will remove unnecessary fees and procedural constraints that obstruct the development of housing, including eliminating Conditional Use Authorizations for certain types of housing developments.
• Housing Element Accountability and Oversight: An Interagency Implementation Team is charged with creating a Housing Element Action Plan that will describe specific steps for achieving the goals and actions set forth in the Housing Element and meeting the City’s RHNA obligations, to be presented to the Mayor by July 1, 2023.
• Reform Restrictive Zoning Controls: By January 31, 2024, the Planning Department is directed to present rezoning proposals that will allow the City to meet its RHNA target.
• Permit Review Timelines: City departments involved in development permitting, including Planning and the Department of Building Inspection (DBI), are directed to review their permit processes and reduce overall permitting timelines by at least 50% by February 1, 2024. Also by that date, the Planning Department is directed to eliminate the current Preliminary Project Application process and establish new procedures for providing early design feedback to large projects.
• Revise Inclusionary Housing Requirements: Following issuance of recommendations from the Controller’s Office (no date specified), the Planning Department is directed to propose modifications to the City’s inclusionary housing program and draft legislation that will increase overall housing production while serving the City’s affordable housing goals.

We will continue to monitor the City’s various legislative and administrative responses to the Mayor’s Directive and provide further updates.

Local landlords and owner-groups filed a lawsuit in San Francisco Superior Court last week in response to the recently-passed Proposition M, also known as the Empty Homes Tax Ordinance. We previously covered the new San Francisco legislation here. The Empty Homes Tax Ordinance imposes an Empty Homes Tax (the “Tax”), which ranges from $2,500-$20,000 per unit, applies to vacancies of more than 182 days in a tax year within residential buildings with three or more units, and is effective as of January 1, 2024. It passed in November 2022 with 54.5% of the vote.

The lawsuit was filed by the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute, the San Francisco Association of Realtors, and four individual landlords. The lawsuit argues that the Tax is intended to force property owners to rent their vacant units by imposing burdensome charges, and thereby the Tax violates the Takings Clause of the Fifth Amendment of the U.S. Constitution and the state Ellis Act by penalizing owners for exercising their rights under those provisions.

The lawsuit also argues that the Tax threatens the constitutionally protected privacy interests of due process and equal protection by, among other things, exempting units that are rented to strangers but not units that are rented to close family members. The Empty Homes Tax Ordinance provides that the Tax applies when a unit is vacant (unoccupied, uninhabited, or unused) for more than 182 days in a tax year, and none of the exemptions enumerated within the Empty Homes Tax Ordinance apply. One exemption is where the unit is subject to a bona fide lease with a third party. This so-called “Lease Period” exemption does not apply to a lease with a close family member. In other words, a unit is considered vacant and is subject to the Tax if a close family member leases the unit but does not occupy or use the unit for more than 182 days in a tax year, whereas if the unit is leased to a bona fide third party, that third party need not occupy or use the unit at all for the owner to avoid the Tax.

We will monitor the lawsuit and continue to provide further updates when they are available.

Contact Real Estate attorney Caitlin Connell at cconnell@coblentzlaw.com for additional information.