The COVID-19 pandemic continues to affect the commercial real estate market, and the San Francisco Board of Supervisors is pursuing relief for certain categories of commercial tenants, including adoption of an ordinance creating a rebuttable presumption that a commercial tenant’s legally required shutdown excuses rent owed for the shutdown period.

We previously reported on San Francisco’s eviction protection for “Covered Commercial Tenants,” which are tenants (1) registered to do business in San Francisco, and (2) with combined worldwide gross receipts for tax year 2019 equal to or below $25 million. Covered Commercial Tenants do not include for-profit entities occupying space in property zoned or approved for Office Use, nor entities leasing property from the City and County of San Francisco.

Covered Commercial Tenants are currently protected from evictions for COVID-19 related missed rent payments that came due between March 16, 2020 and September 30, 2021. After September 30, 2021, unless the Governor further extends his executive order allowing for local jurisdictions to protect commercial tenants from eviction, Covered Commercial Tenants with 50 or more full time equivalent (“FTE”) employees will be required to immediately pay any unpaid rent owed to their landlords, while smaller Covered Commercial Tenants will be entitled to a forbearance period after September 30, 2021 ranging from 12 to 24 months.

On July 20, the Board of Supervisors took further action that would effectively forgive some past due rent from certain Covered Commercial Tenants, even after their applicable forbearance period expires. The Board of Supervisors unanimously passed an ordinance (Board File No. 210603) establishing a rebuttable presumption, for a Covered Commercial Tenant legally required to shut down due to COVID-19, that the shutdown frustrated the purpose of the lease, and that payment of rent for the shutdown period is excused. Importantly, the rebuttable presumption only applies where a generally applicable health order legally obligated a tenant to shut down, not where a tenant closed operations because of a COVID-19 outbreak or due to COVID-19 economic impacts. It does not apply if there is a contract provision or other agreement between the landlord and Covered Commercial Tenant demonstrating that the shutdown did not frustrate the purpose of the lease. Where applicable, a Covered Commercial Tenant can avail itself of this rebuttable presumption without terminating its lease.

Recognizing that many commercial landlords and tenants negotiated site-specific agreements regarding their existing leases in response to COVID-19, and seeking to encourage such agreements, the ordinance specifically states that the presumption also does not apply where a landlord and tenant executed a valid, written agreement in response to COVID-19 to reduce, waive, or extend a deadline to pay rent.

While the above-described contract provisions and agreements between a landlord and tenant render this presumption inapplicable, the factual circumstances that could rebut the presumption are less certain. For example, a landlord could attempt to rebut the presumption if the tenant could have operated at the premises during a shutdown in a different, legally permitted manner, such as a restaurant that was forced to close onsite dining, but still prepared or could have prepared food for pick-up or delivery from its premises without violating health orders.

Another more incremental, but nevertheless important potential change to San Francisco’s commercial tenant relief program has been introduced, and is pending Board of Supervisors action. Supervisor Safai has introduced legislation (Board File No. 210762) to allow a 6 month forbearance period for Covered Commercial Tenants with between 50 and 99 FTE employees, who as discussed above are currently entitled to no forbearance. On July 15, Board President Walton waived the 30-day hold for this legislation and transferred it to the Budget & Finance Committee. We will provide further updates when they are available.

Contact Real Estate attorneys Dan Gershwin at dgershwin@coblentzlaw.com and Caitlin Connell at cconnell@coblentzlaw.com for additional information.

In March 2020, in response to the COVID-19 public health crisis, Governor Newsom issued Executive Order N-29-20, suspending open public meeting requirements under the Brown Act and Bagley-Keene Act thereby allowing state and local public agencies – including Boards of Supervisors, City Councils and Planning Commissions – to meet by teleconference without requiring a physical meeting place for members of the public to convene. Since that time, Zoom-based public meetings have become ubiquitous.

Executive Order N-29-20 was set to expire last month on June 15, 2021 – the same date that the state of California marked its official re-opening as the Governor lifted a number of prior COVID-related public health orders and restrictions. However, in a letter to the Governor, an association of cities and other public agencies expressed concern that returning to conducting public hearings in person would require additional time and revamped logistics to ensure continued public health and safety.

To that end, the Governor’s office announced in a June 2, 2021 response letter that public agencies would be permitted to continue holding public meetings virtually, with no expiration date set at that time. The Governor’s office also committed to providing advance notice ahead of any termination of Executive Order N-29-20 to give state and local agencies sufficient time to transition and comply with applicable open meeting legal requirements.

On June 11, 2021, the Governor formalized this guidance through issuance of Executive Order N-08-21, extending the public meeting exceptions through September 30, 2021. Until that time, or as otherwise extended, public agencies may continue to convene remotely and, if they do so, must allow members of the public to observe and participate in meetings telephonically or electronically through that date.

Some local public agencies across the Bay Area are anticipated to hold off on returning to in-person hearings until the expiration of the public meeting exceptions, although others are exploring earlier returns in summer 2021. As public agencies begin to navigate their own re-openings, it is likely, but not yet certain, that some jurisdictions will offer hybrid opportunities for public participation in addition to in-person attendance, including continued use of teleconference and/or online video platforms such as Zoom.

The Coblentz Real Estate team continues to track ongoing updates related to the project approval landscape across the Bay Area in light of the ongoing COVID-19 public health crisis. Please reach out to a member of our team for assistance navigating state and local COVID regulations related to land use and development.

Since we last reported on this topic, many of the residential and commercial eviction moratoriums that were enacted in response to the COVID-19 pandemic have been amended, replaced and/or extended. These moratoriums are generally set to expire on June 30, 2021. Depending on how COVID vaccination and the broader economic recovery play out in the coming months, these moratoriums may be further extended.

Residential Evictions

At the state level, the COVID-19 Tenant Relief Act (“CTRA”), which protects residential tenants from eviction for non-payment of rent due to COVID-19, is comprised of two statewide laws, AB 3088 and SB 91. Together, these laws have imposed a statewide eviction moratorium on evictions from March 1, 2020 through June 30, 2021 (the “State Moratorium Period”), and have replaced most of the local residential eviction moratoriums that were enacted at the start of the pandemic.

Under the CTRA, a residential tenant that owes rent during the State Moratorium Period cannot be evicted for failure to pay rent so long as they provide the landlord with a signed declaration claiming financial hardship related to COVID-19 within the required timeframe, and, on or before June 30, 2021, the tenant pays 25% of the rent owed to the landlord during the period from September 1, 2020 through June 30, 2021. Tenants remain responsible for paying any unpaid rent to landlords, but those unpaid amounts are not a permitted basis for eviction or late fees. Landlords may begin to recover unpaid rent on or after August 1, 2021 in small claims court (even if the amount of unpaid rent exceeds $5,000).

Commercial Evictions

Although the CTRA only applies to residential tenants, Governor Newsom’s Executive Order N-80-20 (“EO N-80-20”) grants local governments the authority to enact protections for commercial tenants. Many local governments that have enacted commercial eviction moratoriums have tied the effectiveness of the protections to EO N-80-20, which is currently set to expire on June 30, 2021. Key provisions of some of the most important Bay Area commercial eviction moratoriums include:

City and County of San Francisco:

On November 25, 2020, the San Francisco Board of Supervisors adopted an Ordinance (the “SF Ordinance”) to address commercial evictions (which replaced the March 18, 2020 Mayor’s Order that is no longer in effect). Under the SF Ordinance, if a “covered commercial tenant” misses rent payments from March 16, 2020 through June 30, 2021 (the “SF Moratorium Period”) because of financial impacts resulting from the COVID-19 crisis, the landlord may not evict the covered commercial tenant.

A “covered commercial tenant” is a tenant that (1) is registered to do business in San Francisco, and (2) has combined worldwide gross receipts for tax year 2019 equal to or below $25 million. However, the moratorium does not apply to for-profit entities occupying space in property zoned or approved for use as Office Use (as defined in Section 102 of the Planning Code), or to entities leasing property from the City and County of San Francisco.

The landlord is not permitted to assess interest or other charges based on unpaid rents that were due during the SF Moratorium Period. Additionally, the landlord must provide smaller (fewer than 50 full-time employees) covered commercial tenants a forbearance period after the moratorium ends to repay the missed rent before it can evict a covered commercial tenant for non-payment. The forbearance period is tied to the number of full-time employees employed by the covered commercial tenant, and ranges from 12 to 24 months after the end of the SF Moratorium Period. The SF Ordinance will expire upon expiration of EO N-80-20 or any extensions of the order (currently set to expire on June 30, 2021). If EO N-80-20 is further extended, the SF Ordinance will automatically be extended by its terms.

The SF Ordinance provides additional protection to small business owners with 10 or fewer full-time employees (“Tier 1 Tenants”). A Tier 1 Tenant that is unable to pay rent due to financial impacts related to COVID-19 has the option, despite any terms in the lease to the contrary, to terminate its lease if it fails to reach a mutually satisfactory agreement for repayment with the landlord.

More detailed information on the SF Ordinance can be found here.

City of Oakland:

Under the City of Oakland’s commercial eviction moratorium, landlords are not permitted to evict small businesses (generally independently owned and operated businesses, which together with their affiliates have 100 or fewer employees, and average annual gross receipts of $15 million or less over the previous three years – more particularly defined in Government Code Section 14837(d)(1)(A)), and nonprofit organizations for failure to pay rent if such failure is due to a substantial decrease of income caused by the COVID-19 pandemic or by any governmental response to COVID-19, and is documented. This does not relieve commercial tenants of the obligation to pay back rent in the future. The City of Oakland’s commercial eviction moratorium will expire upon expiration of EO N-80-20 or any extensions of the order (currently set to expire on June 30, 2021). If EO N-80-20 is further extended, the City of Oakland’s commercial eviction moratorium will automatically be extended by its terms.

Contra Costa County:

On February 2, 2021, the Contra Costa County Board of Supervisors unanimously passed Urgency Ordinance No. 2021-04, which extended the temporary commercial eviction moratorium for commercial tenants through June 30, 2021. Under Urgency Ordinance No. 2021-04, landlords cannot evict a commercial tenant for failure to pay rent if the tenant demonstrates that failure to pay is directly related to a loss of income associated with the COVID-19 pandemic or any local, state or federal government response to the pandemic. In order to qualify, a tenant must document the loss of income. Landlords cannot charge or collect late fees on any unpaid rent from a commercial tenant who demonstrated loss of income. Commercial tenants have a grace period ending August 31, 2021 (unless the landlord agrees to a longer repayment period), to pay past due rent for the period from March 16, 2020 to June 30, 2021.

Santa Clara County:

On November 3, 2020, the Santa Clara County Board of Supervisors enacted Ordinance No. NS-9.293, which extended Santa Clara County’s eviction moratorium for small business tenants until the earlier of the expiration of EO N-80-20 or April 30, 2021. Unlike the other local eviction moratoriums described above, Santa Clara County’s eviction moratorium is currently set to expire on April 30, 2021. Small business tenants (defined in the U.S. Small Business Administration’s table of size standards by industry, codified in the Code of Federal Regulations at 13 C.F.R. Section 121.201) have 6 months after the moratorium expires or terminates to repay at least 50% of the past-due rent, and up to 12 months after the moratorium expires or terminates to repay in full the past-due rent. Landlords cannot charge late fees on unpaid rent due so long as the rent is repaid according to the above timeline. Santa Clara County’s commercial eviction moratorium does not prevent a landlord from pursuing lawful or “at-fault” evictions for reasons other than non-payment of rent.

We will continue to monitor developments to the state eviction moratorium and local eviction moratoriums across the Bay Area. Contact Real Estate attorneys Tamara Lam-Plattes at tlam-plattes@coblentzlaw.com or Leah Collins at lcollins@coblentzlaw.com for additional information.

The San Francisco Planning Department is updating the City’s General Plan, and Department staff will be holding a two-week series of online workshops on the proposed General Plan updates beginning Monday, March 15th. All development projects must be consistent, on balance, with the General Plan’s objectives and policies, so these updates are of high interest for San Francisco developers.

Key General Plan Elements undergoing significant updates include the Transportation Element, the Community Safety Element, and the Housing Element. These updated elements will include environmental justice policies per the requirements of California Senate Bill 1000, which we blogged on in 2018. According to the Department, this round of General Plan updates will focus on goals and policies addressing racial and social equity, housing, transportation, climate resilience, and environmental justice.

The two-week workshop series is designed to gather public input via Zoom on the updates to the General Plan and to allow Planning Department staff to provide overviews of the various topics being addressed in the updates. Planning Department staff has indicated that the workshop series will also serve a capacity-building purpose, by encouraging meaningful and ongoing public engagement in the planning process, particularly among those San Franciscans who historically have been underrepresented in the planning process.

Registration for the online workshops can be accessed at this link. We will keep you posted on the timing and schedule for the General Plan updates as that information becomes available.

In 2020, California legislators considered but ultimately did not approve bills that would have substantially restricted the continued use of single-family zoning across the state. These efforts included SB 50 (Wiener), which would have required increased residential density near qualifying transit, and SB 1120 (Atkins), which would have allowed duplexes on most residential lots across the state, including single-family zoning districts. Both bills, along with many other 2020 housing bills, died in chambers in the final moments of the legislative session. Read our previous coverage here.

This year, legislators are back at work on similar legislation – SB 10 (Wiener), which would allow cities to up-zone qualifying parcels located in transit- or jobs-rich areas, and SB 9 (Atkins), a reprise of the SB 1120 duplex-zoning efforts. Both bills are already attracting attention from advocates and opponents of prior legislation. California’s effort to increase housing production and density through limits on single-family zoning comes in the wake of similar legislation in other parts of the country. In 2019, Oregon became the first state to adopt legislation effectively banning single-family zoning in many cities, and in 2018, the Minneapolis City Council unanimously voted to update its long-range Comprehensive Plan to eliminate single-family zoning.

Now, a number of California cities – including several in the Bay Area – are taking up the issue directly. The City of Sacramento made headlines last month when its Council unanimously approved a draft proposal to allow up to four units on lots within its single-family and duplex zoning districts. The City of San Jose has established an “Opportunity Housing” task force that will explore allowing up to four units per parcel in residential zones – a significant increase given that approximately 94% of San Jose residential land is designated for single-family housing and only 6% for multifamily. In San Francisco, Supervisor Mandelman has introduced legislation to allow fourplexes on corner lots and other traditional single-family neighborhoods within a half-mile of major transit stops. Most recently, the City of Berkeley unanimously adopted a resolution to begin the process of eliminating single-family residential zoning and allowing for other types of housing such as apartments, duplexes and triplexes in the next few years. Berkeley is also considering legislation that would legalize quadplexes throughout the city. The City of South San Francisco is also beginning to explore the issue.

These efforts to reassess traditional single-family zoning reflect a crossroads for local jurisdictions grappling with competing pressures to retain local control over land use decisions, and address inequitable access to housing, the effects of climate change, and the economic fallout from COVID-19. Taken together, these local proposals would result in more modest increases in residential density compared to proposed state legislation such as SB 10 and similar prior failed bills, but they reflect a growing effort to take on the issue directly at the local level, particularly within transit-rich jurisdictions.

The Coblentz Real Estate team continues to track the progress of these state-wide and local efforts. Please contact a member of our team for additional information and any questions related to the impact of these pending state and local regulations on land use and real estate development.

The Planning Department has a December 19 deadline to implement the small business streamlining provisions of Proposition H, which was approved by the voters last month. Proposition H expedites the approval process for principally permitted uses in Neighborhood Commercial (NC) and Neighborhood Commercial Transit (NCT) districts and relaxes zoning controls for a variety of businesses in most NC and NCT districts. Mayor Breed placed Proposition H on the ballot in response to the economic challenges of the COVID-19 pandemic and, calling out San Francisco’s “broken” permitting system, issued an executive order on November 19 requiring City departments to implement Proposition H within 30 days.

Under Proposition H, the City must complete its review of permit applications for principally permitted uses in NC and NCT districts within 30 days “to the maximum extent feasible,” and the City is currently re-tooling its interdepartmental review process to comply with this newly imposed time limit. As an additional streamlining measure, Proposition H exempts any change in use within these districts to a principally permitted use from the 30-day neighborhood notification requirement that might otherwise apply.

Proposition H broadens the list of principally permitted uses in most NC and NCT districts, excluding the Mission Street, 24th Street, and SOMA NCT districts, allowing business owners to avoid the time and expense of the City’s conditional use (CU) authorization process. This expanded list includes temporary pop-up retail uses in bars and entertainment venues, co-working spaces within retail uses, certain office uses, and outdoor dining in parklets and the public right-of-way (dovetailing with San Francisco’s Shared Spaces program).

Planning staff provided an informational presentation on Proposition H at the Planning Commission’s November 19 meeting. Some commenters expressed concern that Proposition H’s “one-size-fits-all” approach might adversely affect neighborhood-serving businesses, particularly in neighborhoods such as the Mission. Some Planning Commissioners raised concerns regarding equitable access to Proposition H’s benefits across the small business community, and requested that the Planning Department collect and analyze data to better understand the program’s impacts throughout the City and adjust outreach accordingly.

For three years after Proposition H takes effect, the Board of Supervisors cannot further restrict principally permitted or conditionally permitted uses in NC or NCT districts. However, the Board may amend the ordinance to allow additional uses as principally permitted uses, or non-permitted uses as conditionally or principally permitted uses, and it may further streamline notice and permitting procedures. After this three-year period, the Board may amend the law without limitation.

In late October, we reported on a number of California, San Francisco, and regional propositions, including measures impacting real estate and other taxes, rent control, affordable housing, permits, and governance. At the state level, results were mixed and in some cases still too close to call, with voters clearly rejecting expansion of local residential rent control (Proposition 21), appearing likely to reject proposed changes to commercial property tax assessment (Proposition 15), but appearing likely to approve revisions to residential property tax reassessment. Greater certainty is expected in the coming days and weeks, and no later than December 4th, when county elections officials must report final results to the California Secretary of State. In San Francisco, voters approved all of the measures that we reported on, including major new and increased business taxes.

Summary of California Results:

Proposition 15

Would assess property taxes on certain commercial and industrial properties based on fair market value rather than purchase price, removing certain limitations originally established under Proposition 13. TOO CLOSE TO CALL.

Proposition 19

Would expand the exemption for property tax reassessment of replacement residences for homeowners over age 55, victims of wildfires, and severely disabled individuals, while also limiting the exemption from reassessment for transfers of residences between parents and children. TOO CLOSE TO CALL.

Proposition 21

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

Summary of San Francisco Results:

Proposition A (Health, Parks and Street Bond)

Authorizes issuance of general obligation bonds of up to $487.5 million for capital projects across three primary categories: mental health, substance abuse, and homelessness; parks, open space, and recreation facilities; and street maintenance and repair. PASSED.

Proposition B (Department of Public Works)

Makes substantial changes to the Department of Public Works (DPW), creating a new Public Works Commission to oversee the Department and a new Department of Sanitation and Streets to perform a number of functions currently within the jurisdiction of DPW. PASSED.

Proposition F (Business Tax Overhaul)

Amends the San Francisco Charter and City Ordinances to eliminate the payroll expense tax, increase the Gross Receipts Tax rates, and increase the number of small businesses that are exempt from the Gross Receipts Tax. PASSED.

Proposition H (Save our Small Businesses Initiative)

Makes numerous changes to the San Francisco codes governing storefront commercial uses and small businesses: streamlining the City permitting process for principally permitted storefront uses in the City’s Neighborhood Commercial zoning districts, allowing eating and drinking uses in those districts to offer workspaces, removing certain neighborhood notice requirements for new principally permitted businesses, facilitating the use of outdoor spaces by eating and drinking establishments and other businesses, and eliminating the conditional use requirement for certain commercial uses. PASSED.

Proposition I (Real Estate Transfer Tax)

Increases the real property transfer tax on transfers of property valued between $10 million and less than $25 million from 2.75 percent to 5.5 percent, and the rate on transfers valued at $25 million or more from 3 percent to 6 percent. PASSED.

Proposition J (Parcel Tax for SF Unified School District)

Imposes an annual tax of $288 on each parcel in the City to generate $50 million in annual revenue to support the San Francisco Unified School District for salaries and educational improvements. PASSED.

Proposition K (Affordable Rental Units)

Authorizes the City of San Francisco to own, develop, construct, acquire, or rehabilitate up to 10,000 affordable rental units, fulfilling the requirement of the California Constitution that the City seek voter approval for public low-income rental housing. PASSED.

Proposition L (Business Tax Based on Executive/Employee Pay Comparison)

Creates an additional tax on San Francisco businesses whose highest-paid managerial employee has a salary exceeding the business’s median employee compensation by a ratio of 100 or more to 1. Larger businesses subject to the Administrative Office Tax will pay an additional tax between 0.4 percent to 2.4 percent of their San Francisco payroll expense, and smaller businesses subject to the Gross Receipts Tax will pay an additional tax between 0.1 percent to 0.6 percent of their San Francisco gross receipts. PASSED.

Summary of Regional Results:

Measure RR (Caltrain Tax)

Authorizes a 0.125 percent sales tax increase in San Francisco, San Mateo, and Santa Clara counties to provide $100 million of annual funding for the Caltrain rail system. PASSED.