California: Parking reform goes into effect January 1 

By Phillip H. Babich and Sara M. Eddy

Less parking and more housing, or just less parking?

Figuring out parking configurations for development projects in California will get a little easier for developers starting January 1, 2023. The state legislature has adopted Assembly Bill 2097 (AB 2097), and Governor Gavin Newsom (D) signed it into law on September 22, 2022.

AB 2097 prohibits public agencies from imposing or enforcing minimum automobile parking requirements for residential, commercial, or other development projects if the project is one-half mile walking distance of a “high-quality transit corridor” or a “major transit stop.” A high-quality transit corridor is a corridor with fixed-route bus service with service intervals no longer than 15 minutes during peak commute hours. A major transit stop is a site containing an existing rail or bus rapid transit station, a ferry terminal served by bus or rail, or the intersection of two or more major bus routes with a frequency of 15 minutes or less during peak commute periods.

That means a developer with a qualifying project can devote more real estate to floor space and units, and less to parking spaces. AB 2097 may help reduce housing costs and greenhouse gas emissions while increasing the number of available housing units, according to the bill’s legislative findings.  

There are a number of exceptions to the rule. For example, a public agency may require minimum parking for a project, if doing so is necessary to avoid a substantial negative impact on the city or county’s ability to meet regional housing needs for the low-income, disabled or elderly, or on existing parking within one-half mile of the proposed project.

In addition, AB 2097 does not apply if it would conflict with a public agency’s contract executed before January 1, 2023, provided that any commercial parking required under that contract is shared with the public. The bill also excludes projects where any portion is designated for use as a hotel, motel, bed and breakfast inn, or other transient lodging. However, projects with a portion designated for use as a residential hotel containing six or more guestrooms used as a primary residence mostly by transient guests do fall under AB 2097.

Other exemptions include housing projects that dedicate a minimum of 20 percent of their housing units to low- or moderate-income households or students, the elderly, or persons with disabilities, and projects containing fewer than 20 units or those subject to parking reductions based on other laws are also exempt.

Public agencies can still enforce existing requirements for new multifamily residential or nonresidential developments within one-half mile of public transit to provide parking spaces with electric vehicle supply equipment or parking spaces that are accessible to persons with disabilities.

According to the California Daily News, some of the bill’s opponents say that AB 2097 could weaken local efforts already underway to increase affordable housing production near transit centers. One possible scenario is that a local agency may offer reductions in parking requirements if the developer adds affordable housing units to its project. With AB 2097, the developer does not need the local incentives; it can rely on AB 2097 for parking reductions and not add affordable units. The state, according to the governor’s signing message, will be watching for “earnestly unintended consequences.” The Department of Housing and Community Development will closely monitor the effects of AB 2097, which, according to the Daily News, is the first bill of its kind in the United States.


Coronavirus Rental Arrears – A brief digest

Brad Trerise has written a client alert on the recent appeal case made by several large cinema chains over the the payment of outstanding rent for periods of the Coronavirus pandemic, during which they were forced to close.

Key Take-aways:

  • Cine UK, Cineworld and various other cinema firms appealed on the basis of a novel argument – that the premises were rendered “unfit for use”, under the terms of the leases, due to the government lockdown legislation. In previous cases, this clause has explicitly referred to the physical state of the premises only.
  • The Court of Appeal rejected this nuanced interpretation, ruling that when drafting the lease documents, a condition to the like of a pandemic, cannot be expected to have been considered as a potential source of rendering the premises unusable.
  • The Court of Appeal also concluded that whilst the cinema firms had suffered financial damage over the pandemic, this was not in anyway related to the damage of the actual premises.
  • The cinema tenants had hoped for the final judgement to be more favourable. However, the Commercial Rent (Coronavirus) Act 2022, could present Cine UK and Cineworld a final opportunity to appeal the granted summary judgement for the repayment of their arrears, as it allows for parties to apply for arbitration on coronavirus arrears disputes.

Read the full article here

The Economic Crime Act and Registration of Overseas Entities: the latest developments

Continuing on from our previous commentary on the  Economic Crime (Transparency and Enforcement) Act (the ‘Act’), the new Register of Overseas Entities introduced by the Act (the ‘Register’) is now expected to be brought into effect on 1 August 2022. We must all be prepared for this new regime.

From the 1st August, overseas entities that own or wish to acquire land in the UK will have to register information about that overseas entity with Companies House, including disclosing information about the ultimate beneficial owners of that entity. Failure to comply with the registration requirements will not only adversely affect Real Estate transactions, but may even result in both criminal and financial penalties.

To learn more about the launch of the register, the verification process and next steps read the full article at reedsmith.com.

Commercial Rent (Coronavirus) Act 2022 – first arbitration award gives little comfort to retailers

We have recently seen what may be the first award made under the arbitration scheme established under the Commercial Rent (Coronavirus) Act 2022. Ernest Jones and H Samuel, jewellery retailers, has been ordered to pay £450,000 in unpaid office rent, where it had been argued that the offices, its headquarters, served purely to support its retail business and were in effect ancillary to that business.

The Act provides relief for tenants in respect of the payment of “protected rent debt” for a period of six months from 25 March 2022. Protected rent is rent that was due from a tenant during any period where the tenant’s premises were subject to enforced closure or other government coronavirus sanctions, broadly between March 2020 and July 2021. It was designed to apply to the retail and leisure sector, who businesses were hard hit by closures and restricted trading.  

Under the Act, either the landlord or the tenant is able to refer the matter of a protected rent debt to arbitration within the six month period from 25 March 2022. Until either the six months has passed without any reference to arbitration or an award has been made in the arbitration, the landlord is prevented from pursuing the debt by court action, insolvency, forfeiture or Commercial Rent Arrears Recovery.

In the Ernest Jones case, the arbitrator said that the business carried on from the particular premises was offices (whether or not the main business of the tenant was retail) and as the premises were therefore not subject to closure requirements, there could not be any protected rent debt. On this the Act is clear.

Arbitrations so far have been rarer than hens’ teeth. As expected, most landlords and tenants have already come to an agreement over rent arrears or, unfortunately, struggling tenants have succumbed to insolvency – the figures for company voluntary liquidations are up well over 100% year on year. Those tenants that do still have unpaid protected rent and have deep enough pockets may well be waiting until August to go to arbitration, in order to buy themselves even more time to pay while the arbitration process is ongoing beyond September.

Will the Levelling-Up Bill really help the high street?

Tucked away in Part 8 of the Levelling-Up and Regeneration Bill is a provision that may alarm commercial landlords. This provides for local authorities to intervene in the normal commercial landlord and tenant relationship and agree lettings of vacant high-street premises through auction.

The Bill gives the local authority the right to act where high street premises have been unoccupied for an entire year, or at least 366 days in the past two years, and where it deems the occupation of the premises for a suitable high-street use would be beneficial to the local economy, society or environment. “High-street use” is widely defined in the Bill and includes shops, offices, restaurants, bars, cafés, communal halls or meeting-places and even manufacturing processes.

If premises qualify, the Local Authority can serve notice on the landlord, valid for 10 weeks, during which the landlord will not be able to let the property without the Local Authority’s consent and then only if the letting begins within 8 weeks, lasts for at least a year and will have people regularly present at the property.

If no tenancy has been agreed within 8 weeks, the Local Authority can serve a final notice. At this point, the landlord can serve counter notice and, if necessary, appeal. Grounds for appeal include where the landlord intends to carry out development works and needs possession, or the landlord intends to occupy the premises himself. Other grounds are the premises are not vacant, they are not suitable for high street use or will not be of local benefit.

If the landlord doesn’t appeal or is unsuccessful, the property can be taken to auction, where the Local Authority can contract in its own name with a prospective tenant and can bind the landlord to that agreement. If the landlord does not agree to grant a tenancy of its own accord, the Local Authority can then grant the tenancy, with deemed consent from any superior landlord or mortgagee.

Is this merely a publicity stunt by the government? It seems to be based on the premise that landlords are allowing high street premises to remain empty rather than taking all possible steps to let them. Is the assumption that greedy landlords are simply holding out for higher rents than people are prepared to pay? How does that make any sense when the landlord’s business is in letting? The truth is that many landlords in this position are letting to tenants for low or no rent, particularly to charities. This is of course not entirely an altruistic move on the landlord’s part, but relates to a major issue, completely ignored in the Bill – rates.

Whilst business premises remain empty, without any lease in place, the burden of paying business rates falls to the landlord. Landlords are reluctant to terminate existing leases even where the tenant is not paying rent and is not in occupation because the rates liability rests with the tenant. Prospective tenants looking to bag a high street property at a local authority auction may well not be so keen on the rates liability, and nothing in the Bill suggests there will be any rates mitigation schemes for the lucky auction winners. That would definitely help the high street.

Issues around the process of getting interested parties to sign up where commercial landlords have failed aside, will local authorities seriously have the time, money or inclination for this? There are also question marks over the legality of authorities assuming the role of landlord at auction, and compelling landlords to complete new leases. This will no doubt attract much debate but it’s hard to see this provision seeing the light of day. This looks like a gimmick, not a plan.

Reforming the Electronic Communications Code in 2022

It was less than five years ago that the Electronic Communications Code (the Code) came into force, but plans for reform are already making headway, with the Product Security and Telecommunications Infrastructure Bill 2021-2022 set to become law later this year.

Some of the key changes to the Code introduced by the Bill include:

  • Enabling operators to automatically upgrade and share apparatus which was installed prior to 2017 (pre-Code), whereas under the current Code, a new agreement would have to be put in place
  • A new procedure to allow operators to have temporary rights of access to land where a landowner is unresponsive
  • Streamlining the renewal of expired telecoms agreements
  • Streamlining the timescale for court/tribunal proceedings
  • Active encouragement for alternative dispute resolution

The amendments to the Code greatly facilitate upgrades to telecoms apparatus and, in theory, these upgrades should speed up the process of finalising new telecoms agreements, a burden to both landowners and operators. It remains to be seen whether this will be true in practice and, indeed, whether it will significantly reduce the current amount of litigation. With the possible exception of less disruption caused by operators seeking to carry out upgrades to apparatus, unfortunately, the amendments offer little benefit to landowners who are already neglected under the Code. This comes with the caveat that operators are likely to upscale their operations in the coming years. There is little that can be done to oppose this, with the landowners’ sometimes useful ‘last resort’ tactic of ignoring requests from operators for site visits and new agreements in the hope that they do not want to make an application to the Tribunal, nullified by the Bill.

Crucially, the Bill does not address the prevailing issue of landowners being fairly compensated in terms of rent. Unless this changes, landowners will likely not be as excited as operators will be about the Bill, with private property rights being disregarded and rooftops filled at the expense of the fast-paced roll-out of digital infrastructure.

California appeals court affirms: State density bonus law trumps local zoning rules

On February 2, 2022, the California Court of Appeal, Fourth Appellate District, changed the status of a decision in January from unpublished to published. The decision is significant for its clear and unequivocal ruling that the California Density Bonus Law (Cal. Gov. Code, § 65915 et seq.) prevails over local zoning and land use requirements even when a proposed project violates them.

The case is Bankers Hill 150 v. City of San Diego (Jan. 7, 2022, No. D077963) ___Cal.App.5th___ (2022 Cal. App. LEXIS 83) (Bankers Hill). The proposed project was a 20-story mixed-use building with 204 dwelling units, office space, a large courtyard, and an underground parking lot. The building height was approximately 223 feet. As part of its permit application, the developer, Greystar GP II, LLC (Greystar), offered to include 18 dwelling units with deed restrictions to make them affordable to very low-income households.

As proposed, the number of dwelling units exceeded the zone’s maximum density of 147 units. The building also exceeded the City’s 15-foot setback requirement, and its height was well above the 65-foot threshold for triggering further planning review.

Nonetheless, because Greystar offered to include 18 dwelling units for very low-income households, which was 12% of the residential units, the project qualified for a density bonus under both the state’s Density Bonus Law and the City’s Affordable Housing Regulations. This allowed Greystar to increase the project from 147 dwelling units to 204 as approved by the Planning Commission and the City Council. Importantly, the City Council found that the project was consistent with the goals of the community plan, complied with applicable regulations, and helped further the community urban design element and development policies.

The trial court denied the petition for writ of mandate filed by Bankers Hill 150 and Bankers Hill/Park West Community Association (collectively, the “Association”), noting, among other things, that the petition had a “fatal flaw” by not addressing application of the Density Bonus Law.

The Density Bonus Law requires local governmental agencies to grant density bonuses and other incentives, waivers, or reductions if a developer offers to include a certain percentage of affordable housing units in its proposed project. In San Diego, for example, there is a base minimum density bonus of 20% and a maximum of 35% if a developer includes at least 5% of affordable units for very-low-income or 10% for low-income households in its project.

In addition, the law grants a developer “a reduction in site development standards or a modification of zoning code requirements or architectural design requirements that exceed the minimum building standards that results in identifiable and actual cost reductions.” This includes setbacks and height limitations. The law also requires local governmental agencies to offer a waiver or reduction of development standards that would prevent the construction of a project at the density that the Density Bonus Law would allow. For example, if the number of units with the density bonus requires a proposed building to be taller than allowed under a local zoning requirement, the requirement should be waived. The same goes for parking ratios.

There are only three limited exceptions to the Density Bonus Law that a local governmental agency may rely on: (1) there is no identifiable and actual cost reductions for a given incentive or concession; (2) the concession or incentive would have a specific, adverse impact on public health and safety or on a historic resource; and (3) the concession or incentive would be contrary to state or federal law.

In Bankers Hill, none of the exceptions applied, nor did the Association argue that they should. The Court of Appeal affirmed the trial court’s denial of the writ petition and found that “the Project was entitled to the benefits of the Density Bonus Law and the City property exercised its discretion to approve the Project.” Importantly, the court affirmed that the Density Bonus Law prevails over local development standards: “Greystar was entitled under the Density Bonus Law to a waiver of any development standard that would have the effect of physically precluding the construction of the Project at the permitted density and with the requested incentive unless the City could make the specified findings to warrant an exception from the Density Bonus Law.” (Bankers Hill, 2022 Cal.App. LEXIS 83 at *25 [emphasis added].)

The court also rejected the Association’s argument that the project’s design was dictated by the inclusion of a large courtyard. In other words, in the Association’s view, if the project did not include a large courtyard the building could have been shorter and within the setback boundary. Relying on Wollmer v. City of Berkeley (2011) 193 Cal.App.4th 1329, the court found that unless one of the statutory exceptions applies, “so long as a proposed housing development project meets the criteria of the Density Bonus Law by including the necessary affordable units, a city may not apply any development standard that would physically preclude construction of that project as designed, even if the building includes amenities beyond the bare minimum of building components.” (Id. at *28.) Quoting the Wollmer decision, the court explained that “nothing in the Density Bonus Law requires the applicant to strip the project of amenities, such as an interior courtyard, that would require a waiver of development standards. Standards may be waived that physically preclude construction of a housing development meeting the requirements for a density bonus, period. [Citation.] The statute does not say that what must be precluded is a project with no amenities, or that amenities may not be the reason a waiver is needed.” (Id. at *27.)

The request to change the status of the Bankers Hill decision from unpublished to published came from the California Building Industry Association, the Building Industry Association of the Bay Area, and Greystar. Thus, it would appear that developers would like to see this decision have statewide impact and help cut down on challenges to projects at the local level when a proposed project satisfies the requirements of the Density Bonus Law. Notably, the City of Encinas and The League of California Cities filed oppositions to the request to publish. The court’s decision to publish the decision simply stated that “the opinion meets the standards for publication specified in California Rules of Court, rule 8.1105(c).” That rule sets forth nine reasons to publish a case, including that the decision “[a]dvances a new interpretation, clarification, criticism, or construction of a provision of a … statute” and that the decision “[i]nvolves a legal issue of continuing public interest.” Whatever the reason for publication, developers and their attorneys will undoubtedly cite Bankers Hill frequently as project approvals make their way through administrative and judicial challenges.

San Francisco Board of Supervisors lengthens notice period for tenants facing evictions

An ordinance that the San Francisco Board of Supervisors passed on Jan. 25 will require landlords to give residential tenants a 10-day notice and an opportunity to cure before commencing eviction proceedings for just cause. This extends the three-day notice requirement under state law.

The 10-day notice and cure requirement will apply to just cause evictions for: (1) failure to pay rent; (2) violating a material term of the tenancy; (3) committing or allowing a nuisance that is severe, continuing, or recurring; (4) using or permitting the unit to be used for an illegal purpose; (5) refusal to execute a written extension or renewal of the lease under the same terms as previously existed; and (6) refusal to allow the landlord access to the unit as required under state or local law. If a landlord intends to evict a tenant on one of these grounds, the landlord must give written notice to the tenant that specifies the alleged violation and warns that failure to cure within 10 days may result in initiation of eviction proceedings.

The new ordinance, which amends Chapter 37 of the San Francisco Administrative Code, will not apply to evictions based on a tenant causing or creating an imminent risk of physical harm to person or property or if the landlord is seeking to recover possession based on the non-payment of rent or any other unpaid financial obligation of a tenant that came due between March 1, 2020, and March 31, 2022. This later exception relates to tenant relief under California’s COVID-19 statutes.

San Francisco’s new ordinance is more protective than the state’s eviction notice requirement under the Tenant Protection Act, California Civil Code section 1946.2. This section provides that a landlord must give a tenant a three-day notice to cure if the lease violation is curable. If the violation is not cured, the landlord may serve a three-day notice to quit the premises without opportunity to cure. In San Francisco, the new 10-day notice period would have to run without cure before a landlord could serve the three-day notice to quit.

According to the San Francisco Chronicle, the ordinance, which was passed unanimously, is expected to take effect in March after the Board takes a second vote, which is a procedural requirement, and the mayor signs it. There might, however, be a legal challenge. The Chronicle reports that a landlord group may sue to prevent the law from being implemented. Presumably, the challenge would be based on state-law preemption.

UK Government extends moratorium on commercial evictions to March 2022

In a move which has shocked the property industry, the government has extended the ban on commercial lease forfeiture again, this time for a further nine months to 25 March 2022. Commercial Rent Arrears Recovery is similarly deferred, with tenants having to have built up 554 days of unpaid rent before landlords are able to take bailiff action.

A new scheme has also been introduced to support businesses affected by Covid closures, intended to “ringfence” rent arrears built up during the periods of enforced closure due to the pandemic. Under the scheme, disputes between landlords and tenants will be subject to a binding arbitration process before taking the matter to court. This boat will largely have sailed by now, with many landlords and tenants having either made their own agreements or proceedings having been issued in line with current requirements.

Regulations are also set to be introduced extending restrictions on the issue of statutory demands and winding up petitions where debts relate to the pandemic for a further three months, until 30 September 2021. In reality, the ability to pursue insolvency action is more valuable to the majority of landlords than the ability to forfeit. Whether this deadline will be pushed out again is yet to be seen.

You can read the government’s full press release here: https://bit.ly/2SE3BZS

Regis CVA revoked on a technicality – Good news for landlords?

Hair salon chain Regis’s company voluntary arrangement (CVA) was revoked on 17 May in a hearing that considered several arguments put forward by a number of landlords. The judge found that one of the creditors had been incorrectly categorised by the nominees as critical, and that this treatment unfairly prejudiced the landlords. On that ground alone, the court revoked the CVA, but the court rejected all of the landlords’ other arguments, which were similar to those presented in the challenge to New Look’s CVA.

Property owners will be reassured to see that the courts are prepared to closely scrutinise the decisions taken by nominees. In truth however, this isn’t a victory for landlords as a class of creditor. The CVA deck remains firmly stacked against landlords, and this revocation represents a win on a technicality rather than the start of a shift in the balance of power.
It is interesting to see the courts revoke the CVA on the grounds of unfair prejudice, however, as this is one of the first times we’ve seen such a challenge succeed. This is more a reflection of the peculiarities of the Regis CVA, where one creditor had wrongly been treated as critical, than the start of a wave of successful challenges. Landlords should avoid getting too excited
The landlords made the usual arguments to challenge a CVA, including the lack of weighting given to their votes, but the court rejected them once again. Aside from the faintest glimmer of good news, it is unfortunately business as usual for landlords. When it comes to revoking CVAs, the floodgates look set to remain firmly shut.

Given the judgments we’ve seen over the past year, a win in the landlord column stands out in the sector, but does little to balance the scales. One ray of sunshine isn’t enough to pierce the storm clouds still hanging over the heads of UK commercial property owners.

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