SF Apartment : November 2016

FEATURE

The ABCs of ADUs

“It wasn’t that long ago that the city had a schizophrenic attitude about illegal units. Since these units always provided some of the least expensive housing due to their being smaller and not positioned to have as much natural light as other units, the city would not go out to find them and would only act on complaints. With the housing shortage, however, the city has changed its position. This article concerns two ways in which it is harder to get rid of small accessory units, illegal or not, and details the fine print of the new ADU ordinance.

Legal- and Illegal-Unit Removal
Under a new law effective March 2016, conditional use approval by the Planning Commission is now required for the removal of most housing units even if the unit is illegal. Under the former law, conditional use approval was required only for removal of legal units, and only if they existed in certain zoning districts, or if three or more units were proposed for removal.

For units that are discovered to be illegal, the Building Department will now issue a Notice of Violation as before, but will also order the property owner to file a building permit application to legalize the unauthorized unit, unless it can be shown it is “infeasible” to do so under the Building Code, or a serious and imminent hazard exists on the property due to the illegal unit.

A property owner is now required to obtain a building permit to legalize the unit unless the removal is proven to be “infeasible.” The term “infeasible” has not been clearly defined as of yet. But certainly an inability to provide even one window in a bedroom, or to provide the Building Code required ceiling height, would be good examples of infeasibility. The need to spend a considerable amount of money would not generally show infeasibility. The Building Department is the agency that will decide.

Exceptions that used to allow Planning Department staff to approve the removal of a unit without a hearing also have been narrowed under the new ordinance. Approval of the removal of a unit without a Planning Commission hearing is now permitted only if the property owner can prove the illegal unit cannot be legalized (see above) or if the owner can show the unit is “unaffordable,” which means it has a value of $1,630,000 or higher. (The least expensive unit must meet the threshold, regardless of the number of units in the building.) Under the new law, the approval for removal of these “unaffordable units” is limited to properties in single-family zoning districts.

Decisions made by the Planning Commission on Conditional Use Applications may be appealed to the Board of Supervisors.

The law is yet another device that the city is starting to use to reduce the number of residential tenant evictions in the city. Proponents of the new ordinance point out that illegal units often are occupied by tenants at below market rents who, after evictions, are typically unable to find replacement housing at the same rental rate. They conclude that restricting the removal of units will protect the less expensive housing stock. Although illegal units tend to be at lower rents, those who promote the now-required legalization should keep in mind that once an owner pays the city fees, building code upgrades, and consultant fees to legalize units, rent may have to be raised.

Those who are in favor of producing badly needed new housing have concerns about the ordinance’s impact on the production of new housing by slowing down removal of housing for construction of a higher number of housing units. Most importantly, even though the city may force an owner to legalize a unit, it cannot require that owner to rent it out.

Infill In-Law Units to Boost Housing Inventory
In late July of this year, the Board of Supervisors expanded authorization for in-law units, also known as accessory dwelling units (ADUs), allowing ADUs to be built on all lots in the city that allow residential use.

Prior to this new law, only buildings in District 3, District 8, and buildings undergoing seismic retrofitting were allowed to create ADUs. The ordinance expands the areas of the city that may benefit from ADUs to all zoning districts. Buildings that have four or fewer legal dwelling units may now add one ADU; buildings with more than four existing dwelling units may add any number of ADUs. ADUs will not be allowed in any building in which a tenant has been evicted, pursuant to Administrative Code Section 37.9(a)(9)-(a)(14) within 10 years or, under Administrative Code Section 37.9(8), within five years.

Some districts have stricter requirements than others; for example, RH-1 (D) districts. Most Neighborhood Commercial Districts and other non-residential districts such as the Chinatown Business Development and Chinatown Visitor Retail District will now allow ADUs, as long as they are not placed in a location that would reduce or eliminate ground floor retail or commercial uses.

Under the new law, ADUs can only be built within the building envelope of the existing building (or an authorized auxiliary structure on the same lot), and either of these two kinds of structures must have existed three years prior to the date that a building permit is filed to construct the ADU. The building envelope is generously defined to include certain decks, open areas under a cantilevered room, and light-well infills, with certain restrictions. There is a requirement of neighborhood notice under Planning Code Section 311 or 312 for ADUs in these types of spaces, meaning those in opposition will have a chance to request a Discretionary Review hearing at the Planning Commission.

Building an ADU comes with certain restrictions. ADUs:

• are subject to rent control and not subject to Costa-Hawkins (meaning the initial and subsequent rent levels can be limited by the city);
• cannot be used for short term rentals, such as Airbnb;
• cannot go through condo conversion (exceptions exist for: (1) a building that already has condominiums and where there have been no evictions for 10 years;
• and (2) a building where the ADU was created under the seismic retrofit program);
• cannot merge with existing dwellings
• cannot reduce the size of an existing unit to create an ADU.

In many buildings, especially older buildings, ADUs can only be built if the city waives Planning Code requirements, such as parking or minimum open space. This waiver process may be simpler than the typical waiver process, a Variance. But if the city waives such Code requirements, provides financial assistance, or grants a density bonus through the State Housing Density Bonus law (Gov. Code Section 65915 et seq.), the property owner must execute a Regulatory Agreement drafted and signed by the city. This Agreement will make the rent restrictions enforceable and must be recorded to bind future owners of the same property. The city Attorney must approve the agreement and once recorded, the city may sue for a breach of its terms. Entering into such an agreement takes time and an owner will want his or her attorney to help prepare this agreement, or review the city Attorney’s proposed draft of one.

The city should now be able to boost housing inventory by allowing ADUs in locations never before allowed. However, this is a program that will require careful consideration by property owners before proceeding due to the numerous restrictions imposed.

The information within this article is general in nature. Consult an attorney for any specific problem. M. Brett Gladstone is a partner at Hanson Bridgett, LLP, where he leads the land use law group. He can be reached at 415-777-3200. Melissa Vancrum is an attorney at Hanson Bridgett LLP who focuses her practice on land use, environmental and real estate transactions representing developers and property owners to resolve a wide variety of issues including analyzing development potential, obtaining entitlements, resolving enforcement issues and permit disputes and advising clients on regulatory compliance. She can be reached at 415-995-5128.