Real Property Law
Real Property Legislation: A 2021 Update
By Robert McCormick and Michael Maurer
When the 2020 session of the California State Legislature opened on January 6, 2020, the Democratic Party held a veritable governmental “trifecta” with veto-proof supermajorities in the California State Senate and State Assembly and with Governor Gavin Newsom occupying the governor’s office. With this one-party hegemony in place, the stage was set for the Legislature to undertake major progressive actions to address California’s most chronic political problems, including the affordable housing shortage, homelessness, and the increasing poverty rate. Then the COVID-19 pandemic overwhelmed the State, resulting in a suspension of the legislative session from March 16, 2020 until May 4, 2020. One effect of this crisis was to refocus the Legislature’s attention away from the traditional progressive agenda and onto enacting measures intended to ameliorate the crippling effects of the pandemic-induced economic shutdown and to counteract the spread of COVID-19. Consequently, when the 2020 session ended on August 31, 2020, several progressive bills that had been considered high priority at the start of the session remained unfinished. Affordable housing is one example of this refocusing with only a few housing bills making it past the finish line while the Legislature focused instead on the pending eviction crisis by enacting the COVID-19 Tenant Relief Act of 2020 (Assembly Bill (AB) 3088), which is reviewed in Section VIII Landlord/Tenant. Despite the change in focus, some housing legislation did get enacted that may be of assistance to residential developers, including an increase in density bonuses for affordable projects (AB 2345), some streamlining of approval processes (AB 831 and AB 168), and an extension of certain housing entitlements (AB 1561), all of which are reviewed in Sections IV Density Bonus, V Environment, and VII Housing. One crisis that did compete with COVID-19 for attention was the wildfire crisis. The 2020 wildfire season set a new record as the largest in California’s modern history. The Legislature’s responses intended to address this alarming development are reviewed in Sections IX Property Insurance and XII Wildfires. Also of major significance are the changes in property tax exemptions and the homestead exemption reviewed in Sections X Property Taxes and VI Homestead. Overall, the 2020 legislative session will serve as a reminder of how crisis events can re-shape the legislative landscape and dominate existing political agendas. This legislative review selectively focuses on laws enacted in 2020 that the authors believe are the most significant for real property law practitioners. It does not, therefore, cover every real-property-related law enacted in 2020. In particular, this review does not cover new laws that affect only a specific locality or that are primarily revenue raising or funding measures. This article also provides only summary references to the text of the bills selected for comment. Practitioners should always review the actual chaptered versions, including specific references to the statutory provisions, rather than rely solely on the summaries in this article. The Legislature’s website provides copies of these bills at http://leginfo.legislature.ca.gov under “Bill Information” for Session Year 2019-2020. Unless otherwise noted, all laws discussed became operative on January 1, 2021.
A. Assembly Bill 3254 (Limón): Contracts; Translations Amends Civil Code Section 1632. AB 3254 modifies the existing requirement that a person engaged in a trade or business who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing, shall in the course of entering into specified consumer contracts, deliver to the other party to the contract or agreement before the execution thereof, a translation of the contract or agreement in the language in which the contract or agreement was negotiated. AB 3254 adds to this requirement the delivery of the translation not only to the parties to the contract, but also to any other person who will be signing the contract or agreement such as a co-signer. See also AB 2471 (Maienschein) discussed in Section XI.B below regarding rescission of contracts by senior citizens.
A. Senate Bill 1305 (Roth): Revocable Transfer on Death Deeds Amends Probate Code Section 5600. In 2015, the Legislature enacted AB 139 (Gatto, ch. 293), which established a five-year pilot program that allowed owners of real property, until January 1, 2021, to transfer their property upon death, outside the normal probate procedure, through a written instrument known as a “revocable transfer on death deed.” Because of concerns about possible misuse of this transfer vehicle, the Legislature directed the California Law Revision Commission (CLRC) to study the consequences of this pilot program and to report back to the Legislature by January 1, 2020. The report was issued in November 2019. However, the COVID-19 pandemic interrupted the Legislature’s focus on this issue. The purpose of SB 1305 is to provide the Legislature with more time to consider the issue by extending the January 1, 2021 sunset for one additional year, until January 1, 2022.
IV. Density Bonus
A. Assembly Bill 2345 (Gonzalez): Planning and Zoning; Density Bonuses; Annual Report; Affordable Housing Amends Government Code Sections 65400 and 65915. The density bonus law is a well-established program that encourages otherwise market rate developers to reserve some housing units for low-income occupants, in exchange for increased density and other development incentives and concessions. While the goal of the density bonus concept is to increase affordable housing stock, the program has come under criticism during the housing crisis for having limited impacts on actual affordable housing development. The criticism centers on the fact that a developer need only develop a relatively small amount of affordable units to receive the density bonus. Prior law only required 10% lower income units or 5% very low income units to qualify, with some enhancements to get up to a maximum 35% density. Thus, developers can create projects that are nearly all market rate while receiving higher than normal density. The Planning and Zoning Law requires the planning agency of a city or county to provide by April 1 of each year an annual report to, among other entities, the Department of Housing and Community Development that includes, among other specified information, the number of net new units of housing that have been issued a completed entitlement, a building permit, or a certificate of occupancy, thus far in the housing element cycle, as provided. This bill would require that the annual report include specified information regarding density bonuses granted in accordance with specified law. AB 2345 establishes an enhanced density bonus program that follows a model that the City of San Diego previously implemented. The City of San Diego noted a significant increase in the density bonus applications that it received after implementing the program. The primary change is that developers will be entitled to up to a 50% density bonus based on the number and type of income-restricted units. For example, 15% very low income, 24% low income, or 44% moderate income units can qualify for a maximum density bonus. AB 2345 builds on the concept from last year’s AB 1763 (Chiu), which established an 80% density bonus for 100% affordable developments. Whereas AB 1763 excluded the density bonus units from the 100% affordability calculus, AB 2345 now includes all units (except a management unit) within the 100% affordability restrictions. The American Planning Association opposed the bill on the grounds that the bill did not require enough affordable units relative to the increase in allowable density, and the California State Association of Counties also registered its opposition. The League of California Cities maintained a “watch” position concerning the bill but no cities lodged a formal opposition. Given that AB 2345 adopts a program that was initially developed and successfully “test-run” by a city, perhaps the lack of opposition is unsurprising.
A. Assembly Bill 168 (Aguiar-Curry): Planning and Zoning; Annual Report; Housing Development; Streamlined Approvals Amends Government Code Sections 65400, 65913.4, and 65941.1. AB 168 preserves California Native American tribes’ rights to consult on development projects even where the project is subject to a ministerial streamlined approval process. AB 168 is an effort to reconcile two recently adopted but potentially conflicting policies. In 2014, the Legislature adopted AB 52, which revised CEQA to acknowledge that an adverse change to a tribal cultural resource may result in significant environmental effects. AB 52 allows any California Native American tribe that is traditionally and culturally affiliated with the geographic area of a project to request a consultation that must occur prior to the release of the environmental impact report or (mitigated) negative declaration. Three years later, in 2017, the Legislature adopted SB 35, which mandates a ministerial streamlined approval process for certain multi-family development projects. Because the SB 35 process is ministerial, projects that are subject to streamlining under this statute are not subject to CEQA, and there is no tribal consultation process. AB 168 bridges this gap. The bill requires local government agencies to notify California Native American tribes that are traditionally and culturally affiliated with the area of any SB 35 streamlining applications. The California Native American tribe may then request a scoping consultation related to the project’s impact on tribal cultural resources. The California Native American tribe, the developer, and the local agency can then agree that the project would not affect tribal cultural resources or can agree to mitigation measures. If the parties cannot reach an agreement, then the project will not be subject to streamlined approval and will instead require CEQA review. B. Senate Bill 288 (Wiener): California Environmental Quality Act; Exemptions; Transportation-Related Projects Amends Public Resources Code Section 21080.20. Adds and repeals Public Resources Code Section 21080.25. SB 288 creates a statutory exemption from CEQA for several categories of public transportation projects. The bill’s goal is to streamline the post-pandemic creation of environmentally-friendly transit projects by, ironically, eliminating environmental review of such projects. In broad terms, the exemptions apply to pedestrian and bicycle facilities, wayfinding for transit riders, transit prioritization projects, conversions to bus-only lanes on highways, new bus or light rail services, refueling infrastructure for zero-emission buses, and projects to reduce minimum parking requirements. In practice, the impact of SB 288 on environmental review may be relatively minor. The Senate’s analysis estimates that approximately 90% of such projects are delivered through one of the “categorical exemptions” listed under CEQA. This makes sense, given that these types of projects tend to reduce carbon emissions or congestion or both. However, categorical exemptions are subject to exceptions, and therefore still contain some uncertainty as to whether environmental review is needed. Without certainty, disputes over the need for environmental review lead to litigation that costs both time and money. The statutory exemptions provide more certainty. The Senate’s analysis notes that exempting projects from CEQA can expedite project delivery by anywhere from six months to four years. The exemptions only apply to projects being carried out by public agencies, and the bill contains additional requirements for projects that are over $100,000,000 in scope.
A. Assembly Bill 1885 (Committee on Budget): Debtor Exemptions; Homestead Exemption Amends Code of Civil Procedure Section 704.730. AB 885 modifies prior law regarding the homestead exemption that specifies a portion of equity in a homestead, as defined, is exempt from execution to satisfy a judgment debt. AB 1885 eliminates the prior existing tiered exemptions that set the amount of the homestead exemption at either $75,000, $100,000, or $175,000, depending on certain characteristics of the homestead’s residents, and instead establishes a value-based homestead exemption that is the greater of $300,000 or the countywide median sale price of a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed $600,000. These amounts adjust annually for inflation. AB 1885 not only greatly increases the minimum amount homeowners can use to protect their primary residence, but also provides greater relief for residents of higher priced counties like those in the San Francisco Bay or Los Angeles areas. B. Assembly Bill 2463 (Wicks): Enforcement of Money Judgments; Execution; Homestead Amends Code of Civil Procedure Sections 703.150 and 704.760. Adds Code of Civil Procedure Section 699.730. AB 2463 is intended to prevent creditors from transforming common unsecured debts into instruments to force the sale of debtors’ homes, which is a highly sensitive issue given California’s ongoing housing crisis and the historic amount of unpaid consumer debt accruing as a result of the current COVID-19 epidemic. In particular, AB 2463 prohibits a court-ordered sale of a judgment debtor’s principal place of residence in order to satisfy a judgment lien if the underlying judgment was based on a consumer debt, other than a debt secured by the debtor’s principal place of residence when it was incurred. It defines “consumer debt” as debt incurred by an individual primarily for personal, family, or household purposes and excludes from the definition of “consumer debt” any obligations arising out of (a) wages or employment benefits; (b) taxes; (c) child support; (d) spousal support; (e) fines and fees owed to governmental units; (f) tort judgments; and (g) debts greater than $75,000, both when incurred and at the time the sale of the house is sought, other than student loans, that are currently owed to a financial institution. The $75,000 threshold is subject to adjustment for inflation by the Judicial Council. Finally, AB 2463 requires a judgment creditor, when applying to a court for sale of a judgment debtor’s dwelling, to swear under oath either that the underlying judgment was not for a consumer debt, or if for a consumer debt, which exclusion is applicable.
A. Assembly Bill 725 (Wicks): General Plans; Housing Element; Moderate-Income and Above Moderate-Income Housing; Suburban and Metropolitan Jurisdictions Amends Government Code Section 65583.2. Each city and county is required to prepare a Housing Element within its General Plan that identifies sites to meet its share of the housing need for its region. Housing Elements must plan for sites at various income levels based on the need at that level. AB 725 goes a step beyond simply identifying sites meeting housing needs; it requires that a certain percentage of those sites be zoned for multi-family housing. Beginning January 1, 2022, metropolitan cities (not counties) will have to zone at least 25% of their moderate and above moderate housing to sites with zoning that allows at least four units of housing. For moderate, it must be zoned at less than 100 units per acre. The intent of AB 725 is to encourage more development in the “missing middle.” That is, development that is not single family residential or mid- or high-rise construction. The idea is that most housing is too expensive to develop; single family residential is a supposedly inefficient use of land, while mid-rise buildings have a higher cost to construct. The goal is to encourage more fourplexes, garden apartments, town homes, and similar housing stock with similar construction costs to single family homes but with more units per square foot. Even though several cities will not be subject to AB 725’s requirements, the bill seems to be a one-size-fits-all approach that does not necessarily take into account local conditions or housing markets. It will only apply to cities with populations above 25,000 that are in a metropolitan statistical area with a population of 2,000,000 or greater. But this still encompasses many cities that might not be suitable for, or have demand for, these types of housing. B. Assembly Bill 831 (Grayson): Planning and Zoning; Housing; Development Application Modifications Amends Government Code Section 65913.4. AB 831 is clean-up legislation for Senator Wiener’s SB 35, adopted in 2017. SB 35 provides a ministerial streamlined approval process for certain multi-family housing and mixed-use projects. Because SB 35 provides a ministerial process, local jurisdictions do not have discretion to deny such projects. As developers have begun to apply for project approvals through cities’ SB 35 streamlining procedures, various questions and problems with the procedures have begun to arise. AB 831 attempts to clarify three of these issues. First, the bill essentially provides developers with a vested right to develop in accordance with design standards in place at the time of an initial application, even if the project changes or if the design standards are modified after the time of initial application. Under the general rule that the Supreme Court established in Avco Community Developers, Inc. v. South Coast Regional Commission,1 vested rights do not accrue until a developer has performed substantial work and incurred substantial liabilities in good faith reliance upon a permit issued by the government, and then the developer acquires a vested right to complete construction in accordance with the terms of the permit. However, under AB 831, a developer may continue to apply outdated design standards so long as the project does not increase the square footage or number of units by more than 15% (or 5% if there are specific adverse health or safety impacts). Second, AB 831 clarifies the requirement that two-thirds of a mixed-use project be for residential use to qualify for streamlining. This clarification is in response to a court case that found that streamlining only applies if the zoning for the site designates the site as two-thirds residential. Per AB 831, streamlining applies if the actual project is two-thirds residential. Third, SB 35 streamlining does not exempt developers from constructing off-site improvements needed to support a housing or mixed-use project. In response to allegations that local governments delay approvals of off-site improvements to delay SB 35 projects, AB 831 requires that local governments must approve off-site improvements in a manner that does not inhibit, chill, or preclude the project. The intent of SB 35 is to circumvent local discretionary land use authority and environmental review, potentially to the detriment of communities. That SB 35 would lead to conflicts between developers and local communities is predictable. It will be a shame if AB 831 simply leads to more litigation over design standards and off-site improvements. C. Assembly Bill 1561 (Garcia): Planning and Zoning; Housing Element and Entitlement Extensions Amends Government Code Section 65583. Adds Government Code Section 65914.5. AB 1561 extends for eighteen months any housing entitlement that was in effect prior to the start of the pandemic (i.e., March 4, 2020) and otherwise set to expire before the end of 2021. The bill is fairly comprehensive and applies to any permit or other entitlement related to a housing development project issued by a state agency or issued by a local agency and subject to the Permit Streamlining Act. The bill does not apply where a local agency has, on its own initiative, extended housing entitlements by at least eighteen months. Unsurprisingly, no one submitted an argument in opposition to AB 1561, and the bill passed unanimously. D. Assembly Bill 1851 (Wicks): Religious Institution-Affiliated Housing Development Projects; Parking Requirements Adds Government Code Section 65913.6. AB 1851 restricts local land use control to enable the construction of housing on property owned by religious institutions. The bill prohibits local jurisdictions from denying housing projects solely on the basis that the project would eliminate religious-use parking spaces. The idea behind AB 1851 is that religious institutions may be required to have a significant number of parking spaces, but those spaces remain empty most of the week when worship services are not occurring. Religious institutions may instead redevelop parking areas for housing, provided that the total reduction of parking at the place of worship does not exceed 50%. The remaining parking, however, must count toward the parking requirements of the housing development as long as it is sufficient to provide one parking space per unit (except if located within a half-mile walking distance of public transit, in which case the one-space-per-unit rule does not apply and the remaining religious use parking spaces may apply to the housing development’s parking requirements). AB 1851 only concerns parking requirements for such projects and does not otherwise require approval of housing on religious sites. While it makes sense to repurpose seldom-used parking spaces in the abstract, AB 1851 does not address where parishioners (or new housing residents) will park when spaces are needed. It does not take a crystal ball to see that this bill is going to lead to disputes between redeveloping churches and their surrounding neighbors. Litigation as to whether AB 1851 can constitutionally provide special development rights based on religious affiliation unfortunately seems inevitable. E. Assembly Bill 3308 (Gabriel): School Districts; Employee Housing Amends Health and Safety Code Sections 53571, 53572, and 53574. AB 3308 presents an interesting policy question: should government-subsidized housing be constructed for the benefit of distinct and limited groups? In this particular case, AB 3308 allows for government-subsidized housing to be restricted specifically for teachers and other school employees. While this targets housing support to a limited group—and the housing crisis affects many who are not teachers or school district employees—it also leverages opportunities for school districts to construct housing to support their members. More specifically, AB 3308 enables the use of federal low-income housing tax credits (or “LIHTC”) to finance housing that is restricted to school district employees. In general, the LIHTC program requires that housing units constructed with LIHTC financing be made available to the general public, subject only to income restrictions. But the federal program allows for states to establish policies or programs to support housing for specified groups. Thus, by enacting AB 3308, school districts can partner with developers to construct housing for teachers and other school employees that is financed by the sale of low-income housing tax credits. From a housing policy standpoint, the establishment of a state program supporting housing for teachers potentially creates opportunities to leverage federal funds with local programs designed to address particular housing needs. Even though such housing is not available to the general public, by bringing in new partners in housing creation, the program may result in the construction of more affordable housing. F. Senate Bill 1030 (Committee on Housing): Housing Amends Government Code Sections 54221, 54230, 65583.2, 65589.5, 65655, 65852.2, and 65941.1. Amends Health and Safety Code Sections 17980.12 and 34120.5. Amends Welfare and Institutions Code Sections 5849.7, 5849.8, and 5849.9. SB 1030 is essentially a “clean up” bill that makes minor clarifications to the Housing Accountability Act and other housing laws. The most significant clarification is to the definition of when an application is “deemed complete” for purposes of the Housing Accountability Act. In 2019, the Legislature adopted SB 330, which established a procedure for housing developers to submit a preliminary application for housing projects, containing certain specified information. Upon the preliminary application being “deemed complete,” the developer obtained a right to construct the project in accordance with the local rules and standards in place at the time the preliminary application was submitted. SB 330 still requires that the developer then submit a full application. Without using the term “vested right,” SB 330 resulted in a massive change in how development rights vest. However, it left open the question as to whether development rights still vest if a developer only submits a full application without ever submitting a preliminary application. SB 1030 indicates that an application is “deemed complete”—and rights to develop therefore vest—upon submission of either a complete preliminary application or full application.
A. Assembly Bill 2782 (Mark Stone): Mobile Home Parks; Change of Use; Rent Control Amends Civil Code Section 798.56. Amends and repeals Civil Code Section 798.17. Amends Government Code Sections 65863.7 and 66427.4. Mobile homes provide a significant source of affordable housing stock in California. The legislative history of AB 2782 indicates that approximately 700,000 Californians live in mobile homes. In most cases, mobile homes are located within mobile home parks, where the mobile home park owns the underlying land and leases spaces to the residents. The residents own the actual mobile homes but must pay rent to the park for the space. As the Assembly’s analysis notes, the term “mobile” home is somewhat of a misnomer; units cannot be easily relocated. This scenario essentially puts the mobile homeowners—who are invested in their units—at the mercy of the mobile home park’s ability to increase rent or repurpose the land. For this reason, state law protects mobile homeowners by requiring a process for the conversion of the mobile home park and allowing local rent control over mobile home spaces. In light of the current housing crisis and increase in real estate value, AB 2782 enhances these protections. First, AB 2782 puts additional restrictions on conversions, most notably by imposing a mandatory duty on local governments to deny a conversion of a mobile home park to a different use if the conversion will result in a shortage of affordable housing in the jurisdiction. Given that the affordable housing crisis affects much of the state, the impact of this law could be far-reaching. Additionally, even where a park owner may proceed with a conversion, AB 2782 will require the park owner to compensate mobile homeowners who are unable to relocate their units. Second, AB 2782 removes an existing exception to mobile home rent control. Under previous law, mobile home parks were exempt from local rent control for leases that are longer than one year, with certain other conditions. Now, long-term leases are also subject to local rent control. The housing crisis is commonly framed as a need to create more affordable housing units. But perhaps equally, if not more important, is the preservation of existing housing stock that is currently providing livable units at affordable levels. AB 2782 aims to preserve one such source from market forces that may incentivize the conversion of mobile home parks to less-affordable housing or other uses. B. Assembly Bill 3088 (Chiu): Tenancy; Rental Payment Default; Mortgage Forbearance; State of Emergency; COVID-19 Amends Civil Code Sections 1946.2, 1947.12, and 1947.13. Amends, repeals, and adds Civil Code Sections 798.56, 1942.5, and 2924.15. Adds Civil Code Title 19 (commencing with Section 3273.01). Adds and repeals Civil Code Section 789.4. Amends, repeals, and adds Code of Civil Procedure Sections 1161 and 1161.2. Adds Code of Civil Procedure Section 1161.2.5. Adds and repeals Code of Civil Procedure Section 116.223. Adds and repeals Code of Civil Procedure Title 3, Chapter 5 (commencing with Section 1179.01).2 AB 3088, known as the COVID-19 Tenant Relief Act of 2020, is the Legislature’s moratorium on evictions that are caused by COVID-19-related hardships. AB 3088 provided a temporary moratorium on evictions until January 31, 2021. However, on January 29, 2021, the Governor signed SB 91, which extended the AB 3088 protections until July 1, 2021. The bill prohibits landlords from evicting residential tenants for failure to pay rent between March 1 and August 31, 2020, so long as the tenant provides the landlord with a written declaration of a COVID-19-related hardship. For the period of September 1, 2020 through January 31, 2021 (now July 1, 2021), landlords cannot evict tenants that pay at least 25 percent of the rent due if the tenant submits a written declaration of hardship. Tenants with a household income of at least $100,000 per year, or 130 percent of the median household income, may be asked to submit additional documentation to support their hardship declaration. Notably, AB 3088 does not require that landlords forgive any rent that was otherwise due during the applicable period. The moratorium only prevents landlords from filing unlawful detainer actions to recover possession from their tenants. Unpaid rent must eventually be paid. AB 3088 allowed landlords to begin collecting back rent on March 1, 2021; under SB 91, the date is extended to July 1, 2021. However, to avoid evictions, tenants only need to pay back 25% of the back rent due, with the remaining rent not needing to be paid until 2025. AB 3088 and SB 91 allow for landlords to institute actions in small claims court to recover COVID-19-related rental debts starting on August 1, 2021. SB 91 also appropriates federal funding for a statewide rental assistance program. Of note, the program will enable qualifying households to have their COVID-19-related rental debts paid off, provided that the landlord agrees to forgive 20% of the debt amount. Neither AB 3088 nor SB 91 restrict evictions or affect debts related to commercial tenancies. However, in light of the economic effects of the pandemic, many local agencies may have enacted their own eviction rules related to residential and/or commercial tenancies. AB 3088 and SB 91 do not preempt such local regulations. C. Assembly Bill 3182 (Ting): Housing; Governing Documents; Rental or Leasing of Separate Interests; Accessory Dwelling Units Amends Civil Code Section 4740. Adds Civil Code Section 4741. Amends Government Code Section 65852.2. AB 3182 prohibits common interest developments (“CIDs”) from enforcing restrictions that prohibit the rental of units. In 2011, the Legislature enacted SB 150, which prohibited all newly-formed CIDs from including owner-occupancy restrictions. SB 150, however, did not void pre-existing owner-occupancy restrictions. AB 3182 now makes all such restrictions unenforceable. However, AB 3182 does provide an exception allowing 25% or less of the separate interests of a CID to be subject to owner-occupied restrictions. According to the Assembly analysis, this exception is to enable federal housing programs that require owner-occupancy. Each CID must update its governing documents to be consistent with AB 3182 by the end of 2021. The bill also makes some changes to laws relating to accessory dwelling units or “ADUs.” Most notably, it requires ministerial approval of an application for an ADU and—as opposed to “or”—a junior ADU per lot with an existing, or proposed, single-family dwelling. A “junior ADU” is an accessory dwelling that is no more than 500 square feet and within the footprint of a single-family residence. The law previously required that local governments approve ministerial applications for ADUs and junior ADUs within sixty days. AB 3182 makes such applications “deemed approved” if the local government does not act within this timeframe. While these are fairly minor tweaks to the existing law governing ADUs, AB 3182 represents a continued legislative push away from local governmental control over residential density. D. Assembly Bill 3364 (Committee on Judiciary): Judiciary Omnibus Among other things, amends Business and Professions Code Sections 21701, 21703, and 21705. Amends, repeals, and adds Business and Professions Code Section 21712. AB 3364 enacts numerous non-controversial technical changes to several of the California codes as part of the judiciary omnibus bill, including, among other things, the removal of the January 1, 2012 sunset date for the sending of preliminary lien notices by electronic mail under the California Self-Service Storage Facility Act, which specifies remedies and procedures for self-service storage facility owners when occupants are delinquent in paying rent or other charges. In addition, AB 3364 allows a facility owner to demonstrate actual delivery and receipt of documents by transmitting the document to the occupant through an application on an internet website, rather than an application on a personal electronic device, or by the occupant acknowledging receipt by replying to the electronic mail communication. However, this new method for delivery of documents has a sunset date of January 1, 2023. E. Senate Bill 1157 (Bradford): Tenancy; Credit Reporting; Lower Income Households Adds and repeals Civil Code Section 1954.06. SB 1157 requires landlords to offer credit reporting to tenants in assisted housing developments, defined as multi-family residential rental developments that receive assistance from specified federal housing programs. Landlords must offer credit reporting to tenants at the time of lease agreements entered on and after July 1, 2021. For leases that pre-date July 1, 2021, landlords must offer credit reporting by October 2, 2021. The offer must be made annually thereafter. Landlords may impose a $10 monthly charge for the costs of credit reporting but cannot terminate the tenancy for failure to pay the charge. The bill contains an exemption for small landlords who own assisted housing developments consisting of ten units or less, provided that the landlord only owns one housing development and is not a corporation, a real estate trust, or a limited liability company with a corporate member. The purpose of the bill is to provide an opportunity to tenants to build a credit history without having to take on debt. The lack of a credit history can shut many people out of potential economic opportunities, who may turn to high-interest options such as credit cards and payday loans. The bill sunsets July 1, 2025. F. Senate Bill 1190 (Durazo): Tenancy; Termination Amends Civil Code Section 1946.7. SB 1190 allows a tenant who is the victim of certain violent crimes to terminate the tenancy without penalty. Existing law allowed for termination of tenancy where the tenant was the victim of certain crimes, to wit: domestic violence, stalking, human trafficking, or abuse of an elder or dependent adult. This bill expands the termination right to also include any crime that caused bodily injury or death; any crime that included the exhibition, drawing, brandishing, or use of a firearm or other deadly weapon or instrument; and any crime that included the use of force or threat of force against the tenant. SB 1190 also expands the right to terminate if such crimes are committed against an immediate family member. The purpose of the law is clear—victims of such crimes may need to promptly relocate to find safety and avoid further violence, as well as to handle the potential emotional trauma. The financial ramifications of breaking a lease may be a barrier to relocating. While the bill shifts some economic burdens onto landlords, opposition to the bill focused on the documentation aspects. Under the prior law, tenants had to produce a restraining or protective order, a police report, or other specified documentation along with their termination notice to show proof of a right to terminate. SB 1190 changes this rule to allow for “any other form of documentation that reasonably verifies that the crime or act” occurred. Understandably, this could create some challenges for well-intentioned landlords to determine whether documentation is sufficient.
IX. Property Insurance
A. Assembly Bill 2756 (Limón): Residential Property Insurance Amends Insurance Code Sections 678, 10102, and 10103. Adds Insurance Code Section 10103.6. AB 2756 is intended to address certain notice problems that have arisen due to changing practices of insurance companies in response to the increasing losses suffered from wildfire claims. As part of this adjustment to the changing wildfire risk in certain areas of the state, some residential property insurers have reduced their fire risk exposure by issuing what is called a difference in conditions policy that does not protect the home against fire damage. This type of policy is actually a wrap-around policy that when paired with a separate fire policy, such as a FAIR Plan policy, gives the homeowner the equivalent coverage provided under the standard comprehensive homeowners’ policy. The problem with this approach is that the notice insurance carriers must provide to policyholders when an insurer offers to renew the policy often does not clearly inform the policyholder of the reduction in coverage and the need for a supplemental policy. Specifically after July 1, 2021, AB 2756 (i) requires an offer of a new policy or renewal of a homeowners’ existing insurance policy that does not cover the peril of fire to prominently disclose that fact in a statement on the declarations page of the insurance policy and include information on the California FAIR Plan and the California Home Insurance Finder; (ii) requires the insurer, in the case of eliminating the peril of fire from a policy, to obtain a signed statement from the policyholder acknowledging that fact; (iii) allows up to sixty days for the insurer to obtain the signed acknowledgement if the policyholder does not sign at policy inception; (iv) requires that any reduction or elimination of coverage or limits be accompanied by a specific description of the reduction or elimination; and (v) requires that a notice of nonrenewal include in the notice the “specific” reason for a nonrenewal. The goal of these enhanced notices is to ensure that policyholders in high-risk wildfire areas of the state who are increasingly facing non-renewals and reductions of coverage are clearly made aware of the actions their insurer is taking. Also, with respect to policies of residential property insurance issued or renewed after July 1, 2021 that provide replacement cost coverage, AB 2756 requires such coverage include additional building code upgrade coverage of no less than 10% of the dwelling coverage policy limits. AB 2756 also includes various other requirements regarding the scope of the building code upgrade coverage, and it requires a policy of residential property insurance that does not provide building code upgrade coverage to include a statement on the policy declarations page that the policy does not include building code upgrade coverage. B. Assembly Bill 3012 (Wood): Residential Property Insurance Amends Insurance Code Sections 678, 1063.1, 1063.5, 1063.14, 2051.5, 2060, 10095, and 10103.7. AB 3012 is companion legislation to AB 2756 and similarly is part of the continuous evaluation by the Legislature of the homeowners’ insurance market that has become stressed by the unprecedented number of catastrophic wildfires in recent years. AB 3012 enacts several improvements to the rules governing homeowners’ insurance that address both claims and access to insurance issues. Among other things, AB 3012 requires a notice of nonrenewal for a residential property insurance policy expiring on or after July 1, 2021 to be accompanied by a specified statement that includes an explanation of how the California Home Insurance Finder can help a person find a homeowners’ insurance policy and information about FAIR Plan policies. In addition, AB 3012 requires the California FAIR Plan Association to develop a “clearinghouse” to help reduce the number of existing FAIR Plan policies and provide the opportunity for admitted insurers to offer homeowners’ insurance policies to FAIR Plan policyholders. With respect to insurance coverages, AB 3012 requires additional living expense coverage be provided in specified circumstances and, in the case of a covered loss relating to a state of emergency, on and after July 1, 2020, AB 3012 prohibits a policy that provides coverage for additional living expenses from limiting the policyholder’s right to recovery if the insured home is not destroyed but is rendered uninhabitable by a covered peril, subject to the insurer providing a reasonable alternative remedy to cure the habitability problem. Finally, with respect to recovery of damages, AB 3012 requires the measure of damages available to a policyholder to use to rebuild or replace the insured home at another location to be the amount that would have been recoverable had the insured dwelling been rebuilt at its original location, without deduction for the value of land at the new location. C. Senate Bill 872 (Dodd): Residential Property Insurance; State of Emergency Amends Insurance Code Sections 2051.5 and 2060. Adds Insurance Code Sections 2061 and 2062. SB 872 makes various changes to the Insurance Code to address problems that policy owners have encountered in the wake of the recent rash of wildfires. For example, on or after July 1, 2021, SB 872 prohibits a policy that provides coverage for additional living expenses from limiting the policyholder’s right to recovery with respect to a covered loss relating to a state of emergency if the insured home is rendered uninhabitable by a covered peril. This clarification was needed for circumstances where the home is not physically destroyed but has been made uninhabitable due to other consequences resulting from the emergency, such as the disabling of the water supply to the home. As an alternative to paying additional living expenses, SB 872 authorizes an insurer to provide a reasonable alternative remedy that addresses the property condition that precludes reasonable habitation of the insured premises. In addition, SB 872 requires additional living expense coverage to be provided for at least two weeks, with additional two-week extensions in the event of a state of emergency and an order of civil authority restricting access to the home. SB 872 also provides for losses related to a declared state of emergency and for which an insured makes a claim on or after January 1, 2021, that the insurer must provide an advance payment for living expenses and to accept an inventory of contents in any reasonable form. SB 872 also expands the definition of the measure of damages available to a policyholder to use to rebuild or replace the insured home at another location to be the amount that would have been recoverable had the insured dwelling been rebuilt at its original location, without deduction for the value of land at the new location. Finally, SB 872 requires an insurer to offer a sixty-day grace period for payments of premiums for policies on property located within an area defined in a declared state of emergency for a period of sixty days after the emergency.
X. Property Taxes
A. Assembly Bill 2013 (Irwin): Property Taxation; New Construction; Damaged or Destroyed Property Adds Revenue and Taxation Code Section 70.5. AB 2013 corrects certain property tax inequities under prior law between owners of property substantially damaged or destroyed by a Governor-declared disaster who rebuild onsite and owners who purchase another property by establishing the same comparability definition for replacement property for all owners. Specifically, AB 2013 adds a new provision to the existing law that allows owners of property substantially damaged or destroyed in a Governor-declared disaster to reconstruct comparable improvements onsite with a return to the former improvement’s base year value that allows a more generous comparability definition that uses the same 120% definition used when a victim of a major disaster decides to purchase a replacement property in the same county. Under this definition, reconstructed improvements will be found comparable to the improvement replaced if similar in size, utility, and function and within 120% of value. This gives property owners parity regardless of which path to recovery they choose. AB 2013 applies these provisions to real property damaged or destroyed by misfortune or calamity on or after January 1, 2017. B. Assembly Bill 872 (Aguiar-Curry): Property Taxation; Change in Ownership; Parent-to-Child Transfer; Stock Amends Revenue and Taxation Code Section 62, to take effect immediately. AB 872 is intended to help protect agricultural open space and the dwindling number of family farm homesteads in the state by rectifying an inequity in California’s complicated reassessment laws as applied to children living on small family farms after the death of a parent. Specifically, AB 872 adds to the exclusions from the definition of “change in ownership” any parent-to-child transfer of stock in a qualified corporation, as defined, that results in a change in ownership of the qualified property owned by the qualified corporation, provided that the transfer of stock is due to the death of a parent or parents. Of course, to utilize this new exclusion that permits the avoidance of property tax reassessment of the qualified property to its present market value, it is necessary for the parents to have transferred the ownership of their home into a corporation that they created between Proposition 13’s roll back value date of March 1, 1975, and Proposition 58’s parent-child change in ownership exclusion effective date of November 6, 1986, and exclusively held only by the parents and their children. To qualify, the home and land must also have an assessed value of one million dollars or less and have continuously served as the home of a child of the parents. C. Proposition 193 Adds California Constitution article XIII A, Sections 2.1, 2.2, and 2.3. The most significant change in California property tax law was not new legislation, but rather Proposition 19, the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act which California voters approved on November 3, 2020. Proposition 19 has two primary components. One provides a significant benefit to certain specified taxpayers and the other severely limits a tax exemption enjoyed by taxpayers, some of whom may also be in the benefited group. The positive component of Proposition 19 is the expansion of the right of eligible California residents to transfer the base year value of their primary residences for property tax purposes to a new primary residence. Prior to Proposition 19 this right was limited to new residences within a county or to a county with reciprocity. Now, beginning on and after April 1, 2021, section 2.1(b) of article XIII A of the California Constitution provides that an owner of a primary residence who is over 55 years of age, severely disabled, or a victim of a wildfire or natural disaster may transfer the base year value of their primary residence to a replacement primary residence located anywhere in California that is purchased or newly constructed as that person’s principal residence within two years of the sale of the original primary residence, regardless of the value of the replacement residence. However, this broadened transfer right is subject to the limitation that if the full cash value of the replacement primary residence is of greater value than the original primary residence, only partial relief is available and the difference in full cash values must be calculated and added to the transferred base year value, thus proportionally increasing the property taxes that will be assessed on the new residence. Proposition 19 also provides that a person who is over 55 years of age or severely disabled may transfer the base year value of a primary residence up to three times. The second component of Proposition 19 will have a negative impact on many wealthy families which could, until the passage of this proposition, take advantage of the right to transfer the parent’s primary residence and one million dollars (per parent) of other property to their children without triggering a reassessment of those properties. After February 15, 2021, this exemption will be severely curtailed. Commencing on February 16, 2021, the transfer of the parents’ principal residence to their child will only be exempt from reassessment if the child uses the property as their primary residence immediately after the transfer. No other property transfers between parent and child are exempt, except in the case of a “family farm” which appears not need to include a residence. This exemption also includes a value limitation. If the fair market value of the family home is less than the sum of the base year value plus $1,000,000, then the base year value need not be adjusted. However, if the fair market value of the family home is equal to or more than the sum of the home’s base year value plus $1,000,000, an amount equal to the excess is added to the base year value and subject to taxation. The foregoing is only a general description of the new law which includes many technical components such as the annual factoring of the base year value for inflation and specific definitions of terms not covered in this simplified explanation. There are also various interpretive issues which have not been discussed and will likely be the subject of future legislation. In the meantime, practitioners can refer to the Letter to Assessors and the Chief Counsel Memorandum provided on the Board of Equalization website.4
XI. Real Estate Finance and Disclosure
A. Assembly Bill 1551 (Arambula): Property Assessments; Requirements and Disclosures Amend Financial Code Section 22684. Amends Streets and Highways Code Sections 5898.17 and 5913. In 2008, the Legislature granted statutory authority to cities and counties to provide financing to property owners to install renewable energy equipment or energy efficiency improvements that are permanently fixed to their properties. This program, commonly known as the Property Assessed Clean Energy (PACE) program, authorizes public agency officials and property owners, to enter voluntary contractual assessments, known as PACE assessments. Over time, the Legislature has expanded the program to allow residential and commercial property owners to finance not only renewable energy upgrades but also energy and water efficiency retrofits, seismic improvements, and wildfire hardening. According to the author of AB 1551, residential PACE assessments are among the fastest growing types of property-secured financing in California. One of the special aspects of PACE assessments is that they are a super-priority lien that takes priority status over all other claims to the property. The practical effect of this super-priority is that in any sale or refinance of the property, the PACE assessment must be paid off in full which can result in the triggering of pre-payment penalties. AB 1551 addresses this issue by including within the criteria that a PACE assessment contract must meet the requirements that (i) the contract may not contain a pre-payment penalty and (ii) the subject property may not be subject to a reverse mortgage. AB 1551 also makes technical changes to the financing estimate and disclosure document that must be completed and delivered to a property owner under certain circumstances before the property owner consummates PACE assessment: (i) the disclosure must be provided as a printed copy in no smaller than 12-point type, unless the homeowner opts out of receiving a paper copy, and (ii) an electronic copy of the disclosure must be provided to a homeowner who opts out of receiving a paper copy. Finally, AB 1551 provides that the oral confirmation of the key terms of an assessment contract that the program administer is required to record and include in that oral confirmation that the property owner may repay an amount owed pursuant to an assessment contract before the date that amount is due under the contract without early repayment penalty. B. Assembly Bill 2471 (Maienschein): Senior Citizens; Rescission of Contracts Amends Business and Professions Code Sections 7150, 7159, and 7159.10. Amends Civil Code Sections 1689.5, 1689.6, 1689.7, 1689.13, 1689.20, 1689.21, and 1689.24. Amends Streets and Highways Code Sections 5898.16 and 5898.17. AB 2471 is companion legislation to AB 1551 reviewed above and is intended to provide to seniors an added protection from potential financial abuse by giving them more time to review and cancel certain consumer contracts. In particular, AB 2471 extends the period of time to cancel specified consumer contracts or offers from three to five business days if the buyer or property owner is a senior citizen, defined as persons 65 years of age or older. These affected consumer contracts include home improvement contracts, service and repair contracts, home solicitation contracts, seminar sales solicitation contracts, and Property Assessed Clean Energy (PACE) assessment contracts. With respect to PACE assessment contracts, the five business days extend to the latest of (i) the date on which the contract was signed, (ii) the date on which the property owner received a statutorily prescribed financing estimate or disclosure, or (iii) the date on which the property owner received the notice of their right to cancel. AB 2471 also prescribes the form and content of a notice of this right to cancel. C. Assembly Bill 3364 (Committee on Judiciary): Judiciary Omnibus Among other things, adds Civil Code Section 2924.8. AB 3364 enacts numerous non-controversial technical changes to several of the California codes as part of the judiciary omnibus bill including, among other things, the addition of the requirement, in connection with the posting of a notice of sale before any power of sale may be exercised under the power of sale contained in a deed of trust or mortgage, that the resident of property upon which a notice of sale has been posted also be advised that, if the person is renting the property, the new property owner may either give the tenant a new lease or rental agreement or provide the tenant with a ninety-day eviction notice, and that the new property owner is required to honor the lease unless the new owner will occupy the property as a primary residence or under limited circumstances. The additional notice requirement under AB 3364 goes into effect beginning March 1, 2021, and AB 3364 requires the Department of Business Oversight and the Department of Real Estate to make translations of the notice available in specified languages. D. Senate Bill 1079 (Skinner): Residential Property; Foreclosure Amends Civil Code Section 2929.3. Amends, repeals, and adds Civil Code Sections 2924f, 2924g, and 2924h. Adds Civil Code Section 2924n. Adds and repeals Civil Code Section 2924m. SB 1079 anticipates a frightening scenario: a potential looming foreclosure crisis following the economic effects of the pandemic. The bill seeks to preemptively address some potential impacts if California does see an uptick in foreclosures over the next several years. SB 1079 requires that a trustee who issues a notice of sale provide notice to the tenants at the property in addition to the owner. The trustee must inform tenants of their right to purchase the property at the foreclosure sale. Additionally, if the trustee’s sale does not result in the purchase of the property by a bona fide prospective owner-occupant, SB 1079 provides a forty-five-day window in which the tenant or another eligible bidder may submit a bid exceeding the highest bid at the sale. Other eligible bidders include community land trusts, nonprofit affordable housing developers, limited equity housing cooperatives, and public entities. SB 1079 also prohibits trustees from “bundling” properties at foreclosure sales, instead requiring each property to be sold separately unless the deed of trust or mortgage requires otherwise. Additionally, SB 1079 builds upon enforcement provisions that were enacted during the last foreclosure crisis, where numerous “real estate owned” or REO properties acquired after foreclosure became blighted. Prior law allowed for imposition of $1,000 per day fines for legal owners who fail to maintain REO properties. SB 1079 increases this amount to $2,000 per day for thirty days, and then $5,000 per day thereafter. Unsurprisingly, the bill was opposed by a coalition of mortgage and banking industry groups who argued that while increasing owner-occupancy is laudable, this bill may not be an effective way to encourage new housing opportunities. Hopefully, California will avoid falling into another foreclosure crisis, and it will be interesting to see whether SB 1079 leads to more post-auction housing purchases by housing advocates or whether it will simply result in more institutional REO properties as potential bidders seek to avoid having their financial resources tied up in properties that might end up being sold to post-auction bidders. The provisions of the bill will remain in effect until January 1, 2026.
A. Assembly Bill 38 (Wood): Fire Safety; Low-Cost Retrofits; Regional Capacity Review; Wildfire Mitigation Adds Civil Code Sections 1102.6f and 1102.19. Adds and repeals Government Code Title 2, Division 1, Chapter 7, Article 16.5 (commencing with Section 8654.2). Adds Public Resources Code Section 4123.7. Existing law requires a person who owns, leases, controls, operates, or maintains a building or structure in a high or very high fire hazard severity zone to take specified measures to protect the property from wildfires. AB 38 requires, on or after July 1, 2020, that a seller of real property located in such a high or very high fire hazard severity zone provide specified documentation to the buyer that the real property complies with the wildfire protection measures specified by the Director of Forestry and Fire Protection to be taken by homeowners in such locations, or with an applicable local vegetation management ordinance. If that is not the case, then the seller must enter into an agreement with the buyer pursuant to which the buyer will obtain documentation of compliance, as provided therein. In addition, after January 1, 2021, AB 38 requires the seller of any home located in a high or very high fire hazard severity zone that was constructed before January 1, 2020, to provide to the buyer a prescribed disclosure notice containing a specified statement and information relating to fire hardening improvements on the property. The disclosure must also include a list of specified features that may make the home vulnerable to wildfire and flying embers and a list of those features, if any, that exist on the home of which the seller is aware. Commencing after July 1, 2025, AB 38 also requires that the disclosure notice include a list of low-cost retrofits to be developed by the State Fire Marshall, and a list of those fire hardening retrofits implemented by the seller. Finally, commencing after July 1, 2025, AB 38 requires sellers who have obtained a required final inspection in connection with the new construction or rebuilding of a structure that has been damaged by fire in a high or very high fire hazard severity zone, provide the buyer with copy thereof or with information on where a copy may be obtained. B. Assembly Bill 3074 (Friedman): Fire Prevention; Wildfire Risk; Defensible Space; Ember-Resistant Zones Amends Government Code Sections 51182, 51186, and 51189. Amends Public Resources Code Section 4291. AB 3074 adds additional requirements on a person who owns, leases, controls, operates, or maintains an occupied dwelling or structure in, upon, or adjoining a mountainous area, forest-covered land, brush-covered land, grass-covered land, or land that is covered with flammable material that is within a very high fire hazard severity zone, that go beyond the existing requirement for the maintenance of a defensible space of 100 feet from each side and from the front and rear of the structure. Specifically, AB 3074 requires such person to use more intense fuel reductions between five and three feet around the structure, and create an ember-resistant zone within five feet of the structure, based on regulations to be promulgated by the State Board of Forestry and Fire Protection. The requirements for the implementation of AB 3074 include in addition to development of the applicable regulations, a funding contingency, and a requirement that the Department of Forestry and Fire Protection make reasonable efforts to provide notice to affected residents of the above requirements before imposing penalties for a violation of those requirements. The late Robert M. McCormick was Of Counsel at Downey Brand LLP in Sacramento and a member of its Corporate, Real Estate, Securities and Tax Group. He served as a member of the Executive Committee of the Real Property Law Section of the California Lawyers Association. His practice focused on commercial real estate transactions, including office and retail leasing, acquisitions, real estate secured financing, and the formation of common interest developments. Michael J. Maurer is a partner at Best Best Krieger’s Los Angeles office and a member of its municipal law practice group. He serves as City Attorney to the cities of San Jacinto and La Habra Heights. His practice focuses on land use, infrastructure, and community economic development.
Endnotes: 1. Avco Cmty, Developers, Inc. v. S. Coast Reg’l Comm’n, 17 Cal. 3d 785 (1976). 2. Ed. Note: This part also references a 2021 budget trailer bill that took immediate effect, Senate Bill 91 (Committee on Budget and Fiscal Review). 3. Assembly Constitutional Amendment 11, Stats. 2020, res. ch. 31. 4. https://www.boe.ca.gov/prop19/#Guidance.