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This Assisted Housing Preservation Ordinance is enacted as Chapter 60 of the Administrative Code of the City and County of San Francisco.
(Added by Ord. 332-90, App. 10/3/90)
The purposes of this Chapter are to assist public and private efforts to ensure that housing affordable to very low, low and moderate income households is not permanently removed from the housing stock, to preserve and promote a supply of housing that is affordable to very low, low and moderate income residents in the community, to protect the diversity of the community by preventing displacement of very low, low and moderate income households, and to prevent homelessness.
This Chapter is enacted:
(a) To assist efforts to ensure that the stock of affordable rental units in the community is preserved;
(b) To assist efforts to ensure that very low, low and moderate income households are not unnecessarily displaced from subsidized housing units due to the owner's prepayment of loans or termination of rent subsidies which have the effect of terminating restrictions on occupancy, rent, and use of such units;
(c) To ensure that the City, concerned nonprofit organizations and affected tenant households receive adequate notice that affordability restrictions may terminate to enable them to respond to the potential problems created by conversions of subsidized rental units; and
(d) To ensure that the subsidized rental unit occupants are provided with information and assistance in the event of conversion of such units to market-rate housing.
(Added by Ord. 332-90, App. 10/3/90)
The Board of Supervisors finds that:
(a) For more than 50 years, federal, state and local governmental entities have initiated and maintained various housing programs designed to provide housing affordable to low and moderate income households.
(b) Since the inception of these housing programs, demand for affordable subsidized rental units has consistently exceeded the supply of such units.
(c) On May 12, 1989, the Mayor's Housing Advisory Committee for the City and County of San Francisco issued the draft Affordable Housing Action Plan For San Francisco. The report concludes that "[t]he demand for housing, especially for housing affordable to households earning less than moderate income, greatly exceeds the availability of such housing" and that the "preservation and improvement of the local existing affordable housing stock, particularly for low and very low income households, must be made a priority."
(d) The Federal Home Loan Bank has determined in the Federal Home Loan Bank Housing Vacancy Survey conducted in September of 1988 that the vacancy rate for all multi-family housing in San Francisco was approximately 1.6 percent.
(e) According to the Inventory of Federally-Subsidized Low-Income Units at Risk of Conversion issued on March 1, 1989 by the California Coalition for Rural Housing and the California Housing Partnership Corporation, approximately 83 privately owned developments assisted with Federal funds are located in San Francisco. Some of these assisted developments contain units affordable to very low, low and moderate income households which are at risk of conversion to market-rate rental or ownership housing by the year 2008. These developments include approximately 7,500 units carrying project-based rental subsidies under the Section 8 program. Approximately 3,900 of these units are at risk of conversion to market-rate housing due to prepayment of federal loans or termination of Section 8 subsidies. Approximately 4,000 additional units already in nonprofit ownership are also at risk due to impending expiration of Section 8 contracts.
(f) The California State Legislature has declared that there exists a severe shortage of housing affordable to very low, low and moderate income households, that such shortage is inimical to the safety, health and welfare of the residents of the state, and that it is an economic benefit to the state and a public purpose to encourage the availability of adequate housing for very low, low and moderate income households.
(g) Section 101.1(b)(3) of the Planning Code establishes as a Priority Policy for the San Francisco General Plan “[t]hat the City’s supply of affordable housing be preserved and enhanced.” The Housing Element of the General Plan establishes as one of its primary goals the preservation and expansion of the housing stock affordable to very low, low and moderate income households within the City. The California State Legislature has recently enacted provisions requiring the City to include in its Housing Element an analysis of existing assisted housing developments for which subsidies and applicable use restrictions may be terminated during the next 10 years, and a program for preserving such affordable units. The Legislature has also enacted provisions which clarify that the Low and Moderate Income Housing Fund moneys administered pursuant to the Health and Safety Code by redevelopment agencies may be expended for assisted housing preservation efforts.
(h) The City's Housing Assistance Plan, Community Development Objectives, and Comprehensive Homeless Assistance Plan all establish the preservation and expansion of the supply of affordable housing as major policy objectives of the City.
(i) Under the federal housing programs designed to create and maintain privately owned, publicly assisted housing affordable to households of very low, low and moderate income, including but not limited to the Section 221(d)(3), Section 236, Section 8 New Construction, Substantial Rehabilitation and Moderate Rehabilitation Programs, and the Section 8 Loan Management Set Aside Program, some persons owning federally subsidized housing units may prepay federally subsidized loans prior to the end of the loan term, and/or are given the option upon renewal dates of rental subsidies not to renew such subsidies. The City recognizes the rights of owners of such housing units contained in such contracts with the federal government and that the owners of such housing are entitled by law to a fair return on their investment.
(j) The owners of such housing units have enjoyed substantial financial benefits from participation in such government programs, including but not limited to:
(1) Programs such as the Builder Sponsor Profit And Risk Allowance, which allowed original owners to credit a noncash contribution toward the 10 percent equity requirement;
(2) Calculation of the six percent return on the basis of 10 percent of project value, regardless of the owner's actual cash investment;
(3) Operating income subsidies;
(4) Capital improvement loan subsidies;
(5) Reduction of debt service in insured projects;
(6) Mortgage modification, forbearance and workout policies which substantially reduced risk of foreclosure;
(7) HUD regulatory preemption of local rent control; and
(8) Tax benefits under the Tax Reform Act of 1976, the Economic Recovery Tax Act of 1981 and the Deficit Reduction Act of 1984. Among the most significant of these tax benefits was the application of accelerated depreciation schedules to assisted housing developments. For example, in 1981, the United States Congress amended the United States Revenue Code to enable the owner of a low-income housing development to take advantage of special accelerated depreciation rules. Under the 1981 amendments, such developments were allowed to be depreciated for tax purposes using the double declining balance method over a shortened 15-year period. This change in the Internal Revenue Code created a powerful financial incentive to increase the depreciable basis of a development. Subsequent to the effective date of this change, many former owners of assisted housing developments participated in transfers of ownership at inflated prices which greatly increased the depreciable basis of the developments, and the tax benefits of ownership. In some cases, these tax benefits were abused when transfers involved the use of unenforceable debt obligations to pay an inflated purchase price and thus the depreciable basis. In these transactions, loans which required no current payment of principal or interest, or which carried no foreclosure remedy for default, were used primarily to inflate depreciable basis above the then-current value of the development. Such loans have little or no economic value other than as a device to inflate depreciable basis and increase tax benefits. The creation of these "paper" loans ceased when the Internal Revenue Code was amended by the Tax Reform Act of 1986. The 1986 amendments removed the financial incentives to inflate depreciable basis by instituting the passive activity and passive loss rules, by lengthening the period of depreciation for assisted housing developments to 27-½ years, and by changing the method from double declining balance to straight line. Therefore, the Board of Supervisors finds that the principal or interest due under loans created between the effective dates of the 1981 and 1986 amendments to the Internal Revenue Code, which are not required to be paid currently from the cash flow generated by operation of a development or which could not be foreclosed upon for failure to make payments, should not be included in the Fair Return Price.
(k) The prepayment of federally subsidized loans and the failure to renew rental subsidies under federal programs will terminate federal rent restrictions and will result in loss of housing units affordable to and the displacement of very low, low and moderate income households.
(l) In the San Francisco Bay Area, 18,820 units in 186 projects providing housing for thousands of very low, low and moderate income households may be directly and adversely affected by the prepayment of Section 221(d)(3), Section 236, and Section 8 loans and the nonrenewal of Section 8 project-based subsidies. This regional loss of housing units affordable to very low, low and moderate income households will impact all communities within the Bay Area. The California Legislature has declared that all communities have an obligation to provide a fair share of the region's housing needs for very low, low and moderate income households.
(m) Conversion of subsidized rental units to market-rate rental or ownership units will result in the displacement of very low, low and moderate income households residing in assisted housing developments, and will also result in a permanent loss from San Francisco's housing stock of housing units affordable to very low, low and moderate income households. The risk of such conversions constitutes a substantial and immediate threat to the welfare, health and safety of San Francisco's residents. Displacement of very low and low income households, the currently inadequate supply of affordable housing units and the lack of federal, state and local funds to produce a sufficient supply of such units, combine to force more people into already overburdened emergency shelters, and onto the streets.
(n) The loss of affordable rental units resulting from conversion will have an adverse impact on the goal of preserving and expanding the existing stock of affordable housing, as well as an adverse impact on the City's housing and service programs by placing additional burdens on the City's limited housing resources and limited resources for providing emergency shelter and associated services.
(o) Conversions of subsidized rental units to nonsubsidized rental units present special problems which would create conditions detrimental to the health, safety and welfare of the San Francisco community.
(Added by Ord. 332-90, App. 10/3/90; amended by Ord. 63-20, File No. 200077, App. 4/24/2020, Eff. 5/25/2020)
(a) "Assisted housing development" or "development" shall mean any multifamily rental housing building, or group of buildings under common ownership, comprised of four or more rental units, which development has received or receives any public subsidy, including, but not limited to, a mortgage loan, a mortgage interest subsidy, mortgage insurance or a rent subsidy from a federal, state or local governmental body or agency, whose rent levels are restricted so as to be affordable to very low, low and moderate income households.
(b) "CHFA" shall mean the California Housing Finance Agency and shall include any delegatee of CHFA when such delegatee acts to administer a CHFA program.
(c) "City" shall mean the City and County of San Francisco.
(d) "Conversion" shall mean any of the following with regard to a unit which was (i) a subsidized rental unit on the effective date of this Chapter, and (ii) is located in a development as to which prepayment, termination or repurchase has occurred:
(1) A rent increase, resulting in a rent exceeding the rental payment allowed under the applicable use restrictions for a unit in the assisted housing development;
(2) Demolition or other construction work on the unit which renders the unit uninhabitable, is commenced; or
(3) A change in use of the development of any unit within a development is commenced.
(e) "Conversion date" shall mean the date on which conversion occurs.
(f) "Converted unit" shall mean a subsidized rental unit that was subject to conversion.
(g) "Director of Housing" shall mean the Deputy Mayor for Housing and Neighborhoods of the City and County of San Francisco and his or her designee, or if such position ceases to exist, such other qualified City official as shall be designated by the Mayor as the Mayor's agent for the enforcement of this Chapter.
(h) "HUD" shall mean the United States Department of Housing and Urban Development, and shall include the Federal Housing Administration ("FHA") and any delegatee of HUD when such delegatee is acting to administer a HUD program.
(i) "Low income household" shall mean any household with an adjusted gross income which does not exceed 80 percent of median income.
(j) "Median income" shall mean the median gross annual income, adjusted for household size, for households in the statistical area, as published periodically by HUD. In the event that such income determinations are no longer published by HUD or are not updated for a period of at least 18 months, "median income" shall mean the median annual gross income, adjusted for household size, for households in San Francisco County, California, published periodically by the California Department of Housing and Community Development ("HCD"). In the event that such income determinations are no longer published by HCD, or are not updated for a period of at least 18 months, the City shall determine the median income using standards and methods reasonably similar to those standards and methods used by HUD or HCD when it last published a median income calculation.
(k) "Moderate income household" shall mean any household with an adjusted gross income which does not exceed 95 percent of median income.
(l) "Notice of intent to prepay and/or terminate" shall mean the notice the owner provides to the Director of Housing and to Tenant Households 18 months prior to prepayment or termination, as set forth in Section 60.5 of this Chapter.
(m) "Owner" shall be defined to mean the person, partnership, or corporation or other entity that is a party to a contract with HUD or other public body which provides a mortgage, mortgage assistance, mortgage insurance, or rent subsidy, or any spouse, employee, agent, partner, master lessee, business affiliate or associate, or successor in interest of such person, partnership or corporation that receives or demands rent for a subsidized rental unit.
(n) "Person" shall mean any natural person, corporation, firm, partnership, association, joint venture, government (domestic or foreign), governmental or political subdivision or agency, or other similar entity.
(o) "Prepayment" shall mean the prepayment, prior to the expiration of the full, original, stated term of the loan, of any loan secured by an assisted housing development which loan was insured or subsidized at its inception by a federal, state or local governmental body or agency, including, but not limited to, loans made, insured or subsidized under the authority of the following provisions of federal and state law, if such prepayment would have the effect of terminating the use restrictions applicable to such assisted housing development, without substitution of substantially similar use restrictions:
(1) New Construction, Substantial Rehabilitation, and Loan Management Set-Aside Programs under Section 8 of the United States Housing Act of 1937, as amended, 42 U.S.C. 1437(f);
(2) Section 213 of the National Housing Act of 1934, as amended, 12 U.S.C. 1715e;
(3) The Below-Market-Interest-Rate Program under Section 221(d)(3) of the National Housing Act of 1934, as amended, 12 U.S.C. Section 1715 1(d)(3);
(4) Section 236 of the National Housing Act of 1934, as amended, 12 U.S.C Section 1715z-1.
Prepayment shall not include the expiration of the full original, stated term of a loan.
(p) "Prepayment date" shall mean the date prepayment, termination or repurchase occurs.
(q) "Rent" shall mean the monetary consideration paid by a tenant household for the use or occupancy of a unit, and shall not include a utility allowance.
(r) "Replacement unit" shall be defined to mean a unit which satisfies the following standards:
(1) Is decent, safe, sanitary and comparable to the converted unit, with a quality of construction conforming to current building code standards and adequate in number of rooms and living space to accommodate the tenant household of the converted unit being replaced.
(2) Is located in the City in an area (i) not subjected to unreasonably adverse environmental conditions from either natural or manmade sources, (ii) not generally less desirable than the converted unit with respect to public utilities, public and commercial facilities and neighborhood conditions, including schools and municipal services, and (iii) reasonably accessible to the present or potential places of employment of the members of the tenant household of the converted unit being replaced; and
(s) "Repurchase" shall mean purchase by an owner or its related entity of a development or any portion thereof, following foreclosure or transfer by deed in lieu of foreclosure, which foreclosure or transfer terminates the applicable use restrictions, when the building included subsidized rental units immediately prior to foreclosure or transfer, and the building was owned by the same owner prior to foreclosure or transfer in lieu of foreclosure, and new, substantially similar use restrictions are not substituted for such terminated use restrictions. For the purposes of this Chapter, "related entity" means any of the following:
(1) A spouse, parent, child, or other individual related to the owner by a tie of blood, marriage, adoption or operation of law;
(2) A partnership, if the owner is either a general or a limited partner of the partnership;
(3) A corporation, if the owner serves on the board of directors of the corporation, or if the owner is a holder of 10 percent or more of any class of the outstanding stock of the corporation; or
(4) Any other business entity for which the owner has primary or controlling authority for management of the business.
(t) "Section 8" shall mean Section 8 of the United States Housing Act of 1937, as amended, 42 U.S.C. Section 1437f.
(u) "Statistical area" shall mean the San Francisco-Oakland Metropolitan Area.
(v) "Subsidized rental unit" shall mean any unit in an assisted housing development.
(w) "Tenant household" shall mean a person or group of persons entitled by written or oral agreement, subtenancy approved by the owner, or sufferance, to occupy a unit to the exclusion of others.
(x) "Tenant association" shall mean a group of tenants who have formed a nonprofit corporation, limited equity cooperative corporation, unincorporated association, or other entity or organization whose primary purpose is the preservation, for current and subsequent tenants, of the affordability of the subsidized rental units in which tenants reside.
(y) "Termination" shall mean terminating or failing to renew a rent subsidy contract with HUD or CHFA prior to the expiration of the full term of such contract, which contract may be unilaterally renewed by an owner, including, but not limited to contracts entered into pursuant to: (i) Section 8, which contracts are renewable by an owner in five-year increments during the contract term, but not including any contracts entered into pursuant to the Section 8 Existing Housing Program (24 C.F.R. Part 882); and (ii) Section 101 of the Housing and Urban Development Act of 1965, as amended. Termination shall not include the expiration of a full original, stated term of a rental subsidy contract, or the termination of the contract upon default by the owner.
(z) "Unit" shall mean a residential rental unit, and shall include a subsidized rental unit.
(aa) "Use restriction" shall mean any federal, state or local statute, regulation, ordinance, contract, regulatory agreement, covenant, or other restriction which imposes a maximum limitation on tenant household income as a condition of eligibility for occupancy of a unit and (i) imposes a restriction on the maximum rents that could be charged for any of the units, or (ii) requires that rents for any of the units within an assisted housing development be reviewed by a governmental body or agency before the rents charged to tenant households may be increased.
(bb) "Very low income household" shall mean any household with an adjusted gross income which does not exceed 50 percent of the median income.
(Added by Ord. 332-90, App. 10/3/90)
(a) At least 18 months prior to the anticipated date of any prepayment and/or termination, any owner of an assisted housing development shall deliver to the Director of Housing and to each tenant household a notice of intent to prepay and/or terminate.
(b) The notice shall include the following information:
(1) The name and address of each owner of the assisted housing development. For any owner that is a corporation, the notice shall contain the names and addresses of the officers and directors of the corporation and of any person directly or indirectly holding more than 10 percent of any class of the outstanding stock of the corporation. For any owner that is a partnership or joint venture, the notice shall contain the names and addresses of the joint venturers or general and limited partners and shall specify the names and addresses of the natural persons who are the principal or controlling persons of such entities.
(2) The development's name, federal, state, or local program name and ID number, and address;
(3) The date of intended prepayment and/or termination and a brief description of the owner's plans for the development, including any timetables or deadlines for actions to be taken;
(4) The number of subsidized rental units in the development subject to prepayment and/or termination, and the number of subsidized rental units occupied by tenant households with persons age 62 or older, with disabled persons, or with children;
(5) The current rent schedule for the subsidized rental units;
(6) A brief description of any contracts concerning prepayment, termination or conversion the owner has made with any government agency, tenant household residing in the development, or other interested person or entity;
(7) The anticipated rent schedule after prepayment and/or termination;
(8) A statement signed by the owner under penalty of perjury certifying the date on which a copy of the notice was sent to the Director of Housing;
(9) A statement that the Planning Commission is required to hold a public hearing on the intended prepayment and/or termination within 90 days of receipt of the notice by the Director of Housing; and
(10) The telephone number of the Director of Housing or the designee of the Director of Housing to call to request additional written information about the owner's responsibilities and about the rights and options of tenant households.
(c) The 18-month notice period shall commence on the date the notice of intent to prepay and/or terminate has been received both by the Director of Housing and by all affected tenant households. The notice shall be deemed received five days after it is given by deposit in the United States mail, return receipt requested. No owner shall cause, either by action or inaction, the prepayment and/or termination to occur prior to the expiration of the 18-month notice period.
(d) Within 21 days after the owner gives the notice of intent to prepay and/or terminate, the owner shall submit to the Director of Housing a statement certifying the following information under penalty of perjury:
(1) The owner's actual cash investment in the development, as defined by Section 60.8 (i)(1)(i) below, itemized by date of investment;
(2) The total amount of debt described in Section 60.8 (i)(1)(iii) below; and
(3) The total amount of debt described in Section 60.8 (i)(2)(iii) below.
(e) Upon 10 days' advance notice to the owner, the Director of Housing may require the owner to make available for inspection and auditing during normal business hours all financial books and records pertaining to the development. The Director of Housing shall make a copy of: (1) the notice of intent to prepay and/or terminate and (2) the statement required by Section 60.5(d) above, and shall make such copies, together with the results of such audit, available to any qualified entity upon receipt of written request by such qualified entity.
(Added by Ord. 332-90, App. 10/3/90)
(a) No later than 45 days after the date the Director of Housing receives the Notice of Intent to Prepay and/or Terminate, the Director shall notify the secretary of the City Planning Commission ("Commission") that such Notice was received and shall forward to the Commission a copy of such Notice. No later than 45 days after the secretary's receipt of notice from the Director pursuant to the preceding sentence, the Planning Commission shall hold a public hearing on the intended prepayment and/or termination. The failure of the Commission to hold a timely public meeting shall not prevent any person from exercising any of its rights with respect to the development.
(b) The Commission shall give notice of the date and location of the public hearing as customarily is given by the Commission for its public meetings. The notice shall contain a summary of the owner's plan for the development subsequent to prepayment and/or termination, including the date of any proposed prepayment, termination or conversion. The Commission shall also mail the notice of the public hearing to any interested person or organization that requests in writing to be notified of any particular public hearing on a proposed prepayment and/or termination, or of all public hearings on proposed prepayments and/or terminations.
(c) At least 14 days prior to the public hearing, the Director of Housing shall make available to any interested person copies of the notice of intent to prepay and/or terminate and any other information, including copies of this Chapter, that concerns the responsibilities of owners and the rights and options of tenant households.
(d) The Commission shall hear testimony and receive relevant documents from interested persons. The Commission shall consider the evidence and make specific written findings as to the following issues:
(1) The proposed date of prepayment, termination or conversion, if intended;
(2) The anticipated use of the assisted housing development subsequent to prepayment, termination or conversion, if intended;
(3) The anticipated numbers of units in the development on any proposed prepayment date that will be occupied by very low, low and moderate income households;
(4) The numbers of households in each income category identified in Subparagraph (3), above, that will contain, on the prepayment date, one or more disabled tenants, who are children under the age of 18 or persons over the age of 62;
(5) For each unit occupied by a very low, low or moderate income household prior to the prepayment date, the rent increase anticipated upon conversion expressed both numerically and as a percentage of the rent charged immediately prior to the conversion date;
(6) The numbers of tenant households, by each category identified in Subparagraphs (3) and (4) above, likely to be displaced by conversion;
(7) The vacancy rates in the City for rental units which are available at affordable rent to very low, low and moderate income households; and
(8) The likely impact of prepayment and/or termination and subsequent conversion upon public and private nonprofit services.
For the purpose of this Section 600.6(d):
(1) "Affordable rent" shall mean the rent levels specified in Section 60.8(b)(2)(i) and (ii) below; and
(2) A tenant household shall be presumed to be likely to be displaced when the rent due subsequent to the conversion date exceeds affordable rent.
(e) Within 30 days after the hearing, the Commission shall complete and forward its findings under Section 60.6(d) above to the Clerk of the Board of Supervisors ("Board"). Subject to the time required for adequate public notice and preparation for review, the Board shall consider the Commission's findings at the Board's next regular meeting following receipt of the findings by the Clerk of the Board, and shall, by resolution, accept the findings or remand the findings to the Commission for revision.
(Added by Ord. 332-90, App. 10/3/90)
(a) For any very low, low, or moderate income household displaced by conversion, the owner shall pay to such tenant household an amount equal to the difference between (i) the annual rent or cost of ownership required for such household to lease or rent a unit for four years, or to purchase a dwelling unit, either of which is equivalent to a replacement unit and (ii) 30 percent of the actual gross annual income of the tenant household on the prepayment date; provided, however, that in no event shall the amount calculated under this Section 60.7(a) exceed $5,250.
(b) For the purpose of this Section 60.7, a tenant household is "displaced" by conversion when, after the notice of intent to prepay and/or terminate is given, the tenant household receives a notice to quit, or vacates the unit due to inability to pay the increased rent due on the conversion date, and the facts constituting the grounds for eviction stated in Section 37.9(a)(2), (3), (4), (6), or (7) of the San Francisco Administrative Code, or any other just cause cognizable under federal or state regulation applicable to the development prior to the prepayment date, do not exist to justify eviction. A tenant household shall be presumed to be unable to pay the rent due on the conversion date if such rent exceeds the rent specified in Section 60.8(b)(2)(ii). The tenant household shall not be considered to be displaced by conversion if the tenant household is evicted for nonpayment of the rent due prior to the conversion date.
(c) A tenant household displaced by conversion shall be entitled to receive the amount due under Section 60.7(a) prior to but as a condition of, vacating the unit.
(d) The requirement contained in Section 60.7(a) above shall not apply to any assisted housing development which is sold or otherwise transferred to a qualified entity pursuant to Section 60.8 below, or if the owner provides to the tenant household, prior to the conversion date, a replacement unit which is immediately available for occupancy.
(Added by Ord. 332-90, App. 10/3/90)
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