BILL ANALYSIS �
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1216|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 445-6614 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 1216
Author: Fuentes (D)
Amended: 6/22/11 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 5-3, 6/14/11
AYES: DeSaulnier, Kehoe, Lowenthal, Pavley, Simitian
NOES: Gaines, Harman, Huff
NO VOTE RECORDED: Rubio
ASSEMBLY FLOOR : 50-27, 5/19/11 - See last page for vote
SUBJECT : Preservation of existing affordable housing
SOURCE : California Rural Legal Assistance Foundation
DIGEST : This bill allows tenants who live in affected
affordable housing units, the Department of Housing and
Community Development, the local public housing authority,
and the city or county in which the development is located
to bring an action in court to enforce the preservation
right-of-first refusal law.
ANALYSIS : Since the 1960s, developers have constructed
at least 425,000 units of affordable rental housing in
California with the assistance of federal, state, and local
subsidies that require owners to maintain rents at
affordable levels for a specified period of time. Examples
of such subsidies include project-based Section 8, Federal
Housing Administration mortgages, low-income housing tax
CONTINUED
AB 1216
Page
2
credits, state loans and grants, and city and county
redevelopment funds. The affordability restrictions on
assisted units typically last 30-55 years, depending on the
program.
Once affordability obligations expire, owners may preserve
the affordability of the units by renewing assistance or by
refinancing with new public subsidies, or they may convert
the development to market rate. Under some federal
programs, owners can also terminate affordability
restrictions early by prepaying the underlying mortgage or
opting out of the rental assistance contract. According to
the state-chartered California Housing Partnership
Corporation, California has already lost more than 20,000
units of housing affordable to low-income households to
market rate conversions, and 82,000 more units are
considered "at risk" of conversion in the next five years.
In order to "preserve" the long-term affordability of these
at-risk units, current law prohibits a property owner from
converting an affordable property to market rate without
first providing notice to tenants, local and state
governments, and potential preservation purchasers (i.e.,
those who may wish to purchase the development in order to
preserve the affordability restrictions) at least one year
in advance.
In addition, during this one-year notice period, current
law also provides preservation purchasers with limited
priority to purchase the property if the owner is inclined
to sell. This is known as the "preservation right-of-first
refusal law." Prior to or concurrent with the delivery of
the 12-month notice described above, the owner must notify
prospective preservation purchasers who have contacted the
owner directly or who are on a list maintained by the
Department of Housing and Community Development (HCD) of
the opportunity to submit a purchase offer. The owner is
not required to accept any offer but may only accept offers
from preservation purchasers for 180 days after the
purchase offer notice. If the owner rejects a purchase
offer during this time, the owner must give the
preservation purchaser who made the offer an opportunity to
match and preempt any offer from a non-preservation
CONTINUED
AB 1216
Page
3
purchaser accepted during the second 180 days after the
purchase offer notice. These requirements and priorities
also apply if an owner seeks to sell or otherwise dispose
of a property that is eligible for conversion in the next
five years.
In general, an owner is exempt from both the notice and
preservation right-of-first refusal laws if he/she or a
successor owner agrees to retain existing tenants and
extend the affordability of the units for at least 30
years. If an owner ultimately sells to a non-preservation
purchaser, he/she must certify under penalty of perjury
that he/she has complied with the notice and preservation
right-of-first refusal laws.
If an owner fails to comply with the notice law, tenants
who live in affected affordable housing units, HCD, the
local public housing authority, and the city or county in
which the development is located may bring an enforcement
action. If an owner fails to comply with the preservation
right-of-first refusal law, only a preservation purchaser
may enforce the law.
This bill allows tenants who live in affected affordable
housing units, HCD, the local public housing authority, and
the city or county in which the development is located to
bring an action in court to enforce the preservation
right-of-first refusal law. In addition, this bill
provides that a seller's failure to record the
certification of compliance shall not affect the rights of
a purchaser or encumbrancer who acts in good faith and is
unaware of the violation. Lastly, this bill clarifies the
definition of "termination" as it applies to the
right-of-first refusal law to mean an owner's "failure to
extend or renew its participation" in a federal, state, or
local government subsidy program rather than an owners
"decision not to extend or renew its participation."
Comments
The conversion of affordable housing units to market rate
increases rents and displaces low-income families. State
law aims to prevent the loss of affordable units with the
notice and preservation right-of-first refusal laws. If an
CONTINUED
AB 1216
Page
4
owner fails to provide the notice, however, there is little
chance to prevent these units from converting to market
rate. The entities that currently have the right to
enforce the provisions, primarily affordable housing
developers, have little way of knowing that they had the
right to make a purchase offer for an assisted housing
development if they never received the notice from the
owner. Even if they do become aware that an owner has
failed to follow the law, they may be reluctant to sue for
fear of alienating the owner with whom they are trying to
negotiate the purchase of the property. Expanding
enforcement authority to include affected tenants as well
as affected public agencies is a way to ensure greater
compliance with the right-of-first-refusal law and,
ultimately, the preservation of precious affordable
housing.
Previous Legislation
AB 2019 (Fuentes), Session of 2007-08, contained similar
provisions to this bill. Governor Schwarzenegger vetoed AB
2019 with the following
message:
"This bill would give tenants the ability to initiate
legal action against an owner of publicly subsidized,
rent-restricted, or assisted housing if the owner fails
to provide the proper legal notice when the owner decides
to remove the property from the subsidized housing
market.
"This measure, while well intentioned, attempts to
achieve this goal by expanding the number of individuals
who have standing to initiate legal action and enforce
current notification requirements. This could increase
overall litigation throughout the state. In addition,
owners, who may have simply been unaware of the
notification requirements, may face excessive and
unnecessary delays or court cost prior to the sale or
transfer of their property. These types of delays and
burdens could discourage potential buyers of the
affordable housing development and increase the chances
that individuals who own, or are considering the purchase
of, affordable housing units will choose not to enter the
CONTINUED
AB 1216
Page
5
market."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/22/11)
California Rural Legal Assistance Foundation (source)
City of Santa Monica
Western Center on Law and Poverty
ASSEMBLY FLOOR : 50-27, 5/19/11
AYES: Allen, Ammiano, Atkins, Beall, Block, Blumenfield,
Bonilla, Bradford, Brownley, Buchanan, Butler, Charles
Calderon, Campos, Carter, Cedillo, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, Hall, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Mendoza,
Mitchell, Monning, Pan, Perea, V. Manuel P�rez,
Portantino, Skinner, Solorio, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. P�rez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Fletcher, Beth Gaines, Garrick, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth,
Valadao, Wagner
NO VOTE RECORDED: Alejo, Gorell, Ma
JJA:kc 6/22/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED