Important New Changes to California’s Planning and Zoning Laws Regarding Assisted Housing Developments

BY Michael Matta

We write to bring your attention to a few important changes to California’s planning and zoning laws, which amend sections 65863.10 and 65863.11 of the California Government Code. These new provisions involve amended notice requirements, purchase restrictions, and offer and acceptance requirements on housing developments receiving government assistance.
Here is a summary of the new rules.
Notice Requirement
California law has long imposed requirements on owners of affordable housing development to provide current and potential residents with notice of the pending expiration of affordability restrictions effecting assisted affordable housing developments. However, it did not previously set forth a timeline in which such notice must be given. Under the new requirements, if an owner of an affordable housing development has a contract for government assistance that will expire within 3 years, the owner must provide notice to current and potential tenants that the government assistance contract or affordability restrictions affecting the property are scheduled to expire. For current tenants, the owner must post a notice informing the tenants of the scheduled expiration. For potential tenants, this notice must be provided at the time those individuals are interviewed for eligibility to live in the housing development. 
Purchase Restrictions
The law continues to require the owner of an affordable housing development that desires to terminate the government assistance contract or prepay the mortgage on the property, to give certain entities an opportunity to submit an offer to purchase the development. These “specified entities” include regional or national nonprofit organizations, regional or national public agencies, and profit-motivated organizations. However, now, in order for a “specified entity” be eligible to submit an offer to purchase the affordable housing development it must first be recognized as a qualified purchaser.
To become a qualified purchaser, the entity must already own and operate at least 3 other similar rent- and income-restricted affordable rental properties. These properties must be subject to a rental restriction imposed by a department or agency United States or the State of California. Further, to become a qualified purchaser, these entities must also be certified by the Department of Housing and Community Development (HCD) based on the entity’s prior experience with affordable housing properties. These additional restrictions seek to ensure that these housing developments are successfully managed and operated by the new ownership.
While the prior version of law indicated that entities wishing to purchase a housing development must be able to manage the housing and any related facilities, it did not provide very rigid requirements for these entities to become qualified purchasers. Details pertaining to the new certification process established by the HCD, as well as a current list of qualified purchasers, can be found on the following website under “Qualified Entity Information” at the bottom of the webpage:
Offer and Acceptance Requirements
Changes have also been made to the offer and acceptance process which must be undertaking in selling an affordable housing development. As previously mentioned, if an owner wishes sell an affordable housing development, it must give certain specified entities notice and an opportunity to submit an offer to purchase the development. According to the new requirements, if an owner receives a bona fide offer from a qualified purchaser within 180 days of giving the required notice of owner’s intent to sell the property, the owner is prohibited from accepting an offer from any other purchaser. Additionally, if the owner rejects the bona fide offer of a qualified purchaser, the owner must then declare under penalty of perjury that it will not sell the property for at least 5 years.
Also under the new requirements, the owner and qualified purchaser must negotiate the sale price of the development based on the current market value. If the parties are unable to reach an agreement, they must obtain an appraisal of the property. This appraisal must now be prepared by independent appraiser, which has been certified by the HCD as having sufficient experience in appraising similar rental properties in California.
Further, an owner who has received a bona fide offer from a qualified purchaser must accept the offer and execute a purchase agreement within 90 days after receipt such an of such offer. This shortens the previous 180-day period previously allowed. The owner must also take all necessary steps during this period to renew or extend any expiring subsidy contracts.
Finally, new monitoring and enforcement procedures have been put in place. Previously HCD was simply responsible for monitoring compliance with the requirements of the California Government Code sections 65863.10 and 65863.11 (partially summarized above). HCD must now provide regular monitoring reports to the California Legislature and has an affirmative duty to refer any and all violations of the law’s provisions to the Attorney General for appropriate enforcement action.