Update Archives (March 2007, January 2007, April 2006, December 2005, September 2005, June 2005, September 2004, August 2003, July 2003, May 2003, April 2003, March 2003, January, 2003)
March 12, 2007
By: Karen Oishi, CPM ®, RPA
What's to come in 2007-California Legislature
The key bills that CBPA highlighted include the following. These bills are not necessarily the most important bills, but have been identified as industry sponsored bills because of their significance for the real estate industry.
 SB 371: Commercial security deposits: This bill would permit a nonresidential landlord to use a security deposit for damages resulting from the termination of a lease under specified provisions, e.g. unpaid rent, rental loss, repair to damages.
- SB 747: ADA 'fix it'": This bill would make technical, nonsubstantive changes to the existing law.
- AB 542: State Historical Building Safety Advisory Board: This bill would provide for a BOMA member to be a part of this Board.
- AB 1208: Business Improvement District: This bill would allow the creation of multifamily improvement districts.
In addition to the foregoing, the discussion also centered on SB 670 which bans reconveyance financing for new housing development. The bill would not allow a developer to spread the cost of government imposed charges (Mello-Roos) on an amortized basis to subsequent buyers. This is obviously being opposed by the realtor industry because they are concerned about keeping housing costs down. Developers on the other hand do not want to impose all the costs at the outset.
While this is a real estate sales related bill, I think IREM as a residential management organization should take an interest in how residential housing developments are going to be affected. Most of the housing affected by SB 670 will be in home owners associations (HOAs) which are managed by professional managers.
Think about it, if housing costs become extraordinary because of government imposed fees and developers cannot sell their houses, HOA management will be stifled. Developers ordinarily do not turn over management to fees management until a certain percentage of the houses are sold. It would be against property management's best interests to stifle developers from selling their product!
This bill was a hot topic at the meeting because it is being supported by the Realtors group. The Realtors have always been a close ally of the CBPA, but the group decided that SB 670 should be opposed.
Federal outlook - 2007
On February 13, 2007, IREM National hosted a web-based legislative review session. Chuck Achilles, IREM National Vice President for Legislative Affairs was the speaker. The key issues discussed were:
1. Telecommunication access: The Telecom Act of 1996 provides open competition to all contractors but the problems of private right of way access has not bee resolved. In 2007, as many as 28 states will rewrite their telecommunication bills because of private ownership issues.
2. Leasehold improvements: The 15 year amortization period for leasehold improvements in properties placed in service after December 31, 2005 will expire on December 31, 2007. The Senate plan to extend this plan until March 31, 2008 is tied to the minimum wage bill passed by the House.
3. Congressional political distribution: Chuck touched on the political party distribution that has changed the face of the Hill. In the House, the Democrats hold 233 seats and the Republicans hold 203.
This split has already impacted the minimum wage bill that passed the House to increase the minimum wage from $5.15 to $7.25/hr.
4. Environmental issues: EPA is proposing rule changes on lead paint and renovations.
- Any activity that disturbs more than 2 sq. ft. of paint.
- Anyone dealing with the removal of 2 sq. ft. of paint must complete an EPA approved training course.
- Firms that handle renovations must be accredited.
This is just the tip of the national iceberg. We should be hearing more as the April Hill visit is right around the corner.
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What's new and what the future holds
By: Karen Oishi, CPM ®
I. Eminent Domain
One of the top issues that transcends both federal and state domain is eminent domain. Some members may feel this isn't a true property management concern, but think about it, if the property you manage is taken by the government for a use that doesn't necessarily benefit the 'public good,' what does this mean for you? You could be out of a job!
Judging from the news from the IREM national webpage-see excerpt below, it looks like the voters in some states took a hard stance on this issue by approving state constitutional amendments restricting eminent domain actions. Although California's voters failed to pass Proposition 90 the California legislature tried to put some control on eminent domain procedures with S.B. 1210 and 1650 which tightened local government's ability to take private property without jumping through a number of hoops.
[Excerpted from IREM National Legislative News-November, 2006]
10 States Approve Ballot Initiatives Restricting Eminent Domain
The reaction to the Supreme Court's highly controversial Kelo decision continued this fall, as voters in a dozen states faced ballot initiatives concerning property rights and eminent domain authority. Florida, Georgia, North Dakota, Michigan, New Hampshire, and South Carolina approved amendments to their state constitutions restricting the use of eminent domain for the purposes of economic development and prohibiting the transfer of seized properties to private entities. Oregon and Arizona approved similar restrictions in the form of new and revised statutes. Nevada voters approved a "Property Owners Bill of Rights" amendment to their constitution, but it must be approved in a second successive election before it is duly ratified. Unfortunately, propositions in California and Idaho were rejected because many felt that the compensation requirements for public use takings would be too costly for taxpayers.
Property Rights Bill Passed by House of Representatives
On September 29, 2006, the House of Representatives passed H.R. 4772, the Private Property Rights Implementation Act of 2006, by a vote of 231-181. H.R. 4772 would help ensure due process for property owners when their rights have been violated and their property has been taken. The bill would clear procedural hurdles that affect property owners' access to justice and gives them their "day in court" to protect their rights. Currently, property owners do not have the option of directly pursuing a Fifth Amendment claim in federal court--they first must exhaust all possible state and local administrative remedies. H.R. 4772 would shorten the process by clearly defining a final agency action, thereby eliminating a cycle of potentially endless appeals. The bill applies only to claims filed in federal court by property owners seeking relief from violations of federal statutory and Constitutional law.
II. Banks in Real Estate
This is a topic that has been around for a long time and unfortunately for our industry the Office of the Comptroller (OCC) doesn't seem to understand the real estate industry. The OCC has permitted several national banks to undertake development projects.
Excerpted from IREM National Legislative News-November, 2006
In December 2005, three large, national banks obtained permission from the Office of the Comptroller of the Currency (OCC) to go into commercial real estate. The OCC legal rulings expand the ability of banks to engage in real estate development, ownership, and merchant banking. These rulings, which contradict Gramm-Leach-Bliley Act, bring banks closer to real estate brokerage and management. IREM, in cooperation with NAR, has successfully lobbied to keep banks out of real estate the last five years. IREM and NAR will lobby Congress to block the OCC from issuing similar rulings in the future.
III. Accounting adjustments
Any accounting adjustment to reduce taxable income is always a hot topic amongst property managers because of the tax implications for a property.
[Excerpted from IREM National Legislative News-November, 2006]
Just minutes before the 109th Congress adjourned it approved H.B. 6111, renewing several real estate-related tax relief provisions that had expired in December 2005. The President signed the bill into law on December 20, 2006. The legislation provides for the expensing of Brownfield remediation costs, the fifteen-year straight-line cost recovery for qualified leasehold improvements, and deduction for energy efficient commercial buildings.
The provision that permits expensing of costs associated with cleaning up hazardous ('brownfield") sites, which expired on December 2005, will be extended through the end of 2007. Second, the fifteen-year recovery period for leasehold improvements will be extended through December 31, 2007 for property placed in service after December 31, 2005.
Finally, real estate owners and managers will be able to deduct for energy efficient commercial buildings that reduce annual energy and power consumption by 50% compared to the ASHRAE standard. The deduction would equal the cost of energy efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. A partial deduction of 60 cents per square foot would be provided for building subsystems.
IV. Notice to Terminate a Lease (California Statute)
This is a topic that has bounced around Sacramento and is back again. Effective January 1, 2007, CA. Civil Code 1946 takes effect which re-establishes the 60-day notice to residential tenants on month to month leases if they have been living in the leased premises for at least one year. (Property listed for sale appears to be exempt from the 60-day notice rule.)
V. Fair Housing (Housing discrimination)
In case you didn't realize the housing discrimination laws did not coincide with the discrimination laws affecting the Fair Employment and Housing Act. Effective Janaury 1, 2007, the passage of A.B. 2800 expands the discrimination coverages to include the following bases as discrimination criteria.
National origin
Ancestry
Familiar status
Disability
Sexual orientation
VI. Proposition 13 Revisited
S.B. 1607 and A.B. 2182 have set up special criteria to exempt the trigger of Proposition 13 upon a property sale. Sales of properties for high tech focused industries and transfer between grandparents and grandchildren are protected.
VII. Vehicle Towing
Thanks to Assembly woman Jackie Goldberg, the property manager and owner is now burdened with red tape to tow an illegally parked vehicle on their property. This will stymie any manager or owner from cleaning up their parking lot. The details and penalties are so onerous; A.B. 2210 is a 'must-read' for all property managers.
VIII. Hands Free Cellular Phone Use
Although this new rules isn't a real estate estate issue, I thought I should talk about it because I know close to 99% of the membership is going to be affected by this legislation.
Effective January 1, 2008, cellular phone use while driving a motor vehicle must be configured to allow hands free listening and talking. The law was promulgated because of the potential accidents caused by distracted drivers, but the 'bite' of the bills leaves little to be desired. The fine for a first offense is only $20 and a subsequent offense is $50. And without the 'bite' of a 'point' on your auto insurance, this bill really has no 'bite!'
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2006 IREM Hill Visit Day Success
On April 26, 2006, a total of 250 IREM members participated in the 2006 Capitol Hill Visit Day event to lobby on behalf of the real estate management industry. Members voiced their industry's concerns on banks in real estate, tax reform and leasehold improvements, small business health plans, private property rights, and natural disaster insurance in over 215 separate meetings with U.S. Senators and Representatives.
Results are in! Wonder how to judge the success of the Hill Visit? Tracking added sponsorships and votes in favor of IREM-supported legislation is one method. IREM legislative staff tracked the bill sponsorships and votes of the senators and representatives that Hill Visit participants met with following their meetings. As a direct outcome of participants' hard work and lobbying efforts, several legislators have been added as co-sponsors to bills IREM pushed on the Hill. In fact, a U.S. senator from Florida pledged to introduce natural disaster insurance legislation at the request of his IREM constituents.
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LEGISLATIVE REPORT
By: Karen Oishi, Legislation Committee
December 5, 2005
The California Business and Property Owners Association Joint Legislative Conference that was held in conjunction with the California Bankers Association and California Business Roundtable was an interesting insight into California 2006 politics.
Elizabeth Hill , California Legislative Analyst, presented a 'hot of the press' overview of the Legislative Analysts' Budget report. Despite improved revenues, the State budget is 'not out of the woods'--there is still a $4 billion deficit. To balance the budget, there is going to need some serious cuts. (Hello, if you spend more than you take in, you have a deficit.)
The key budgetary component that raised a lot of eyebrows was the cost of reviewing the State levee system. The impact of Hurricanes Katrina and Rita forced the State to review the condition of its levee system. It will take at minimum of $1 million just to evaluate the system because there are over 1300 miles of State-owned levees that are maintained by local reclamation districts. Given the cost of the review, and the fact that the levees are probably maintained at minimum levels, the cost of retrofit will be probably be extraordinary. (An interesting observation made by a conference attendee - how will the cost of the retrofits be funded equitably since most of the levees are located in Northern California? Southern California benefits from the levee system but apparently does not contribute to the maintenance. This may elicit some discussion.)
Ms. Hill also shed some insight into the June 2006 elections. Be ready to review a number of initiatives. As of November, 2005, the Legislative Analyst's office has already received 125 initiatives for review. It appears initiatives are a wave of the California political scene.
Guy Huston , Assemblyman representing the Northern California East Bay, also noted the emphasis on updating the infrastructure because of the recent hurricane disasters. As a staunch Republican, he emphasized that the Governor could have sat on his laurels by not making waves: he presented the recent initiatives on the ballot as a means to make changes.
While the conference sponsors were largely Republican backers, there was a nice balance of Democratic input. Garry South , a political strategist who is currently the senior advisor to the gubernatorial campaign of State Controller Steve Westly, made some interesting observations on the recent election regarding the Governor's initiatives. He said, 'every time Republicans put an anti-labor measure on the ballot, they lose.' The State electorate is 43% Democratic and 18% labor so the liberal slate is loaded. He also noted that the Governor may have been trying to 'come to the center,' but in doing so, he may have 'ticked off' his conservative Republican supporters.
Other speakers included Bob Hertzberg-D and Curt Pringle-R who provided a lively insight of how legislators think. Hertzberg served in the Assembly from 1996-2002 and served as Speaker of the Assembly from 2000-2002. Pringle served from 1988-90 and 1992-98, thus both are well qualified to make the observation. The basic conclusion from both was "term limits have changed the focus of legislators from policies to politics."
In conclusion, the conference indicated that California 2006 politics will be dynamic. While the Governor took a 'blow' with the defeat of his initiatives, there is no indication he will fade from the political scene with lively challenges from the Democratic party.
Legislative Update - September 4, 2005
By Karen Oishi, CPM ®
State News (from CBPA September 2, 2005 newsletter)
Within a week of this newsletter, the 2005 California Legislative year will come to an end. While our Sacramento lobbyist, CBPA has been successful in defeating a slew of anti-industry bills this year, several bad bills still remain. After the close of the session, we will report the "good, bad, and the unknown."
AB 648 (Jones) Development Regulation
This bill requiring a development project applicant to identify the person or entity that will own, lease or occupy the project, if different from the person or entity applying for the development permit passed out of the Senate. AB 648 would require information that can and often times change during the life of a project which could require continual recirculation of CEQA and other environmental documents. The bill could seek information that has no relationship to an application for a development project, and could enable projects to be opposed because of potential occupants, rather than the type of land use or environmental impact of the project.
AB 1622 (Liu) Contract Retentions
Passage of this bill would prohibit retentions withheld either from the owner to the general contractor, or from the general contractor to the subcontractor not to exceed five percent of the contract. The fundamental problem with this measure is that state law is attempting to interfere with the private contractual relations between business entities in the absence of a strong public policy to do so. There is a long standing business practice for owners and general contractors to retain payments as a means of financial guarantee in the absence of a bond that the construction will be completed based on the terms of the contract. This is an important one for real estate managers to track!
SB 655 (Ortiz) Asbestos control
SB 655 is an attempt to 'protect the public against asbestos' by creating a new statewide regulatory, land use and mitigation program. Elements of the bill are an invitation to future litigation against new development of all types residential, commercial, retail, road building, mining and farming. The bill requires local governments, to establish that "no undue hazard" to individuals is present prior to authorizing new projects. This requirement is so vague and difficult (if not impossible) to scientifically verify that it invites future litigation. And next they will try to 'control' mold.
State Judicial News (from CBPA bulletin)
IREM was recently 'called to action' in support of AB 1161 that was created because a California Appellate Court, in a recent published decision, ruled that California law prohibits a commercial real estate landlord from applying its bargained for security deposit to the actual damages the landlord suffers from the termination of a lease as a result of a tenant's default. The court ruled that California law only allows a landlord to apply a security deposit to rent that has actually accrued under a commercial real estate lease prior to lease termination.
Fortunately, the 'call to action' was not necessary at this time since the bill became a two-year bill and action will be postponed until the next session. But until the bill is heard and passed, landlords will have to contend with the ramifications of 250 LLC v. Sherwood Partners. The court ruling creates an unstable atmosphere for commercial landlords - small and large - and impacts all commercial properties and hundreds of thousands of leases.
- The court ruling prohibits a commercial real estate landlord from applying its bargained for security deposit to the actual damages the landlord suffers from the termination of a lease as a result of a tenant's default.
- The decision negatively impacts California commercial property owners.
- The decision negatively impacts California's hundreds of small and start-up businesses that have no credit history by placing landlords in a position to charge higher rent to mitigate against the inability of a landlord to rely on a security deposit based on the court's decision.
- AB 1161 seeks to remedy the problem created by this published court ruling by clearly allowing the application of a security deposit to damages a landlord suffers upon the termination of a lease as a result of a tenant's default under the lease.
Federal News (from IREM National webpage)
On the Federal front, the IREM National webpage (on the webpage: www.irem.org , click on public policy/legislative bulletin) has a comprehensive report on national legislation. The following is an excerpt from the Legislative Bulletin highlighting some key issues.
President Signs Energy Bill Into Law - Aug. 8, 2005
The Energy Policy Act of 2005, H.R. 6, put into law new energy programs and tax incentives for energy efficiency enhancements. Although the bill largely benefits energy companies, it does contain provisions benefiting real estate professionals and consumers. Commercial real estate professionals will benefit from incentives such as the Energy Efficient Commercial Buildings Deduction. This provision allows a deduction for energy efficient commercial buildings that reduce annual energy and power consumption by 50 percent compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standard. The deduction will equal the cost of energy efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. In addition, a partial deduction of 60 cents per square foot would be provided for building subsystems.
Small Business Health Plans Legislation Passes House- July 26, 2005
The U.S. House of Representatives voted 263-165 to pass H.R. 525, the Small Business Health Fairness Act of 2005. The legislation, sponsored by U.S. Representative Sam Johnson of Texas, amends the Employee Retirement Income Security Act of 1974 to provide for the creation of small business health plans (SBHPs), also known as association health plans.
SBHPs would be regulated under a single set of federally-prescribed rules and the same set of state regulations that large corporations and union health plans are currently regulated. SBHPs would be exempt from complying with state mandated coverage requirements. By allowing small businesses to ban together, SBHPs will increase small businesses' bargaining power with health care providers and lower their overhead costs up to 30%. The companion bill, S. 406 (Snowe), remains in the Senate Committee on Health, Education, Labor, and Pensions.
President Bush Signs Do-Not-Fax Legislation Into Law - July 9, 2005
President Bush signed S. 714 into law creating the Junk Fax Prevention Act. The new law does not legalize unsolicited fax advertisements or solicitations but does allow for an established business relationship exception. Unsolicited commercial faxes may be sent without prior permission provided that:
1) the established business relationship predates the enactment of the Junk Fax Prevention Act, or
2) in the case of a new established business relationship, the fax number was provided voluntarily by the recipient or is publicly available in a published directory, advertisement or website.
The law also clarifies that verbal permission to fax is an allowed means of granting express permission to fax and creates a new consumer right to opt-out of receiving future faxes. Senders will be required to include opt-out instructions on the first page of any commercial fax sent and must provide a no-cost means for consumers to opt-out. Senders must comply with both the Federal law and with any applicable state laws. The Federal law will not allow an unsolicited fax to be sent where doing so is prohibited by state law.
Bankruptcy Reform Bill Signed Into Law-April 20, 2005 (eff. October 20, 2005)
In March, 2005, the U.S. Senate passed The Bankruptcy Abuse Prevention and Consumer Protection Act, S. 256. The final vote for passage was 74-25. IREM has lobbied this legislation for five years, striving to achieve these four long-sought after commercial real estate provisions:
1) eliminates the cap on single asset bankruptcies;
2) provides new protections for shopping center owners;
3) closes the loophole which allows rental housing tenants to avoid eviction;
4) provides that homeowner and condo association fees be non-dischargeable.
Victory on Groundbreaking Tort Reform Legislation; signed by President Bush-Feb. 18, 2005
The Class Action Fairness Act of 2005, S. 5, passed in the Senate by a vote of 72-26 with two not voting, and passed in the House by a vote of 279-149 with six not voting. Since the introduction of tort reform legislation, it has taken five Congresses to get the language passed through both chambers. Abuses in the class action tort system is a contributing factor to the rising cost of insurance which poses undue financial and accessibility burdens of liability coverage on the professional community.
Legislative Update - June 20, 2005
The California Business Properties Association's annual Legislative Summit (June 14-15, 2005) was as usual informative and interesting. While CBPA has been successful in blocking some 'industry killers,' there are others that still 'on the line.'
AB648 (Jones) Development Regulation
One such industry killer that is still 'alive' would require a development project applicant to identify who might be leasing or occupying the project proposed to be built if different from the person or entity applying for the development permit was approved by the Senate Local Government Committee during the week of June 13th. This bill raises a number of issues that involve matters completely unrelated to the project for which the application has been submitted that could create more uncertainty in the land use permitting process. The bill will next be heard in the Senate Appropriations Committee. Watch out for this one. It will affect leasing efforts.
SB 17 (Escutia) Split Roll Tax
This bill is thankfully in the Senate inactive file. It would provide that all of real property owned by a legal entity that is not a publicly traded company that has undergone a change in ownership over 50% of the ownership would trigger a reassessment. This would erode the Prop. 14 protections normally afforded private businesses and their property by subjecting businesses to a different change in ownership methodology. Think of the implications if this bill passes--retail tenants with triple net clauses would be hit with huge real estate tax charges. And since this bill seems to circuvent Prop. 13, it may even challenge any Prop. 13 protection lease clauses.
SB 593 (Alarcon) Health Care Costs
Another bill that hasn't made it through Committee would require employers with more than 20,000 employees in California would be required to reimburse the State for health care costs incurred by their employees. This would probably impact property managers indirectly through its vendors such as janitorial and security guards. If an employee of an employer with 20,000 employees seeks medical care at a public health facility, the cost of that service would be billed to the employer. Since many janitorial and security guard employers do not cover medical insurance, this could potentially impact these employers and subsequently the price of service from these vendors.
SB 760 (Lowenthal) Cargo Tax
Another industry killer is the cargo 'tax'. This bill would impose a $30 fee on each container that ships through the ports of Los Angeles and Long Beach. Although the bill is still a bill, the ramifications are already being felt in the real estate industry. Port facility managers are reporting that shippers are already making arrangements to move their shipping facilities to other ports in light of California's attitude toward shippers.
SB 855 (Poochigian) ADA mitigation
And unfortunately a bill that should be passed has failed to pass in the Senate Judiciary Committee. This bill would have hopefully minimized ADA lawsuits by providing commercial property owners the ability to fix a potential ADA violation. As it is, ADA lawsuits are filed and become lengthy and costly cases only to benefit attorneys and sometimes never fixing the real problem.
And here's one that passed during the last session, but thanks to the lobbying efforts of CBPA and others, the final version is palatable. SB 1462 , as passed, requires the local governments to notify the military if there is any developer near a military base. This would give the military an opportunity to comment on the impact the development may have on military operations. Originally, the bill would have had given the military the authority to veto a development!
LEGISLATIVE UPDATE – September 7, 2004
Well the Legislative session is over and the Governor’s plate is full of bills for action, on or before September 30, 2004. We will send out a list of all bills that are signed after the action deadline. In the meantime, we should focus on what is pending.
AB 2144 (Ridley Thomas, D-Los Angeles): Property Taxation: Tax-Defaulted Property
This requires the county tax collector to attempt to sell tax-defaulted non-residential commercial property 3 years or more after the property became tax defaulted, unless a county elects not to have this requirement apply. This requirement would apply to property that becomes tax defaulted on or after January 1, 2005.
While this bill could add money to the State coffers, it could also create problems. Some properties could be in default because of environmental problems that has created cash flow problems. This bill could theoretically create problems that would not be offset by the addition of real estate to the State ledger.
IREM opposes.
AB 2213 (Goldberg, D-Los Angeles): Janitorial Service Contrators
This regulation of the janitorial service industry requires specific recordkeeping that employers of janitors must implement; including but not limited to janitorial wages, hours, and working conditions. Failure to comply would impose a civil fine.
Needless to say, IREM opposes.
AB 2850 (Ridley Thomas, D-Los Angeles): Employment: Displaced Private Security Officers
This bill enacts the Private Security Service Assurance Act that would require contractors and subcontractors who are awarded contracts/subcontracts to provide private security services at a particular site to retain for a period of 90 days, certain employees who were employed at that site by the previous contractor/subcontractor. IREM opposes.
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On the local front, IREM-LA has received the following news courtesy of BOMA-LA.
· Mayor James Hahn has establish a Building Permit Enterprise Fund that will retain plan check and permit fees for those sections, rather than allocate them to the General Fund. This will allow the Department to hire more inspectors when demand is high. This will hopefully speed up inspections on tenant improvements and capital projects.
· The L.A. Fire department has been asked to develop a mandatory full building evaluation ordinance for buildings over 36 stories in downtown L.A., the Wilshrie corridor and Century Cit. The Mayor’s office feels that bldg. management and tenants are not fully prepared in the event of a major catastrophe.
· And here’s one to think about: one councilman is considering an ordinance mandating the seismic retrofit of concrete reinforced buildings over 5 stories.
If you have comments regarding this newsletter, please contact Karen Oishi at IREM-LA (email: karoishi@charter.net).
If you have any questions about the foregoing and any other monitored bills, please contact Kate Bell at CBPA (email: kbell@cbpa.com)
LEGISLATIVE UPDATE - August, 2003
By: Karen Oishi
Local News
CITY OF L.A. RULE ON PHASE-IN OF STROBES TO CHANGE
The City of Los Angeles recently indicated that the change-out of a fire alarm panel will trigger placement of strobes in all workspaces. This is a shift from recent policy, in which strobes are phased-in as tenant improvement work is done. Based upon an interpretation of the code by the City Attorney’s Office, however, the Department of Building and Safety believes it must require the strobes, which aid in the evacuation of hearing-impaired individuals during an emergency. After urging by several trade groups, the Department has worked out an accommodation that will allow building owners to phase-in the required strobes over a five-year period. This will allow owners additional time to budget for the work, and for leases to turn over, making installation less costly.
Federal News
While the bonus depreciation deduction incentive is technically ‘old news’ since it was put into effect in 2002, the new ‘news’ is that the Treasury Department and the IRS has extended the deadline for claiming the deduction. While most corporate real estate companies have sophisticated accountants, many smaller owners may be unaware of this bonus deduction. As a good property or asset manager, you should make sure your building owner takes advantage of this special deduction before the December 31, 2003 deadline.
The additional 30% deduction applies to equipment or nonstructural tenant improvements put in service after September 10, 2001. The deadline extension allows taxpayers who filed their federal tax returns for the tax year that included September 11, 2002, but didn't claim the deduction, the chance to do so now.
Notice 2003-45
In 2001, the IRS gave owners the opportunity to elect not to be subject to a mid-quarter depreciation schedule if Sept. 11, 2001 fell in the third quarter or fourth quarter of their tax year. If a taxpayer already filed a tax return for the taxable year that included September 11, 2001 - but failed to make the election to not apply the mid-quarter depreciation schedule - he or she can, until December 31, 2003 , make the election on an amended 2001 and 2002 return. The taxpayer would write "Election Pursuant to Notice 2001-70" across the top of Form 4562, Depreciation and Amortization, for the taxable year including September 11, 2001. For more information on Notice 2003-45, go to http://www.irs.gov, go to The Newsroom. On the left side, look for a button marked IRS guidance, then click on it. Under that, there will be a heading titled Advance Notices. It will bring up a list of notices. Look for ones under the "n" section and scroll down for Notice 2003-45 at n-03-45.
For background information on the 30% bonus depreciation go to http://www.ccim.com/news/govaffairs/Federal_depreciation.html
[Excerpted from www.irem.org.]
STATE NEWS
The following information is an edited version of the IREM-National State legislation reports of July 3 and 14, 2003. If you would like more current information on any of these or other State legislation, go to www.leginfo.ca.gov/index.html.
HOUSING AND PROPERTY MANAGEMENT
A.B. 647 Tenancy: code violations: penalties.
Status: 07/10/2003 - SENATE AMENDMENTS CONCURRED IN. TO ENROLLMENT. (AYES 58. NOES 14)
Summary: This bill would prohibit a landlord from attempting to increase the rent or evict a tenant from a building that has had safety violations that make it untenantable for a period of 35 days.
A.B. 731 Public safety: building inspections.
Status: 07/07/2003 - IN COMMITTEE: SET, SECOND HEARING. HEARING CANCELED AT THE REQUEST OF AUTHOR.
Summary: Existing law requires the State Fire Marshal to adopt, amend, and repeal rules and regulations for fire and panic safety in all hotels, motels, lodging houses, apartment houses and dwellings, buildings, and accessory structures. Existing law requires every city or county fire department or district providing fire protection services that is charged with enforcement of specified building standards and regulations to annually inspect these structures, except dwellings, for compliance. This bill would instead require the inspection of an apartment house on a periodic basis to be determined by the fire department or district as necessary to protect the public health and safety, but no less than once every 3 years, if the apartment house consists of not more than 3 stories and each unit has separate, direct access to a public way.
A.B. 920 Real estate disclosures: nuisance: local government.
Status: 07/08/2003 - READ SECOND TIME, AMENDED, AND RE-REFERRED TO COM. ON APPR.
Summary: This bill would require a seller of residential real property with 1-4 units, who has actual knowledge thereof, to disclose that the property is adjacent to an industrial use or affected by a nuisance created by such a use.
A.B. 1059 Landlord and tenant: retaliatory acts.
Status: 07/10/2003 - JOINT RULE 61(A)(9) SUSPENDED. (PAGE 1731.)
Summary: This bill would increase the maximum punitive damages allowed for specified retaliatory acts where the lessor or agent has been guilty of fraud, oppression, or malice with respect to that act from $1,000 to $2,000.
A.B. 1361 Nonresidential tenancies: security deposits.
Status: 07/10/2003 - ENROLLED AND TO THE GOVERNOR AT 11:30 A.M.
Summary: Existing law requires that when the landlord makes a claim only for defaults in paying rent, any remaining portion of the security is be returned to the tenant within 2 weeks after the landlord receives possession of the premises. Existing law requires that where the security is used for purposes other than those specified above, the security is to be returned no later than 30 days after the landlord receives possession of the premises, as specified. This bill would remove the two week period for returning any security held for defaults in paying rent, and instead provide that any remaining portion of security for nonresidential property to be returned to a tenant be returned within the 30-day period described above.
A.B. 1384 Tenancy: inspections.
Status: 07/10/2003 - FROM CONSENT CALENDAR. TO THIRD READING.
Summary: This bill would provide that a landlord is not required to provide notification of a tenant's right to an initial inspection when the landlord serves on the tenant a notice of termination.
A.B. 1525 Common interest developments: signs.
Status: 07/02/2003 - READ SECOND TIME, AMENDED, AND RE-REFERRED TO COM. ON JUD.
Summary: This bill would provide that the governing documents of a common interest development may not prohibit posting or displaying of noncommercial signs, posters, or banners, as defined, on or in an owner's separate interest, except for the protection of public health or safety or for the enforcement of local, state, or federal law. The bill would require that an owner of a separate interest who prevails in an action to enforce these provisions be awarded reasonable attorney's fees and costs. This bill would also make a statement of legislative intent in this regard.
A.B. 1576 Water heaters: earthquakes.
Status: 07/10/2003 - FROM COMMITTEE: DO PASS, AND RE-REFER TO COM. ON APPR. RE-REFERRED. (AYES 6. NOES 2.).
Summary: This bill would expressly require all water heaters in rental housing to be braced, anchored, or strapped to resist falling or horizontal displacement due to earthquake motion by no later than July 1, 2005. The bill would prohibit eviction based solely on this requirement.
A.B. 1701 Hazardous substance releases.
Status: 07/09/2003 - IN COMMITTEE: HEARING POSTPONED BY COMMITTEE.
Summary: Existing law provides a rebuttable presumption that an owner of property, as defined, that is the site of a hazardous substance release has no liability under the Carpenter-Presley-Tanner Hazardous Account Act for either a hazardous substance release that has occurred on the property or a release of a hazardous substance to groundwater underlying the property, if the release occurred at a site other than the property. Existing law defines "owner" to be the owner of property, as defined, who occupies a single-family residence constructed on the property or the owner of common areas within a residential common interest development who owns those common areas for the benefit of the residential homeowners. This bill would additionally include within the definition of "owner," the owner of property, as defined, who occupies 1/2 of a duplex constructed on the property.
S.B. 90 Tenancy: security deposits.
Status: 06/30/2003 - READ SECOND TIME. TO THIRD READING.
Summary: This bill would require a landlord to include a receipt for any labor or material the landlord has paid for and has deducted from the security. If the receipt lacks certain information about the person or entity providing the labor or material, the landlord would be required to provide that information. The bill would establish specific methods by which a landlord may satisfy his or her obligation to provide the above-described information and remaining security, if any, within 3 weeks.
S.B. 178 Rent control.
Status: 07/10/2003 - FROM COMMITTEE: DO PASS. (AYES 5. NOES 3.) But being held in committee pending successful negotiations between opposition and Bill sponsor.
Summary: Under the Costa-Hawkins Rental Housing Act, an owner of residential real property has the ability to establish the initial rental rate for a dwelling or unit. This bill makes an exception to existing law by allowing local governments to place rental and income restrictions on a portion of units in all new developments, and does not limit the number of new units subject to such rent control. This new, and very broad exception undermines the intent of existing law that exempts newly constructed rental units from local government rent control laws.
S.B. 262 Buildings: access: enforcement.
Status: 07/08/2003 - READ SECOND TIME. AMENDED. RE-REFERRED TO COM. ON APPR.
Summary: This bill would authorize the county counsel to bring an action to enjoin a violation of prescribed requirements relating to access to buildings by handicapped persons. The bill would additionally authorize any of those officials to bring a civil action to impose civil penalties on persons who violate prescribed statutes or regulations relating to access to buildings by handicapped persons.
S.B. 345 Tenancy.
Status: 07/10/2003 - READ SECOND TIME. AMENDED. TO SECOND READING.
Summary:This bill would provide that for specified tenancies, which are terminated pursuant to an ordinance or charter provision governing owner or relative occupancy, the dwelling or unit shall be offered and rented or leased at the lawful rent in effect at the time of termination plus any annual adjustments available under the ordinance or charter provision. This bill would also permit a tenant who has received a 3-day notice in an unlawful detainer action to redeem the tenancy and continue in lawful possession by tendering certain amounts to an owner or an owner's agent, either before or after the filing of a complaint, as specified. The bill would require a court to grant judgment for a tenant upon tender or deposit of these amounts. In addition, it would permit a tenant who has received a 3-day notice in an unlawful detainer action to redeem the tenancy and continue in lawful possession by tendering certain amounts to an owner or an owner's agent, either before or after the filing of a complaint, as specified. The bill would require a court to grant judgment for a tenant upon tender or deposit of these amounts. The bill would permit a tenant to redeem his or her tenancy under these provisions only if the tenant has resided at the dwelling for at least one year, has not redeemed his or her tenancy under this section for the prior 2 years, and the tender or deposit of these amounts is made before the commencement of trial, as specified.
S.B. 538 Housing: tenants: notices.
Status: 07/07/2003 - IN SENATE. TO UNFINISHED BUSINESS.
Summary: Existing law requires, prior to the anticipated date of the termination of a subsidy contract, expiration of rental restrictions, or prepayment on an assisted housing development, that the owner proposing the termination or prepayment of governmental assistance or the owner of an assisted housing development in which there will be the expiration of rental restrictions provide a notice of the proposed change to each affected tenant household residing in the assisted housing development and to the affected public entities. This bill would additionally require that those notices be given to prospective tenants, as prescribed.
LABOR, EMPLOYMENT BENEFITS
A.B. 1536 Discrimination.
Status: 07/09/2003 - FROM COMMITTEE: DO PASS, AND RE-REFER TO COM. ON APPR. RE-REFERRED. (AYES 5. NOES 1.).
Summary: This bill would provide that when a person filing a complaint under the Fair Employment and Housing Act is represented by private counsel, that counsel, rather than the Department of Fair Employment and Housing, would serve the complaint. The deadline for that service would be extended from 45 to 60 days. It would also delete the requirements that the department provide a written explanation that informs the complainant that, if an accusation alleging an unfair housing is issued, the complainant may only be able to recover damages for emotional distress or other intangible injuries through a civil action filed under a specified statute and that it advise the complainant, in writing, if the department determines, based on its investigation, that an accusation or amended accusation should include a prayer for damages for emotional distress or other intangible injuries. It would also clarify that the department does not need the approval of the Attorney General to bring an action to enjoin the owner of property as to which a housing discrimination complaint has been filed from taking further action to rent, lease, or sell the property.
S.B. 796 Employment.
Status: 07/10/2003 - FROM COMMITTEE: DO PASS AS AMENDED, BUT FIRST AMEND, AND RE-REFER TO COM. ON APPR. (AYES 5. NOES 2.)
Summary: This bill would allow aggrieved employees to bring civil actions to recover penalties for violations of the Labor Code, if the agency or its departments, divisions, commissions, boards, agencies, or employees do not do so. In addition, the aggrieved employee would be authorized to recover attorney's fees and costs. For any violation of the code for which no civil penalty is otherwise established, the bill would establish a civil penalty.
REAL ESTATE TAXES
S.B. 17 Property taxation: change in ownership.
Status: 07/01/2003 - FROM COMMITTEE: DO PASS, BUT FIRST BE RE-REFERRED TO COM. ON APPR. (AYES 4. NOES 2.) RE-REFERRED TO COM. ON APPR.
Summary: This bill would require a person or entity that obtains a controlling or majority ownership interest in a legal entity, or an entity that makes specified transfers of ownership interests in the legal entity, to file a change in ownership statement within 60 days of specified transactions. If a person or entity is required by the bill to file a change in ownership statement and fails to timely do so, this bill would impose a penalty that equals the greater of (1) 10% of the taxes owed in the current year on all of the real property owned by the legal entity in the state or (2) $10,000. This bill would also impose a penalty of the greater of (1) 25% of the taxes owed in the current year on all of the real property owned by the legal entity in the state or (2) $25,000 if a person or legal entity misrepresents the occurrence or nonoccurrence of a change in ownership on a change in ownership statement. This bill would specify that these provisions do not apply to property that is assessed by the State Board of Equalization, as provided.
The bill would also require, on or before March 1, 2004, and each March 1 thereafter, a publicly traded company, to file a property statement with the State Board of Equalization that lists all of the real property owned or leased in the state by the company. If a company fails to do so, or fails to file a complete statement by April 15, this bill would impose a penalty on the company,
CONTRACTS AND LEGAL ISSUES
A.B. 81 Insurance: underwriting: information. [Similar to AB 1049]
Status: 07/09/2003 - READ SECOND TIME, AMENDED, AND RE-REFERRED TO COM. ON APPR.
Summary: This bill would prohibit an insurance institution from reaching an adverse underwriting decision based on the fact that an individual has previously inquired about the scope or nature of coverage under a residential fire or property insurance policy, if that information is received from an insurance-support organization whose primary source of information is insurance institutions, and if the inquiry did not result in the filing of a claim.
A.B. 309 Contracts: foreign languages.
Status: 07/02/2003 - FROM COMMITTEE: DO PASS. (AYES 4. NOES 1.).
Summary:This bill would require a person in a trade or business who negotiates specified contracts or agreements primarily in the Spanish language or in the languages of Chinese, Tagalog, Vietnamese, and Korean to deliver to the other party prior to execution thereof, a translation of the contract or agreement in the language of negotiation. Failure to comply entitles the aggrieved party to rescind the contract or agreement.
A.B. 1049 Fair Reporting of Loss History
Status: 07/09/2003 – PASSED SENATE INSURANCE COMMITTEE (AYES 7, NOES 1)
Summary: This bill defines the type of customer contacts that may be reported as losses in a person’s insurance claims history. Similar to AB 81, this bill prohibits an insurance company or agent from treating a loss history report received from a loss underwriting database or claim history information exchange program (such as CLUE or A+), if the insurer is informed by the applicant that: 1) the notice was only an inquiry and that the applicant did not intend to file a claim; and 2) there was no damage to the insured property. This bill will next be heard in the Senate Appropriations Committee.
A.B. 1191 Property insurance: rates: disclosure.
Status: 07/10/2003 - FROM COMMITTEE: DO PASS. (AYES 5. NOES 2.).
Summary: This bill would require an insurer under certain property insurance policies to inform an insured of (1) the nonrenewal of a policy or any increase or decrease in an annual premium as compared to the previous year, (2) the reasons for the change or nonrenewal, and (3) specified telephone numbers where the insured may register complaints.
S.B. 179 Contracts for labor or services.
Status: 07/10/2003 - FROM COMMITTEE: DO PASS, BUT FIRST BE RE-REFERRED TO COM. ON APPR. (AYES 5. NOES 2.) RE-REFERRED TO COM. ON APPR.
Summary: This bill would provide that any person or entity who enters into a labor contract for construction, farm labor, garment, janitorial, or security guard services when the person or entity knows or should know that the contract does not provide funds sufficient to allow the labor contractor to comply with all applicable laws or regulations governing the labor or services to be provided under the contract, is subject to liability and specified civil penalties.
LEGISLATIVE UPDATE - July, 2003
By: Karen Oishi
To date the legislative scene hasn’t been too friendly to business and the economy, but your letters to our City Council, Legislature, and Congress will help ‘win the war.’ This report reflects the status of State bills as of June 16, 2003. For a current update, please log onto www.leginfo.ca.gov/index.html.
LOCAL NEWS
Rent Control is ‘controlled’
In early April, Council member Eric Garcetti was proposing to have the L.A. City Council support AB1256 (Koretz) which would tear apart the Costa-Hawkins bill and allow local governments to pass vacancy control laws. Due to the efforts of many concerned organizations, the proposal was withdrawn from consideration. But in late April the proposal came up again and was sent to the Housing Committee for further evaluation. But we aren’t ‘out of the woods’ until AB1256 is defeated.
Punishment for drug lord landlords
On April 8, 2003, Los Angeles County Supervisors voted 3-0 in favor of a new ordinance "that holds landlords accountable for illegal drug activities in their apartment buildings and rental houses." If a law enforcement official has evidence that a tenant has been involved in illegal drug activities, the landlord will have 15 days to evict before facing misdemeanor charges and fines up to $1,000 and up to six months in county jail. This law only applies to unincorporated areas of Los Angeles County.
County Drug Ordinance 8.50 amendment defeated
If this ordinance passed, landlords who have illegal drug activity on their property would have been liable for up to $1,000 in fines and six months in jail. The amendment had the right idea of taking a tough stand on drug activity, but the wrong persons were being penalized and punished. Due to overwhelming response from many organizations, the County Supervisors agreed to reevaluate the amendment and change the ordinance. The ordinance will now not have any criminal penalties for owners, provide a free witness assistance program, and will continue to support an owner in a drug eviction if necessary.
Rent Increase to support education?
On June 3, 2003 a Special Election for residents of Santa Monica-Malibu Unified School District will be held to determine if the district should levy a tax of $225 per parcel tax for the next 6 years. Apartment building owners would be allowed to pass this tax onto their tenants in the form of a rent increase.
As of March 31, 2003, Landlords May Only Change the Terms of Tenancy with Tenants' Concurrence
Section 151.09 of the Los Angeles Municipal Code has been changed to prevent owners from changing the terms of the tenancy unless the change is agreed to by the tenant, or authorized by Los Angeles Municipal Code Section 151.06, or the landlord is required to change the terms pursuant to federal, state, or local law. This means that owners are going to have less control of their buildings and are going to have to develop leases that include every possible contingency. Anything that is not included in the original lease cannot be imposed on a tenant at a later date unless it meets one of the three criteria mentioned above.
Glendale Property Rights Protection Charter Amendment
The Property Owners for Property Rights Protection, a grassroots property owners organization collected 19,329 Glendale registered voter signatures to place its Property Rights Protection Charter Amendment on the next citywide ballot. The amendment ensures that property owners are the only ones who can determine the price for which their property is sold, rented, leased or transferred. It also preempts the city of Glendale from enacting any form of rent control.
STATE NEWS
Housing and Property Management
AB 647 (Nunez) Landlord Penalties—Current law provides that a landlord is liable to a tenant for up to $1,000 when the landlord demands or collects rent on a building containing a code violation that has existed for at least 60 days, which has been inspected by a housing code enforcement agency and where a notice has been provided to the landlord. This bill would have provide that if any code violations exist when a landlord issues a notice of rent increase or issues an unlawful detainer action, he is liable, no matter how small the violation, for at least 30 days. The bill would also increase the amount that a tenant could collect under these provisions to $5,000, and permit the lessee to recover costs for attorney’s fees and the suit.
Status: Sent to Senate Judiciary Committee, 5/8/03; Hearing scheduled, 6/24/03.
SB 90 (Torlakson) Security Deposit Receipts—This bill requires landlords to provide copies of the receipts for any labor or material the landlord has paid for and has deducted from the security deposit. This bill creates a substantial burden upon the landlord, especially when a contractor may be used to service or repair multiple units at the same time.
Status: Resent to Assembly Judiciary Committee, 6/11/03; Hearing scheduled, 6/17/03.
SB 178 (Cedillo) Rent Control—Under the Costa-Hawkins Rental Housing Act, an owner of residential real property has the ability to establish the initial rental rate for a dwelling or unit. This bill undermines this law by forcing developers of new or rehabilitated units to restrict the rents and incomes of occupants for a “portion” of the units.
Status: Sent to Senate Housing and Community Development, 6/12/03; Hearing scheduled, 7/2/03.
SB 345 (Kuehl) Costa-Hawkins Rental Act Revision—This bill proposes numerous alterations to existing law, known as the Costa-Hawkins Rental Housing Act. Most importantly, this bill states that after a tenancy is terminated in certain instances, the dwelling or unit must be offered and rented at the rent in effect at the time of termination. It also permits a tenant who has received a 3-day notice in an unlawful detainer action to redeem the tenancy and continue in lawful possession by tendering certain amounts to an owner or an owner's agent, either before or after the filing of a complaint—the bill would permit a tenant to redeem his tenancy under these provisions only if the tenant has lived in the unit for at least one year, has not redeemed his or her tenancy for the prior two years, and the deposit of these amounts is made before the commencement of trial. Finally, this bill would prevent a landlord from lawfully evicting a tenant if they are suspected of being involved in drug-related criminal activity—they must be convicted before this is possible.
Status: Resent to Assembly Judiciary, 6/11/03.
AB 1256 (Koretz) Rent Control for Older Residential—This bill would amend the Costa-Hawkins Rental Housing Act which currently allows owners of residential real property to establish their own rental rates in specifically enumerated instances. This bill would delete those enumerated instances and allow a local jurisdiction to control the rental rates of units older than 25 years.
Status: Sent to Assembly Housing and Community Development, 3/17/03.
AB 831 (Goldberg) Unlawful Detainer—This bill seeks to provide tenants additional time to respond to a summons issued in an unlawful detainer action and to a writ of possession by increasing the time in which a tenant has to file a written response after being served from five days to 10 days.
Status: Failed third reading, 6/5/03. To ASM inactive file.
AB 1361 (McCarthy) Security deposit refund—This bill would increase current 2-week requirement for return of rent deposits to 30 days.
Status: Sent to Senate Judiciary, 5/23/03; Hearing scheduled, 6/24/03.
LABOR, EMPLOYMENT BENEFITS
AB 572 (Yee) Employee Rights—This bill strengthens protections for workers who exercise their rights to report hazardous working conditions or refuse to work under such conditions, increasing penalties for retaliatory acts by employers. This bill creates new incentives to sue employers by significantly expanding the basis for workplace retaliation claims, in addition to establishing new personal liability, new crimes, fines and jail time for employers. (A similar bill, AB 2752, was vetoed by the Governor last session.)
Status: Sent to Assembly Labor and Industrial Relations, and Judiciary, 6/12/03.
SB 2 (Burton) Health Care—This bill enacts the Health Insurance Act of 2003 to ensure all workers and their families are provided health care coverage. This is to be enacted as a vehicle for the subject matter at a later date.
Status: First Assembly reading, 6/4/03; on hold.
AB 1093 (Lieber) Living Wage—This bill requires the state and any qualified contractor (employing 100 or more) that performs a qualified contract (contracts of $100,000 or more) for a state agency to pay not less than a living wage.
Status: Sent to Assembly Labor and Industrial Relations, 6/12/03.
SB 57 (Burton) Adjusted Living Wage—This bill adjusts the hourly minimum wage on Jan. 1, 2004 and each year thereafter based on the state CPI for all urban consumers.
Status: Sent to Senate Appropriations, 5/29/03; on hold under submission.
AB 76 (Corbett) Workplace Harassment—This bill invalidates a court of appeal decision which held that workers are not protected from workplace harassment. This bill ensures that employers may potentially be liable for harassment committed against their workers by clients, customers and other third parties if they knew or should have known of the harassment and failed to take immediate and appropriate corrective action to stop the harassment.
Status: Sent to Senate Judiciary, 6/10/03; hearing scheduled, 6/24/03-cancelled at request of author.
AB 274 (Koretz) Retaliation Against Employees—This bill would establish a presumption of retaliation if an employer took adverse action against an employee within 90 days of the employee’s exercise of legal rights to complain to the State Labor Commissioner.
Status: Sent to Senate Judiciary, 6/5/03; hearing scheduled, 6/24/03.
AB 331 (Kehoe) Unemployment benefits—This bill waives the 1-week waiting period for unemployment benefits when unemployment is due to a labor dispute. The bill would give employees added leverage in forcing employers to agree to terms and conditions of employment. By allowing employees to receive unemployment benefits, employees have less of an incentive to resolve contract disputes in a timely manner.
Status: Sent to Assembly Labor and Industrial Relations, 6/12/03.
AB 1721 (Labor/Employment Committee) Wage Violation Posting—This bill requires an employer to post a notice of violation in the workplace for at least 60 days for any willful or intentional wage and hour law violations.
Status: Sent to Assembly Labor and Industrial Relations, 6/12/03.
SB 796 (Dunn) Employee Right to Sue—This bill allows employees to sue their employers for civil penalties for employment law violations and to recover costs and attorneys’ fees. It does not require the employee to exhaust administrative procedures or even file with the Labor Commissioner, thus the bill will ‘invite’ bounty hunting attorneys to pursue these cases.
Status: Sent to Assembly Labor and Employment, and Judiciary, 6/5/03; hearing scheduled, 7/9/03.
SB 179 (Alarcon) State Labor Laws—This bill would make building owners liable for violations of state labor laws committed by their contractors. The Legislature approved a similar measure last year, but it was vetoed by Governor Davis.
Status: Sent to Assembly Labor & Employment Committee, 5/22/03; hearing scheduled, 6/25/03.
SB 134- (Figueroa) Lien notification—This bill would require an owner of private works of improvement to provide written notice of completion or cessation of a project to a contractor that has recorded a 20-day notice of intent to file a lien. Currently, owners need not provide written notice of the project completion, but must only record the notice of completion or cessation.
Status: Resent to Assembly Judiciary, 6/10/03.
REAL ESTATE TAXES
SB 17 (Escutia) Split-Roll Property Tax—This bill states intent to allow non-residential commercial and industrial property to be reassessed more frequently than is currently allowed. This holds commercial property to a different standard than residential property with regard to property tax assessment. Not only will such a change in law create a large disparity between businesses and how frequently they are assessed, but also it arguably creates a disincentive for cities and counties to build single and multi-family housing, since it will generate less revenue.
Status: Sent to Assembly Revenue and Taxation, 6/9/03; hearing scheduled, 6/30/03.
SB 557 (Cedillo) Timber Yield Tax—This bill would impose an excise tax on the consumer at the time of purchase of a timber product for consumption in the State. While the bill is a means to generate revenue for the State, it will drive users of timber products to buy out of state sources and may fore forest landowners to convert their lands to other non-forest uses.
Status: Sent to Senate Revenue and Taxation; 5/21/03.
LAND USE, ENVIRONMENT, AND INFRASTRUCTURE
AB 406 (Jackson) Environmental Impact Report Preparation—This bill requires that any draft of an Environmental Impact Report (EIR), EIR or negative declaration prepared pursuant to the California Environmental Quality Act (CEQA) be prepared directly by, or under contract to, the lead public agency. It prohibits the current practice of many local jurisdictions where the applicant/developer directly hires the environmental consultant, with oversight by the lead agency. It further prohibits any confidentiality agreements between the applicant/developer and the environmental consultant, and forbids the applicant/developer to interfere with, or otherwise affect access to the project.
Status: To inactive file, 6/16/03.
ACA 4 (Simitian) Vote Threshold Reduction for Parcel Taxes—This bill would allow school districts to impose unlimited special taxes on real property by a 55% vote, via parcel tax. While there is a strong connection between quality schools and desirable housing, as it supported Proposition 39 in 2000, which reduced the vote requirement for local school bonds to 55%, parcel taxes are not limited to facilities and may also include expenditures such as salaries, maintenance, and other ongoing expenses. With a multi-billion dollar state budget deficit, funding for educational programs, salaries, and other non-capital expenditures may be limited.
Status: Second reading, 6/3/03; third reading scheduled, 6/16/03.
SB 18 (Burton) Native American Sacred Sites—This bill allows the Native American Heritage Commission to bring an action to prevent ‘severe or irreparable damage’ to an Native American sanctified cemetery, place of worship, religious or ceremonial site or sacred shrine on public land.
Status: Sent to Assembly Natural Resources, 6/12/03.
SB 114 (Torlakson) Redevelopment Agency Relocation Assistance—This bill eliminates a redevelopment agency’s authority to provide financial assistance to a vehicle dealer or big box retailer from relocating from one community to another within the same market area.
Status: Sent to Assembly Local Government; 6/5/03; hearing scheduled, 6/18/03.
SB 262 (Kuehl) ADA violations—This bill broadens the list of prosecuting agents for Americans with Disabilities Act (ADA) violations by authorizing County Counsels and City Attorneys to enforce the Title 24 disabled access provisions.
Status: Sent to Assembly Judiciary Committee, 5/19/03.
CONTRACTS AND LEGAL ISSUES
AB 309 (Chu) Foreign Language Contracts—This bill enacts new requirements as to specified contracts negotiated in foreign languages. It requires a person who negotiates specified contracts or agreements primarily in Chinese, Tagalog, Vietnamese or Korean to deliver to the other party, PRIOR to execution, an unexecuted translation of the contract or agreement in the language in which it was negotiated. This bill expands the existing law which covers Spanish. If this bill becomes law, business must choose whether the business they gain from being able to negotiate with customers in Chinese, Tagalog, Vietnamese or Korean is profitable enough to warrant the additional cost of providing a translated contract.
Status: Sent to Senate Judiciary; 5/29/03.
SB 179 (Alarcon) Contract for labor or services—This bill provides that any person or entity that enters into a contract for labor or services in specified industries that knows or should know that the contract does not provide sufficient funds to comply with various laws, violates state law. Employees of such person or entity would be able to recover actual damages through civil action. Persons or entities that would be impacted, and of interest to the real estate industry, are construction contractors, janitorial services or security guard services.
Status: Sent to Assembly Labor and Employment, 5/22/03; hearing scheduled, 6/25/03.
Report on CBPA Annual Meeting
Sacramento, California/June 3-4, 2003
By: Bill Wenger
On June 3rd and 4th, Bill Wenger and Karen Oishi attended the annual California Business Properties Association (CBPA) business meeting in Sacramento, California. They used this opportunity to also meet with other IREM chapter representatives to discuss CBPA’s legislative representation for IREM-CA.
CBPA Legislative Agreement Review
On June 3rd, Bill and Karen met with Greg Cartwright, Regional Vice President, and representatives of the Sacramento, San Francisco, San Diego, and Orange County chapters, and Walter Edwards, National Vice President for Legislation, to discuss the history of the relationship of IREM-CA with CBPA, the current agreement, the chapter requirements for legislative information and selective lobbying efforts. [The Inland Empire, San Joaquin and Central Coast chapters did not send representatives.]
In addition to the work of the CBPA, the group also discussed the efforts of IREM-National in monitoring State legislation relative to their contract with Netscan. Walter Edwards was asked to contact IREM-National to follow up on the state legislation reports. [The group agreed that the state monitoring submissions, up to the time of the CBPA meeting, were little or of no value in the current form. The recent submission which was received after the CBPA meeting was an improvement, but needs further refinement.]
Subsequent to this meeting the IREM-CA representatives met with Rex Hime, Executive Director of CBPA. Rex explained the nature and extent of his efforts to keep IREM-CA informed to the maximum extent possible. He explained the annual review process (usually in February) of introduced bills, currently by an ad hoc committee, which has set priorities for CBPA to monitor IREM concerns. In addition, Rex explained the function of the Advisory Board for CBPA. The Advisory Board which can have one member for each IREM CA chapter, as of this meeting, had no IREM-CA advisors. The function of this board is to provide guidance to the CBPA regarding priorities and feedback on legislation. Karen advised Rex as to the nature and extent of the information required by the IREM chapters showing him copies of the reports produced by IREM-LA. It was determined that more specific guidance as to the specifics of the legislation was needed. Rex introduced a new report he calls the “Matrix” which gives more specific details on legislation currently under consideration which will be available to the IREM chapters. He also volunteered to consider any recommendations for changes to the requirements for CBPA per the agreement.
The meeting with Rex was followed by another “internal" IREM-CA meeting to determine the possible courses of action regarding state legislation monitoring. It was decided:
- To establish a State Legislative Council consisting of one member from each chapter. This council would also serve as the CBPA Advisory Board.
- To provide CBPA with more specific guidance as to the needs of IREM-CA. (This list was drafted immediately by those present. Some topics include mold, rent control, labor, environmental issues.)
- To review the agreement for possible revision either immediately or at the time of renegotiation with CBPA in the Fall.
CBPA Annual Meeting, June 3rd
The Annual Meeting began with a review of current legislation and priorities. The meeting progressed with approval of minutes, election of the Board of Directors, Officers for 2004 and the Advisory Board members. Ben McGrew, IREM-Sacramento, was elected to continue to serve on the Board of Directors, and Steve Ring, IREM-SF, and Bill Wenger, IREM-LA were elected to serve as Advisory Board Members.
An update of CBPA activities, and review of current priority legislation* was provided by Rex Hime. [*Most of the bills were to be discussed during the visit to the Capitol on June 4th. See the accompanying Legislative Report for information on specific legislation.]
Subsequent to the meeting a reception was held for meeting attendees and legislators which was followed by a dinner to honor CBPA Legislators of the Year, Assemblyman Keith Richman (R-Northridge) and Senator Denise Moreno-Ducheny (D-San Diego).
Assemblyman Keith Richman spoke eloquently about the budget, workman’s compensation insurance, the state government infrastructure, the potential recall of Gray Davis, and the extreme left and right nature of this legislature resulting in the production and passage of many very poorly devised bills. He spoke of the need for legislators to work together for the benefit of all, and the difficulty of getting this to happen in the current political climate.
CBPA Visit to the Capitol, June 4th
The Capitol visit began with breakfast in the Capitol cafeteria to hear speakers discuss some ‘hot topics’ such as the budget and worker’s compensation.
Assemblyman Chuck Poochigian spoke of the large volume of bad bills currently being passed by the legislature and the need for more compromise and centrism. Poochigian is actively working against the liberal ignorance concerning the need to keep and attract business as the engine of the California economy for the benefit of all citizens. He also spoke of the need for the parties to work very hard to attract voters in the few districts left for both the senate and the assembly that have any chance to swing to the opposite party due to very conservative redistricting by both sides of the isle.
Assemblyman Joe Canciamilla spoke of the need for concessions and centrism in the legislature and the difficulty in making that happen. The June 4th San Francisco Chronicle, front page story detailed the efforts of Canciamilla (D) and Richmond(R) to work together to get the budget passed among other efforts. Canciamilla is advocating budget reform in the form of a one year budget (little chance to change this), but with a two year expenditure plan. He also wants to legislate a mandated reserve which would grow in the future years. Assemblyman Canciamilla spoke of strong ability of California to achieve positive change in the 4th largest economy in the world while dealing with the realities of LA as currently the poorest large city economy in the US, with and the recent national survey ranking California as 49th of 50 states in the ability to attract and retain business interests.
Jeanne Cain, American Insurance Association spoke about the extreme problem of the cost of workman’s compensation insurance in California. This state has the most expensive worker’s compensation insurance in the nation. The reasons for this include fraud on the claims, and on the business side, very expensive litigation, overload of government agencies including the Department of Insurance and the courts. Reform is critically needed. Legislators are constantly talking of reform, but little consensus for the approach to reform of worker’s compensation has, to date, been achieved.
Larry McCarthy, President of Cal Tax spoke of the lack of proper oversight and planning for budgeting and in particularly spending in California. This is astonishing considering the critical necessity of proper oversight our $100 billion budget. Critical components include the decrease in federal fund infusing coupled with the increased needs of cities and counties also in financial difficulty. McCarty spoke of the solutions to this crisis include:
- Grow the economy
- Worker’s Compensation reform
- Improve business environment
- Minimize governmental spending on “feel good programs,” such as the poor planning and timing of universal health care advocacy, and expanded family leave requirements.
Subsequent to the breakfast, Bill and Karen accompanied other representatives of CBPA to the offices of Senator Jack Scott (D-Altadena), Fran Pavley (D-Agoura Hills), and Ray Haynes (R-Riverside). The legislators were unavailable due to the extreme pressure for budget passage and the legislative plan to close out all 3000+ bills before elected officials by the date we were to visit them (June 4th). The group did meet with staff representatives to discuss such critical issues as the split roll tax, workman’s compensation insurance reform, Internet sales taxes, environmental laws, and rent control.
The annual meeting ended with a closing luncheon with legislators.
LEGISLATIVE UPDATE - May, 2003
BULLETIN!
Netscan Contract Helps Track State Legislation & Regulation
The CCIM Institute in partnership with the Institute of Real Estate Management approved a contract with the Virginia-based company NETSCAN iPublishing for their legislative and regulatory tracking databases, LegAlert and RegAlert respectively.
Since January 1, CCIM and IREM Legislative Affairs’ staff have been fine-tuning keyword searches for the LegAlert and RegAlert databases to run on a daily basis in order to identify pending state legislation and regulation that would potentially impact the commercial real estate investment, brokerage and management industries.
This is hot off the press from the IREM National website. The Legislative Committee is pleased to hear that IREM National has contracted for this effort because State legislative monitoring has become an overwhelming task.
LOCAL NEWS
Santa Monica Allows Rent Increases For Unoccupied Units
The Santa Monica Rent Control Board has approved a regulation allowing landlords to raise the rent on units that are not occupied full-time by tenants. Under the regulation, landlords may raise the rent to market levels if they can demonstrate that the tenant is not using the unit as a primary residence. If the tenant does not agree to the new rent, the landlord can process an eviction. The city of San Francisco adopted a similar ordinance in June 2001.
Los Angeles Adopts Eviction Control Amendment
The LA City Council has adopted an amendment to the city's Rent Stabilization Ordinance, which prohibits evictions when a landlord changes a lease agreement without the consent of the tenant. The council adopted the amendment in response to complaints that landlords were using changes to lease terms as grounds for eviction of tenants in rent-controlled units. Tenants' rights advocates complained that landlords were making changes to leases that required tenants to provide extensive personal information and comply with numerous other unreasonable regulations. The amendment allows owners to evict a tenant for violating new lease agreements only if the tenant has agreed in writing to the new provisions. The amendment is now awaiting the Mayor's signature.
STATE NEWS
New Forms of Rent Control Proposed in the Senate
SB 178 (Cedillo) “Rent Control,” passed the Senate Judiciary Committee on Tuesday, April 8th with a 5-to-1 vote. Under the Costa-Hawkins Rental Housing Act, an owner of residential real property has the ability to establish the initial rental rate for a dwelling or unit. This bill undermines this law by forcing developers of new or rehabilitated units to restrict the rents and incomes of occupants for a portion of the units. This bill will next be heard on the Senate Floor.
SB 345 (Kuehl) “Costa-Hawkins Rental Act Revision,” passed the Senate Judiciary Committee on Tuesday, April 8th with a 4-to-1 vote. This bill proposes numerous alterations to existing law, known as the Costa-Hawkins Rental Housing Act. Most importantly, this bill states that after a tenancy is terminated in certain instances, the dwelling or unit must be offered and rented at the rent in effect at the time of termination. It also permits a tenant who has received a 3-day notice in an unlawful detainer action to redeem the tenancy and continue in lawful possession by tendering certain amounts to an owner or an owner's agent, either before or after the filing of a complaint—the bill would permit a tenant to redeem his tenancy under these provisions only if the tenant has lived in the unit for at least one year, has not redeemed his or her tenancy for the prior two years, and the deposit of these amounts is made before the commencement of trial. Finally, this bill would prevent a landlord from lawfully evicting a tenant if they are suspected of being involved in drug-related criminal activity—they must be convicted before this is possible. This bill will next be heard on the Senate Floor.
Receipts for Security Deposit Deductions
SB 90 (Torlakson) “Security Deposit Receipts,” passed the Senate Judiciary Committee on Tuesday, April 8th with a 4-to-1 vote. This bill requires landlords to provide copies of the receipts for any labor or material the landlord has paid for and has deducted from the security deposit. Such an amendment would prevent additional and unnecessary work for the landlord, especially when an itemized accounting of the deduction is sufficient for a tenant. This bill will next be heard on the Senate Floor.
Streamlining New Housing Development Approvals
SB 619 (Ducheny) “Ministerial Project Approval (100 units or less)/Coastal Zone/Discrimination” passed the Senate Housing and Community Development Committee on Monday, April 7th with a 7-to-1 vote. Local governments often hold extensive hearings on housing development applications, even when that development is totally consistent with all of the local government’s existing mandates. This measure will streamline the approval process by eliminating discretionary review-permitting for low to moderate-income housing developments of 100 units or less that fully conform to local zoning and development laws. Current law permits local governments to collect attorney’s fees from neighborhood groups and individuals that unsuccessfully sue the government to stop the reasonable expansion of affordable housing in their communities. This measure extends the law to developers by allowing them to collect fees from those same groups and individuals as well. It also clarifies existing law that prohibits local governments from denying a development based on ethnicity or income level of the future occupants. Additionally, the bill affirms that the California Coastal Commission, which historically has opposed housing starts, must recognize and prioritize affordable housing development. Finally, for local governments that fail to file an annual housing production report, this measure allows the state or interested party to sue a local government in an effort to compel compliance with the housing element. It also permits developers to recover costs and fees.
FEDERAL NEWS (Excerpted from IREM National website)
Bankruptcy Reform
Congress has yet again taken up the important issue of bankruptcy reform this year, which passed the House of Representatives by a wide margin on March 19. H.R. 975 contains several provisions of interest to the property management industry, including eliminating the cap on single asset bankruptcies, closing a loophole that allows tenants to abuse the bankruptcy process to avoid paying rent, limiting the amount of time bankrupt shopping center tenants have to make a decision on assuming or rejecting leases, and ensuring that bankruptcy is not used to avoid paying fees or assessments to a homeowners’, community, or condominium association.
Depreciation of Tenant Leasehold Improvements
Currently, when a landlord makes improvements for a particular tenant, the cost of those improvements must be amortized over the lifetime of the property (39 years for non-residential property). These improvements, however, do not, by their nature, last for as long as 39 years. S. 576 and H.R. 1634 will allow the costs of leasehold improvements to be amortized over 10 years, making them more economically feasible for landlords.
ADA Lawsuits
While the Americans with Disabilities Act (ADA) does not allow plaintiffs to collect damages, their lawyers can collect legal fees. This allows unscrupulous lawyers to exploit this loophole by filing frivolous lawsuits against commercial property owners. These lawsuits are a burden on the legal system and well-meaning property owners and managers. In March, Congressman Mark Foley, CCIM® (R-FL) introduced H.R. 728, the "ADA Notification Act," which would ensure that commercial facilities and places of accommodation are given 90 days before a lawsuit is filed to make necessary corrections without the expense of going to court.
Expensing of Building Security Equipment
Since September 11, 2001 , building owners across the country report that their security-related operating budgets have increased significantly and are still climbing. Currently, building owners would depreciate these security assets over 5-7 years. H.R. 1259 would allow these costs to be wholly deducted in the year they are placed in service. This will help businesses and property owners to more immediately meet the security needs they are facing.
10-Year Leasehold Improvement Depreciation Introduced in House
Congressman Clay Shaw (R-Fla.) introduced leasehold improvement depreciation legislation to the House on April 2. Identical to S.576, the bill introduced in the Senate by Senator Conrad (D-N.D.), the legislation shortens the cost recovery period for leasehold improvements from 39 years to 10 years, allowing the depreciation period for leasehold improvements to more accurately reflect the useful economic life of these improvements and better match the income they generate during the lease term.
Under current law, qualified leasehold improvements are entitled to 30% bonus depreciation until September 11, 2004. All other leasehold improvements must be depreciated over 39 years, a period that is almost four times the average life of the improvements. Improvements typically last about as long as the lease term - five to 10 years, on average. This disparity between tax treatment and economic life distorts lease transactions by artificially increasing the capital cost of the improvements.
Terrorism Insurance Not Required by the FHA
HUD Secretary Martinez announced on March 11, 2003 that FHA will not require terrorism insurance for multifamily mortgages of less than $50 million. The requirement for properties over $50m will only apply to new mortgage applications and not existing mortgages. This threshold will be debated in a proposed rule to be released this Spring.
Toxic Mold Bill Reintroduced
Rep. John Conyers, (D-Michigan), reintroduced the “United States Toxic Mold Safety and Protection Act of 2002” (HR 1268), a far-reaching bill prescribing research, inspection and remediation standards to address the myriad of issues stemming from toxic mold. The bill would create a national toxic mold hazard insurance program much like the federal flood insurance program in order to address the burgeoning number of claims against policies for costs related to mold clean-up and health hazards.
Careful analysis of the bill’s language reveals several areas of concern. Sections 201 through 206 address inspection requirements for residential properties, building code requirements and construction requirements. The bill also prescribes tax credits for toxic mold inspection and remediation.
LEGISLATIVE UPDATE - April, 2003
Last month’s report included a review of several bills (out of about 200 bills) that were introduced in the opening weeks of the California legislature. Since then nearly 1800 Assembly and 1100 Senate bills have been introduced. Since it is humanly impossible for a volunteer committee to review all these bills, we refer you to the California Legislative website www.leginfo.ca.gov/index.html if you are interested in any of the bills.
While the state’s current fiscal crisis has dominated the political landscape in California, the fact that the Legislature introduced over 2,900 bills has been largely overlooked. A majority of these bills are just place holders (spot bills). However, even these spot bills identify the types of issues that will be debated in the Legislature. For example, AB 1053 (Steinberg, D - Sacramento), AB 1093 (Lieber, D – Santa Clara), and SB 996 (Alarcon, D - Sylmar) all focus on the issue of “living wage.” Even though these bills are just skeletal in substance, the fact that these three legislators have introduced this type of legislation sends a clear signal to the business community that a substantive living wage measure will be debated by the Legislature.
State News
Split Roll Property Tax is Back Again (SB 17)
Senator Martha Escutia (D) has announced legislation to increase the property tax share for commercial properties. SB 17 is designed to prevent owners from escaping reassessment by forming dummy corporations or selling businesses but leasing the land to new owners. The legislation also would tighten the law governing change of ownership by requiring reassessment if at least 50 percent of a corporation's stock or ownership changes hands.
This is a "job killer" bill that would harm California's workers, business community and economy by causing both a severe tax increase and a huge administrative burden.
Exemption from California Environmental Quality Act Requirements (AB1322)
Representative Shirley Horton (R) has introduced legislation that provides an exemption for a project that is consistent with a properly granted zoning variance from a general plan of a local agency for which an environmental impact report was certified.
Prospects for consideration and passage are unfavorable since the sponsor is a member of the minority party and does not sit on the Natural Resources Committee.
Bad News for Worker’s Compensation
By law, employers must buy workers’ compensation insurance, but such policies are becoming even more costly and scarce. The Assembly Insurance Committee was told that the biggest insurer for workplace injuries is on the brink of closing its doors to new business. The State Compensation Insurance Fund is a state-run nonprofit that insures half of the businesses in California for workers hurt on the job. Insurance Commissioner John Garamendi, whose department oversees the state fund and private insurers, told lawmakers that unrestrained medical and legal costs are resulting in higher premiums. Experts at the hearing reported that there is no end to the crisis in the immediate future. The executive vice president of the fund says that it is likely that workers’ comp rates will jump 9% in July, an additional 9% in January and 9% again in January 2005 - and legislators wonder why we have a struggling economy.
City of Los Angeles News
Eviction Control Amendment awaiting Mayor’s signature (3/20/03)
The LA City Council has adopted an amendment to the city's Rent Stabilization Ordinance, which prohibits evictions when a landlord changes a lease agreement without the consent of the tenant. The council adopted the amendment in response to complaints that landlords were using changes to lease terms as grounds for eviction of tenants in rent-controlled units. Tenants' rights advocates complained that landlords were making changes to leases that required tenants to provide extensive personal information and comply with numerous other unreasonable regulations. Landlords argued the lease changes help them regulate and maintain order in their buildings. The amendment allows owners to evict a tenant for violating new lease agreements only if the tenant has agreed in writing to the new provisions. The Apartment Association of Greater Los Angels opposed the amendment | 
