San Francisco Administrative Code CHAPTER 60 ASSISTED HOUSING PRESERVATION ORDINANCE SEC. 60.1. TITLE. SEC. 60.1. TITLE. This Assisted Housing Preservation Ordinance is enacted as Chapter 60 of the Administrative Code of the City and County of San Francisco. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.2. PURPOSES. The purposes of this Chapter are to assist public and private efforts to ensure that housing affordable to very low, low and moderate income households is not permanently removed from the housing stock, to preserve and promote a supply of housing that is affordable to very low, low and moderate income residents in the community, to protect the diversity of the community by preventing displacement of very low, low and moderate income households, and to prevent homelessness. This Chapter is enacted: (a) To assist efforts to ensure that the stock of affordable rental units in the community is preserved; (b) To assist efforts to ensure that very low, low and moderate income households are not unnecessarily displaced from subsidized housing units due to the owner's prepayment of loans or termination of rent subsidies which have the effect of terminating restrictions on occupancy, rent, and use of such units; (c) To ensure that the City, concerned nonprofit organizations and affected tenant households receive adequate notice that affordability restrictions may terminate to enable them to respond to the potential problems created by conversions of subsidized rental units; and (d) To ensure that the subsidized rental unit occupants are provided with information and assistance in the event of conversion of such units to market-rate housing. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.3. FINDINGS. The Board of Supervisors finds that: (a) For more than 50 years, federal, state and local governmental entities have initiated and maintained various housing programs designed to provide housing affordable to low and moderate income households. (b) Since the inception of these housing programs, demand for affordable subsidized rental units has consistently exceeded the supply of such units. (c) On May 12, 1989, the Mayor's Housing Advisory Committee for the City and County of San Francisco issued the draft Affordable Housing Action Plan For San Francisco. The report concludes that "[t]he demand for housing, especially for housing affordable to households earning less than moderate income, greatly exceeds the availability of such housing" and that the "preservation and improvement of the local existing affordable housing stock, particularly for low and very low income households, must be made a priority." (d) The Federal Home Loan Bank has determined in the Federal Home Loan Bank Housing Vacancy Survey conducted in September of 1988 that the vacancy rate for all multi-family housing in San Francisco was approximately 1.6 percent. (e) According to the Inventory of Federally-Subsidized Low-Income Units at Risk of Conversion issued on March 1, 1989 by the California Coalition for Rural Housing and the California Housing Partnership Corporation, approximately 83 privately owned developments assisted with Federal funds are located in San Francisco. Some of these assisted developments contain units affordable to very low, low and moderate income households which are at risk of conversion to market-rate rental or ownership housing by the year 2008. These developments include approximately 7,500 units carrying project-based rental subsidies under the Section 8 program. Approximately 3,900 of these units are at risk of conversion to market-rate housing due to prepayment of federal loans or termination of Section 8 subsidies. Approximately 4,000 additional units already in nonprofit ownership are also at risk due to impending expiration of Section 8 contracts. (f) The California State Legislature has declared that there exists a severe shortage of housing affordable to very low, low and moderate income households, that such shortage is inimical to the safety, health and welfare of the residents of the state, and that it is an economic benefit to the state and a public purpose to encourage the availability of adequate housing for very low, low and moderate income households. (g) Section 101.1(b)(3) of the San Francisco Planning Code establishes as a Priority Policy for the San Francisco Master Plan "[t]hat the City's supply of affordable housing be preserved and enhanced." The Housing Element of the San Francisco General Plan establishes as one of its primary goals the preservation and expansion of the housing stock affordable to very low, low and moderate income households within the City. The California State Legislature has recently enacted provisions requiring the City to include in its Housing Element an analysis of existing assisted housing developments for which subsidies and applicable use restrictions may be terminated during the next10 years, and a program for preserving such affordable units. The Legislature has also enacted provisions which clarify that the Low and Moderate Income Housing Fund moneys administered pursuant to the Health and Safety Code by redevelopment agencies may be expended for assisted housing preservation efforts. (h) The City's Housing Assistance Plan, Com-munity Development Objectives, and Comprehensive Homeless Assistance Plan all establish the preservation and expansion of the supply of affordable housing as major policy objectives of the City. (i) Under the federal housing programs designed to create and maintain privately owned, publicly assisted housing affordable to households of very low, low and moderate income, including but not limited to the Section 221(d)(3), Section 236, Section 8 New Construction, Substantial Rehabilitation and Moderate Rehabilitation Programs, and the Section 8 Loan Management Set Aside Program, some persons owning federally subsidized housing units may prepay federally subsidized loans prior to the end of the loan term, and/or are given the option upon renewal dates of rental subsidies not to renew such subsidies. The City recognizes the rights of owners of such housing units contained in such contracts with the federal government and that the owners of such housing are entitled by law to a fair return on their investment. (j) The owners of such housing units have enjoyed substantial financial benefits from participation in such government programs, including but not limited to: (1) Programs such as the Builder Sponsor Profit And Risk Allowance, which allowed original owners to credit a noncash contribution toward the 10 percent equity requirement; (2) Calculation of the six percent return on the basis of 10 percent of project value, regardless of the owner's actual cash investment; (3) Operating income subsidies; (4) Capital improvement loan subsidies; (5) Reduction of debt service in insured projects; (6) Mortgage modification, forbearance and workout policies which substantially reduced risk of foreclosure; (7) HUD regulatory preemption of local rent control; and (8) Tax benefits under the Tax Reform Act of 1976, the Economic Recovery Tax Act of 1981 and the Deficit Reduction Act of 1984. Among the most significant of these tax benefits was the application of accelerated depreciation schedules to assisted housing developments. For example, in 1981, the United States Congress amended the United States Revenue Code to enable the owner of a low-income housing development to take advantage of special accelerated depreciation rules. Under the 1981 amendments, such developments were allowed to be depreciated for tax purposes using the double declining balance method over a shortened 15-year period. This change in the Internal Revenue Code created a powerful financial incentive to increase the depreciable basis of a development. Subsequent to the effective date of this change, many former owners of assisted housing developments participated in transfers of ownership at inflated prices which greatly increased the depreciable basis of the developments, and the tax benefits of ownership. In some cases, these tax benefits were abused when transfers involved the use of unenforceable debt obligations to pay an inflated purchase price and thus the depreciable basis. In these transactions, loans which required no current payment of principal or interest, or which carried no foreclosure remedy for default, were used primarily to inflate depreciable basis above the then-current value of the development. Such loans have little or no economic value other than as a device to inflate depreciable basis and increase tax benefits. The creation of these "paper" loans ceased when the Internal Revenue Code was amended by the Tax Reform Act of 1986. The 1986 amendments removed the financial incentives to inflate depreciable basis by instituting the passive activity and passive loss rules, by lengthening the period of depreciation for assisted housing developments to 27-½ years, and by changing the method from double declining balance to straight line. Therefore, the Board of Supervisors finds that the principal or interest due under loans created between the effective dates of the 1981 and 1986 amendments to the Internal Revenue Code, which are not required to be paid currently from the cash flow generated by operation of a development or which could not be foreclosed upon for failure to make payments, should not be included in the Fair Return Price. (k) The prepayment of federally subsidized loans and the failure to renew rental subsidies under federal programs will terminate federal rent restrictions and will result in loss of housing units affordable to and the displacement of very low, low and moderate income households. (l) In the San Francisco Bay Area, 18,820 units in 186 projects providing housing for thousands of very low, low and moderate income households may be directly and adversely affected by the prepayment of Section 221(d)(3), Section 236, and Section 8 loans and the nonrenewal of Section 8 project-based subsidies. This regional loss of housing units affordable to very low, low and moderate income households will impact all communities within the Bay Area. The California Legislature has declared that all communities have an obligation to provide a fair share of the region's housing needs for very low, low and moderate income households. (m) Conversion of subsidized rental units to market-rate rental or ownership units will result in the displacement of very low, low and moderate income households residing in assisted housing developments, and will also result in a permanent loss from San Francisco's housing stock of housing units affordable to very low, low and moderate income households. The risk of such conversions constitutes a substantial and immediate threat to the welfare, health and safety of San Francisco's residents. Displacement of very low and low income households, the currently inadequate supply of affordable housing units and the lack of federal, state and local funds to produce a sufficient supply of such units, combine to force more people into already overburdened emergency shelters, and onto the streets. (n) The loss of affordable rental units resulting from conversion will have an adverse impact on the goal of preserving and expanding the existing stock of affordable housing, as well as an adverse impact on the City's housing and service programs by placing additional burdens on the City's limited housing resources and limited resources for providing emergency shelter and associated services. (o) Conversions of subsidized rental units to nonsubsidized rental units present special problems which would create conditions detrimental to the health, safety and welfare of the San Francisco community. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.4. DEFINITIONS. (a) "Assisted housing development" or "development" shall mean any multifamily rental housing building, or group of buildings under common ownership, comprised of four or more rental units, which development has received or receives any public subsidy, including, but not limited to, a mortgage loan, a mortgage interest subsidy, mortgage insurance or a rent subsidy from a federal, state or local governmental body or agency, whose rent levels are restricted so as to be affordable to very low, low and moderate income households. (b) "CHFA" shall mean the California Housing Finance Agency and shall include any delegatee of CHFA when such delegatee acts to administer a CHFA program. (c) "City" shall mean the City and County of San Francisco. (d) "Conversion" shall mean any of the following with regard to a unit which was (i) a subsidized rental unit on the effective date of this Chapter, and (ii) is located in a development as to which prepayment, termination or repurchase has occurred: (1) A rent increase, resulting in a rent exceeding the rental payment allowed under the applicable use restrictions for a unit in the assisted housing development; (2) Demolition or other construction work on the unit which renders the unit uninhabitable, is commenced; or (3) A change in use of the development of any unit within a development is commenced. (e) "Conversion date" shall mean the date on which conversion occurs. (f) "Converted unit" shall mean a subsidized rental unit that was subject to conversion. (g) "Director of Housing" shall mean the Deputy Mayor for Housing and Neighborhoods of the City and County of San Francisco and his or her designee, or if such position ceases to exist, such other qualified City official as shall be designated by the Mayor as the Mayor's agent for the enforcement of this Chapter. (h) "HUD" shall mean the United States Department of Housing and Urban Development, and shall include the Federal Housing Administration ("FHA") and any delegatee of HUD when such delegatee is acting to administer a HUD program. (i) "Low income household" shall mean any household with an adjusted gross income which does not exceed 80 percent of median income. (j) "Median income" shall mean the median gross annual income, adjusted for household size, for households in the statistical area, as published periodically by HUD. In the event that such income determinations are no longer published by HUD or are not updated for a period of at least 18 months, "median income" shall mean the median annual gross income, adjusted for household size, for households in San Francisco County, California, published periodically by the California Department of Housing and Community Development ("HCD"). In the event that such income determinations are no longer published by HCD, or are not updated for a period of at least 18 months, the City shall determine the median income using standards and methods reasonably similar to those standards and methods used by HUD or HCD when it last published a median income calculation. (k) "Moderate income household" shall mean any household with an adjusted gross income which does not exceed 95 percent of median income. (l) "Notice of intent to prepay and/or terminate" shall mean the notice the owner provides to the Director of Housing and to Tenant Households 18 months prior to prepayment or termination, as set forth in Section 60.5 of this Chapter. (m) "Owner" shall be defined to mean the person, partnership, or corporation or other entity that is a party to a contract with HUD or other public body which provides a mortgage, mortgage assistance, mortgage insurance, or rent subsidy, or any spouse, employee, agent, partner, master lessee, business affiliate or associate, or successor in interest of such person, partnership or corporation that receives or demands rent for a subsidized rental unit. (n) "Person" shall mean any natural person, corporation, firm, partnership, association, joint venture, government (domestic or foreign), governmental or political subdivision or agency, or other similar entity. (o) "Prepayment" shall mean the prepayment, prior to the expiration of the full, original, stated term of the loan, of any loan secured by an assisted housing development which loan was insured or subsidized at its inception by a federal, state or local governmental body or agency, including, but not limited to, loans made, insured or subsidized under the authority of the following provisions of federal and state law, if such prepayment would have the effect of terminating the use restrictions applicable to such assisted housing development, without substitution of substantially similar use restrictions: (1) New Construction, Substantial Rehabili-tation, and Loan Management Set-Aside Programs under Section 8 of the United States Housing Act of 1937, as amended, 42 U.S.C. 1437(f); (2) Section 213 of the National Housing Act of 1934, as amended, 12 U.S.C. 1715e; (3) The Below-Market-Interest-Rate Program under Section 221(d)(3) of the National Housing Act of 1934, as amended, 12 U.S.C. Section 1715 1(d)(3); (4) Section 236 of the National Housing Act of 1934, as amended, 12 U.S.C Section 1715z-1. Prepayment shall not include the expiration of the full original, stated term of a loan. (p) "Prepayment date" shall mean the date prepayment, termination or repurchase occurs. (q) "Rent" shall mean the monetary consideration paid by a tenant household for the use or occupancy of a unit, and shall not include a utility allowance. (r) "Replacement unit" shall be defined to mean a unit which satisfies the following standards: (1) Is decent, safe, sanitary and comparable to the converted unit, with a quality of construction conforming to current building code standards and adequate in number of rooms and living space to accommodate the tenant household of the converted unit being replaced. (2) Is located in the City in an area (i) not subjected to unreasonably adverse environmental conditions from either natural or manmade sources, (ii) not generally less desirable than the converted unit with respect to public utilities, public and commercial facilities and neighborhood conditions, including schools and municipal services, and (iii) reasonably accessible to the present or potential places of employment of the members of the tenant household of the converted unit being replaced; and (s) "Repurchase" shall mean purchase by an owner or its related entity of a development or any portion thereof, following foreclosure or transfer by deed in lieu of foreclosure, which foreclosure or transfer terminates the applicable use restrictions, when the building included subsidized rental units immediately prior to foreclosure or transfer, and the building was owned by the same owner prior to foreclosure or transfer in lieu of foreclosure, and new, substantially similar use restrictions are not substituted for such terminated use restrictions. For the purposes of this Chapter, "related entity"means any of the following: (1) A spouse, parent, child, or other individual related to the owner by a tie of blood, marriage, adoption or operation of law; (2) A partnership, if the owner is either a general or a limited partner of the partnership; (3) A corporation, if the owner serves on the board of directors of the corporation, or if the owner is a holder of 10 percent or more of any class of the outstanding stock of the corporation; or (4) Any other business entity for which the owner has primary or controlling authority for management of the business. (t) "Section 8" shall mean Section 8 of the United States Housing Act of 1937, as amended, 42 U.S.C. Section 1437f. (u) "Statistical area" shall mean the San Francisco-Oakland Metropolitan Area. (v) "Subsidized rental unit" shall mean any unit in an assisted housing development. (w) "Tenant household" shall mean a person or group of persons entitled by written or oral agreement, subtenancy approved by the owner, or sufferance, to occupy a unit to the exclusion of others. (x) "Tenant association" shall mean a group of tenants who have formed a nonprofit corporation, limited equity cooperative corporation, unincorporated association, or other entity or organization whose primary purpose is the preservation, for current and subsequent tenants, of the affordability of the subsidized rental units in which tenants reside. (y) "Termination" shall mean terminating or failing to renew a rent subsidy contract with HUD or CHFA prior to the expiration of the full term of such contract, which contract may be unilaterally renewed by an owner, including, but not limited to contracts entered into pursuant to: (i) Section 8, which contracts are renewable by an owner in five-year increments during the contract term, but not including any contracts entered into pursuant to the Section 8 Existing Housing Program (24 C.F.R. Part 882); and (ii) Section 101 of the Housing and Urban Development Act of 1965, as amended. Termination shall not include the expiration of a full original, stated term of a rental subsidy contract, or the termination of the contract upon default by the owner. (z) "Unit" shall mean a residential rental unit, and shall include a subsidized rental unit. (aa) "Use restriction" shall mean any federal, state or local statute, regulation, ordinance, contract, regulatory agreement, covenant, or other restriction which imposes a maximum limitation on tenant household income as a condition of eligibility for occupancy of a unit and (i) imposes a restriction on the maximum rents that could be charged for any of the units, or (ii) requires that rents for any of the units within an assisted housing development be reviewed by a governmental body or agency before the rents charged to tenant households may be increased. (bb)"Very low income household" shall mean any household with an adjusted gross income which does not exceed 50 percent of the median income. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.5. NOTICE OF INTENT TO PREPAY AND/OR TERMINATE. (a) At least 18 months prior to the anticipated date of any prepayment and/or termination, any owner of an assisted housing development shall deliver to the Director of Housing and to each tenant household a notice of intent to prepay and/or terminate. (b) The notice shall include the following information: (1) The name and address of each owner of the assisted housing development. For any owner that is a corporation, the notice shall contain the names and addresses of the officers and directors of the corporation and of any person directly or indirectly holding more than 10 percent of any class of the outstanding stock of the corporation. For any owner that is a partnership or joint venture, the notice shall contain the names and addresses of the joint venturers or general and limited partners and shall specify the names and addresses of the natural persons who are the principal or controlling persons of such entities. (2) The development's name, federal, state, or local program name and ID number, and address; (3) The date of intended prepayment and/or termination and a brief description of the owner's plans for the development, including any timetables or deadlines for actions to be taken; (4) The number of subsidized rental units in the development subject to prepayment and/or termination, and the number of subsidized rental units occupied by tenant households with persons age 62 or older, with disabled persons, or with children; (5) The current rent schedule for the subsidized rental units; (6) A brief description of any contracts concerning prepayment, termination or conversion the owner has made with any government agency, tenant household residing in the development, or other interested person or entity; (7) The anticipated rent schedule after prepayment and/or termination; (8) A statement signed by the owner under penalty of perjury certifying the date on which a copy of the notice was sent to the Director of Housing; (9) A statement that the Planning Commission is required to hold a public hearing on the intended prepayment and/or termination within 90 days of receipt of the notice by the Director of Housing; and (10) The telephone number of the Director of Housing or the designee of the Director of Housing to call to request additional written information about the owner's responsibilities and about the rights and options of tenant households. (c) The 18-month notice period shall commence on the date the notice of intent to prepay and/or terminate has been received both by the Director of Housing and by all affected tenant households. The notice shall be deemed received five days after it is given by deposit in the United States mail, return receipt requested. No owner shall cause, either by action or inaction, the prepayment and/or termination to occur prior to the expiration of the 18- month notice period. (d) Within 21 days after the owner gives the notice of intent to prepay and/or terminate, the owner shall submit to the Director of Housing a statement certifying the following information under penalty of perjury: (1) The owner's actual cash investment in the development, as defined by Section 60.8 (i)(1)(i) below, itemized by date of investment; (2) The total amount of debt described in Section 60.8 (i)(1)(iii) below; and (3) The total amount of debt described in Section 60.8 (i)(2)(iii) below. (e) Upon 10 days' advance notice to the owner, the Director of Housing may require the owner to make available for inspection and auditing during normal business hours all financial books and records pertaining to the development. The Director of Housing shall make a copy of: (1) the notice of intent to prepay and/or terminate and (2) the statement required by Section 60.5(d) above, and shall make such copies, together with the results of such audit, available to any qualified entity upon receipt of written request by such qualified entity. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.6. PUBLIC HEARING ON PROPOSED PREPAYMENT AND/OR TERMINATION. (a) No later than 45 days after the date the Director of Housing receives the Notice of Intent to Prepay and/or Terminate, the Director shall notify the secretary of the City Planning Commission ("Commission") that such Notice was received and shall forward to the Commission a copy of such Notice. No later than 45 days after the secretary's receipt of notice from the Director pursuant to the preceding sentence, the Planning Commission shall hold a public hearing on the intended prepayment and/or termination. The failure of the Commission to hold a timely public meeting shall not prevent any person from exercising any of its rights with respect to the development. (b) The Commission shall give notice of the date and location of the public hearing as customarily is given by the Commission for its public meetings. The notice shall contain a summary of the owner's plan for the development subsequent to prepayment and/or termination, including the date of any proposed prepayment, termination or conversion. The Commission shall also mail the notice of the public hearing to any interested person or organization that requests in writing to be notified of any particular public hearing on a proposed prepayment and/or termination, or of all public hearings on proposed prepayments and/or terminations. (c) At least 14 days prior to the public hearing, the Director of Housing shall make available to any interested person copies of the notice of intent to prepay and/or terminate and any other information, including copies of this Chapter, that concerns the responsibilities of owners and the rights and options of tenant households. (d) The Commission shall hear testimony and receive relevant documents from interested persons. The Commission shall consider the evidence and make specific written findings as to the following issues: (1) The proposed date of prepayment, termination or conversion, if intended; (2) The anticipated use of the assisted housing development subsequent to prepayment, termination or conversion, if intended; (3) The anticipated numbers of units in the development on any proposed prepayment date that will be occupied by very low, low and moderate income households; (4) The numbers of households in each income category identified in Subparagraph (3), above, that will contain, on the prepayment date, one or more disabled tenants, who are children under the age of 18 or persons over the age of 62; (5) For each unit occupied by a very low, low or moderate income household prior to the prepayment date, the rent increase anticipated upon conversion expressed both numerically and as a percentage of the rent charged immediately prior to the conversion date; (6) The numbers of tenant households, by each category identified in Subparagraphs (3) and (4) above, likely to be displaced by conversion; (7) The vacancy rates in the City for rental units which are available at affordable rent to very low, low and moderate income households; and (8) The likely impact of prepayment and/or termination and subsequent conversion upon public and private nonprofit services. For the purpose of this Section 600.6(d): (1) "Affordable rent" shall mean the rent levels specified in Section 60.8(b)(2)(i) and (ii) below; and (2) A tenant household shall be presumed to be likely to be displaced when the rent due subsequent to the conversion date exceeds affordable rent. (e) Within 30 days after the hearing, the Commission shall complete and forward its findings under Section 60.6(d) above to the Clerk of the Board of Supervisors ("Board"). Subject to the time required for adequate public notice and preparation for review, the Board shall consider the Commission's findings at the Board's next regular meeting following receipt of the findings by the Clerk of the Board, and shall, by resolution, accept the findings or remand the findings to the Commission for revision. (Added by Ord. 332- 90, App. 10/3/90) SEC. 60.7. RELOCATION BENEFITS FOR DISPLACEMENT DUE TO CONVERSION. (a) For any very low, low, or moderate income household displaced by conversion, the owner shall pay to such tenant household an amount equal to the difference between (i) the annual rent or cost of ownership required for such household to lease or rent a unit for four years, or to purchase a dwelling unit, either of which is equivalent to a replacement unit and (ii) 30 percent of the actual gross annual income of the tenant household on the prepayment date; provided, however, that in no event shall the amount calculated under this Section 60.7(a) exceed $5,250. (b) For the purpose of this Section 60.7, a tenant household is "displaced" by conversion when, after the notice of intent to prepay and/or terminate is given, the tenant household receives a notice to quit, or vacates the unit due to inability to pay the increased rent due on the conversion date, and the facts constituting the grounds for eviction stated in Section 37.9(a)(2), (3), (4), (6), or (7) of the San Francisco Administrative Code, or any other just cause cognizable under federal or state regulation applicable to the development prior to the prepayment date, do not exist to justify eviction. A tenant household shall be presumed to be unable to pay the rent due on the conversion date if such rent exceeds the rent specified in Section 60.8(b)(2)(ii). The tenant household shall not be considered to be displaced by conversion if the tenant household is evicted for nonpayment of the rent due prior to the conversion date. (c) A tenant household displaced by conversion shall be entitled to receive the amount due under Section 60.7(a) prior to but as a condition of, vacating the unit. (d) The requirement contained in Section 60.7(a) above shall not apply to any assisted housing development which is sold or otherwise transferred to a qualified entity pursuant to Section 60.8 below, or if the owner provides to the tenant household, prior to the conversion date, a replacement unit which is immediately available for occupancy. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.8. RIGHT OF QUALIFIED ENTITIES TO RECEIVE OFFER FOR PURCHASE OF AN ASSISTED HOUSING DEVELOPMENT. (a) Any owner of an assisted housing development required by this Chapter to give notice of intent to prepay and/or terminate, or to give the notice of expiration required by Section 60.9, below, shall not sell or otherwise transfer the development, or any portion thereof, unless the owner proposing such sale or transfer shall first have provided qualified entities the opportunity as described in this Section 60.8 to purchase the development. (b) A "qualified entity" within the meaning of this Chapter means an entity that (x) is a government entity; or (y) is described in Section 501(c)(3) and is exempt from taxation under Section 501(a) of the Internal Revenue Code of 1986, and is (A) the tenant association of the development, if any, (B) a nonprofit public benefit corporation or (C) a limited partnership with a nonprofit public benefit corporation as general partner, and which: (1) Has demonstrated, to the reasonable satisfaction of the Director of Housing, the capability, either by itself or through a management agent, to manage the development for the development's remaining useful life; (2) Agrees, in a written certification to the owner and to the Director of Housing and through the recording of the document described in Section 60.8(n), to obligate itself and any successors in interest to maintain the assisted housing development, for its remaining useful life, for occupancy either in (x) the same percentage of very low, low and moderate income households that occupied the units on the date the owner gave notice of intent to prepay and/or terminate or (y) the percentages specified in existing use restrictions, whichever yields lower rents, at monthly rents not exceeding the lower of: (i) The rents specified in the existing use restrictions; or (ii) (A) The greater of 1/12 of (1) 30 percent of 40 percent of median income, or (2) 30 percent of actual tenant household income, less a utility allowance, for each unit occupied by a very low income household; and (B) the greater of 1/12 of: (1) 30 percent of 70 percent of median income, or (2) 30 percent of actual tenant household income, less a utility allowance, for each unit occupied by a low income household; and (C) the greater of 1/12 of: (1) 30 percent of 90 percent of median income, or (2) 30 percent of actual tenant household income, less a utility allowance, for each unit occupied by a moderate income household; (3) Has demonstrated, to the reasonable satisfaction of the Director of Housing, a commitment to seek, diligently and in good faith, any additional subsidies that may become available to increase the percentage of units available for occupancy by very low income households at a rent not exceeding the amount specified in Section 60.8(b)(2)(ii) above; (4) Does not have among its directors, general partners, shareholders or other persons with a financial interest in the entity, a majority of persons who have converted subsidized rental units or have given a notice of intent to prepay and/or terminate; and (5) Is not a related entity of the owner. (c) Any person may petition the Director of Housing to determine whether a person claiming to be a qualified entity is a qualified entity. Upon written request of the Director of Housing, any person claiming to be a qualified entity shall submit to the Director of Housing, within 30 days of receipt of such request, written documentation supporting the conclusion that that person is a qualified entity. Such documentation shall include a statement by an authorized officer of the entity attesting under penalty of perjury to the accuracy and completeness of the facts stated in such documentation. Upon receipt the Director of Housing shall make such documentation available for public inspection and copying upon written request by any interested person. The Director of Housing shall promptly make a determination after receiving all relevant information and shall support the determination with public written findings. The determination of the Director may be appealed to the Appeals Board. (d) Any owner of an assisted housing development who is required to give notice of intent to prepay and/or terminate, or to give the notice of expiration required by Section 60.9, shall not sell or otherwise transfer an assisted housing development, or any portion thereof, without giving, at least 14 months prior to the date of such sale or transfer, notice of intention to sell or transfer the development or any portion thereof ("notice of intent to sell"), to the Director of Housing and to any Qualified Entity which requests in writing such notice from the owner. The notice of intent to sell shall be signed by the owner under penalty of perjury and given by deposit in the United States Mail, first class, certified, return receipt requested and posted in a conspicuous place in the common area of the development. (e) The notice of intent to sell shall contain all of the following: (1) The intended date of sale or transfer; (2) The terms of assumable or seller take-back financing, if any, including, but not limited to, the name and address of the lender, the principal amount of the loan, the interest rate, repayment provisions, the date the loan is due, and the priority of the lien of any instrument securing the loan; the terms of an applicable subsidy contract, if any; and proposed improvements to the property to be made by the owner in connection with the sale or transfer, if any; (3) A statement that the development or portion thereof is available for purchase by or transfer to a qualified entity; (4) A statement that the owner will make available to any qualified entity, within 15 days of receiving a written request therefor, itemized lists of monthly operating expenses, capital improvements as determined by the owner made within each of the two preceding calendar years, the amount of project reserves, and copies of the two most recent financial and physical inspection reports on the development, if any, filed with federal, state, or local agencies; and (5) A copy of the notice of intent to prepay and/or terminate and a statement, signed by the owner under penalty of perjury, of the date the notice of intent to prepay and/or terminate was given. (f) If, prior to the time by which the owner must give the notice of intent to sell, the owner already has received from a qualified entity an offer to purchase, as defined in Section 60.8(g) below, and the owner has accepted such offer, the owner shall not be required to give the notice of intent to sell; provided, however, that the owner shall be required to submit to the Director of Housing, and to post in a conspicuous place in the assisted housing development, a certification made under penalty of perjury that the owner has received and accepted an offer to purchase from a qualified entity. Such certification shall contain a statement of the terms of the sale or transfer. (g) Any qualified entity which desires to acquire the development shall send to the Director of Housing and to the owner by United States mail, first class, certified, return receipt requested, an offer to purchase. To be effective for the purpose of Section 60.8(i) below, such offer to purchase shall be received by the owner no later than eight months prior to the conversion date. The offer to purchase shall contain the following information: (1) The name, address and form of organization of the qualified entity; (2) The names and titles of the officers, directors, and similar persons in control of and principal investors in the qualified entity; (3) A statement, signed by an authorized officer under penalty of perjury, that the offeror is a qualified entity within the meaning of this Chapter; and (4) The terms of the offer to purchase, including the purchase price, the proposed methods and terms of financing, the proposed date for close of escrow, and any other terms of purchase, including the financing and mechanisms by which the qualified entity will maintain the physical integrity and the affordability of the development. (h) Any owner who is required to give notice of intent to prepay and/or terminate, prior to the date eight months prior to the proposed conversion date, shall not sell or transfer, or enter into an agreement to sell or transfer, an assisted housing development or any portion thereof to any entity other than a qualified entity. If an owner receives an offer to purchase from a qualified entity, the owner shall accept the offer if the purchase price offered is equal to or exceeds the fair return price defined in Section 60.8(i) below and the remaining terms of the offer to purchase are commercially reasonable. If more than one qualified entity submits such an offer to purchase, the owner may accept any such offer; provided, however, that the owner shall be required to accept an offer to purchase by a local qualified entity over a competing offer made by a nonlocal qualified entity. For the purpose of this Chapter, a qualified entity is "local" if it is a tenant's association of the development or if its principal office is located within the City and County of San Francisco. (i) For the purpose of this Chapter, the "fair return price" shall be the greater of the following two alternative formulas specified in this Section 60.8(i); provided, however, that the fair return price shall in no event exceed the value of the development appraised by standard appraisal methods for the highest and best use, taking into account applicable legal restrictions governing the use of the development. The fair return price shall equal the greater of (1) or (2) below: (1) The sum of the following amounts: (i) The owner's actual cash investment in the development, adjusted for inflation by multiplying the historic dollar amount of the actual cash investment by the Consumer Price Index as published by the United States Department of Labor for All Urban Consumers in the Statistical Area, for each year between the date of the investment and the date on which the offer contained in the offer to purchase is proposed to close ("adjusted actual cash investment"). Actual cash investment shall equal the sum of the cash required for closing the owner's purchase and any cash subsequently invested by the owner in improvements to the development. Actual cash investment shall not include any amount expended for capital improvements if such expenditure was paid with funds from a contingency reserve or sinking fund account of the development. For the purpose of this Chapter, a "sinking fund" is any interest-bearing account into which the interest earned is required to be deposited, and from which withdrawal of funds is prohibited until the fund maturity date; plus (ii) A return on the value of the owner's adjusted actual cash investment calculated as follows: the sum of a 10 percent annual return on actual total cash investment for the 20-year period following the proposed prepayment date increased each year by an annual four-percent inflation rate, which sum shall be discounted to present value by a discount rate of 10 percent; plus (iii) The total original principal amount of debt, the proceeds of which were used to finance the cost of constructing the development or for subsequent improvements to the development, and which debt is secured by the development at the time of sale, but not including any debt already incurred for prior purchase of existing improvements or for prior seller take-back financing or for refinancing of existing debt; plus (iv) The federal and state capital gains tax liability of the owner actually paid as a result of the sale of the development pursuant to this Chapter, provided that the owner and the qualified entity shall use good-faith efforts and cooperate with each other to minimize the amount of federal and state capital gains taxes to the extent legally permitted. (2) The sum of the following amounts: (i) The owner's adjusted actual cash investment in the development; plus (ii) A return on the owner's adjusted actual cash investment in the development calculated as follows: an amount equal to 10 percent of adjusted actual cash investment for each year that the owner owned the development, reduced by the amount of the annual dividend permitted by any applicable regulatory agreement or other covenant or condition of public subsidy and received by the owner, and reduced by any loan proceeds received subsequent to the owner's purchase, which loan proceeds do not meet the criteria set forth in Section 60.8(i)(1)(i) above. The number calculated pursuant to this Section 60.8(i)(2)(ii) shall not be less than zero; plus (iii) The total amount of debt secured by the development, or which the owner is obligated to repay from the cash flow generated from operation of the development, or which is secured against a limited partnership interest or shares of stock in any owner for which the development is the sole significant asset, regardless of the use of the proceeds of such debt; provided, however, that such debt shall not include any debt incurred between the effective date of any applicable amendments to the Internal Revenue Code contained in the Economic Recovery Tax Act of 1981 (P.L. 97-34) and the effective date of any applicable amendments to the Internal Revenue Code contained in the Tax Reform Act of 1986 (P.L. 99-514) if either the debt is not required to be repaid directly from cash flow generated by operation of the development, or the failure to repay the debt will not give rise to the right to foreclose on the real property comprising the development; plus (iv) The federal and state capital gains tax liability of the owner actually paid as a result of the sale of the development pursuant to this Chapter, provided that the owner and the qualified entity shall use good-faith efforts and cooperate with each other to minimize such taxes to the extent legally permitted. (j) If the owner accepts an offer to purchase from a qualified entity pursuant to Section 60.8(h) above, an agreement for purchase and sale of the development shall be negotiated in good faith between the owner and the qualified entity, and conditioned upon the reasonable amount of time needed to obtain the necessary government approvals and any necessary financing, and shall include the following: (1) An agreement by the owner to provide the qualified entity with all existing loan documents and any other relevant documents relating to operation of the development not already provided to the purchasing qualified entity, including but not limited to, regulatory agreements containing any use restrictions, loan agreements, promissory notes, and deeds of trust, within 15 days from the date of the signing of the purchase agreement by all the parties; (2) An agreement by the qualified entity to make an earnest money deposit or deposits, in a total amount not to exceed one percent of the purchase price, within five days of executing the agreement for purchase and sale, which, together with accrued interest shall be credited against the purchase price at the close of escrow. The deposit shall be refundable only if the qualified entity, after a diligent, good-faith effort, fails to remove all inspection and financing contingencies within a reasonable time; and (3) A statement that the terms and conditions in the purchase agreement, including, but not limited to, the timetables specified in this subsection, may be extended or otherwise amended only by the mutual consent of the owner and the qualified entity. (k) The owner shall no longer be subject to the requirements of this Section 60.8 upon submission of a written certification to the Director of Housing, signed by the owner under penalty of perjury, that any of the following has occurred: (1) The owner met all notice and information requirements pursuant to this Chapter and no offer to purchase was received from a qualified entity within the applicable time period that the owner was required by Section 60.8(h) above to accept; or (2) Despite good-faith negotiations between the owner and the qualified entity, the parties were unable to agree on the material provisions of the purchase agreement, and no other qualified entity made a timely offer to purchase that the owner was required by this Chapter to accept; or (3) A qualified entity that executed a purchase agreement (i) terminated the agreement or was unable to meet the terms of the agreement, (ii) that the owner exercised due diligence in carrying out the conditions of the purchase agreement, and (iii) that no other qualified entity made an offer to purchase that the owner was required by this Chapter to accept. (l) An owner, at any time prior to the conversion date, may decide not to prepay, terminate, sell or otherwise transfer the development and may withdraw the notice of intention to sell, subject to the terms of any accepted offer to purchase or executed purchase and sale agreement, and to the offeror's existing statutory and common law remedies. In such event, the owner shall give written notice of such decision by United States Mail, first class, certified, return receipt requested, to the Director of Housing, to all tenant households in the assisted housing development, and to any offeror qualified entity. However, at any time that the owner again decides to sell, or otherwise transfer the development or any portion thereof, the 14- month notice period and the other requirements of this Section 60.8 shall apply to such sale or transfer. (m) Prior to the close of escrow, an owner selling or transferring a development, or any portion thereof, to any purchaser, shall certify under penalty of perjury that the owner has complied with all provisions of this Chapter. A copy of the certification shall be sent to the Director of Housing by United States Mail, first class, certified, return receipt requested, 10 days prior to close of escrow. The certification shall be recorded and shall contain a legal description of the property on which the development is located and, to the extent consistent with the practices of the Office of the Recorder, shall be indexed to the name of the owner as grantor. (n) As a condition precedent to the acquisition of any development by a qualified entity pursuant to this Chapter, the qualified entity shall enter into a regulatory agreement, deed restriction or similar agreement, in form and substance satisfactory to the Director of Housing, which agreement shall be recorded in the official records of San Francisco County to ensure that the covenants of the qualified entity made to comply with this Chapter shall run with the land and be binding on the qualified entity and its successors and assigns. The qualified entity shall submit to the owner and the Director of Housing, concurrently with the delivery of an offer to purchase under Section 60.8(g), its proposed form of regulatory agreement or other enforcement mechanism for review by the Director of Housing. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.9. EXPIRATION OF RENT SUBSIDY CONTRACTS; DISCLOSURE. (a) At least 12 months prior to the expiration of the full term of any rent subsidy contract described in Section 60.4 above, the owner shall give notice by United States Mail, first class, certified, return receipt requested, of such impending termination to the Director of Housing, Director of City Planning, and to all tenant households in the development. Such notice shall contain the information required by Section 60.5(b)(1) and (2), and the following information: (1) The date of expiration of any such rent subsidy contract and a brief description of the owner's plans for the development subsequent to expiration; (2) The number of subsidized rental units in the development prior to expiration of any such rent subsidy contract, and the number of subsidized rental units occupied by tenant households with persons age 62 or older, with disabled persons, and with persons under age 18; (3) The current rent schedule for the development; (4) A brief description of any contracts concerning expiration the owner has made with any governmental agency, tenant household residing in the development, or other interested person; (5) The anticipated rent schedule after expiration of such rent subsidy contract; and (6) A statement by the owner signed under penalty of perjury certifying the accuracy of the notice as of the date the notice was given. (b) No later than 90 days after the receipt of the notice specified in Section 60.9(a) above, the Director of Planning shall request that the Planning Commission hold a hearing on the impending expiration to determine: (i) what action the City can take to prevent the loss of the rent subsidy for the affected units; and (ii) whether the owner has initiated or is likely to initiate a diligent, good-faith effort to obtain a renewal or extension of the expiring contract. The Director of Planning shall give notice of such hearing to the owner, the affected tenant households, the San Francisco Housing Authority ("SFHA"), the regional office of HUD, and any other person or entity who submits a written request for such notice to the Director of Housing or Director of Planning. (c) If an assisted housing development contains subsidized rental units subsidized under more than one project-based rent subsidy contract, and all such rent subsidy contracts for the assisted housing development do not expire on the same date, as part of any offer to a tenant household already residing in the development to permit such tenant household to move into a different unit in the development, the owner shall disclose to such tenant household in writing the expiration dates for the rent subsidy contracts applicable to both units. The owner shall also send to the Director of Housing and to the Executive Director of SFHA, by United States mail, return receipt requested, a copy of such offer and such disclosure. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.10. ADMINISTRATIVE RELIEF. (a) An owner or qualified entity may petition directly the Housing Preservation Appeals Board ("Appeals Board"), in the same manner as the procedure for appeals specified in Section 60.12(d) through (h) below, for relief from strict compliance with the provisions of this Chapter. Such relief shall be granted only as specified in this Section 60.10, and only upon a finding by the Appeals Board, after a hearing, that the owner or qualified entity has shown by a preponderance of the evidence that relief is warranted. (b) An owner may be relieved of the obligation to comply with the 18-month notice requirement if imposed by Section 60.5 on the following grounds: (1) Due to the date this Chapter was enacted, compliance with an applicable provision of federal or state law renders the owner unable to comply both with such federal or state law, and with the 18-month notice requirement; or (2) Compliance with the 18-month notice requirement would subject the owner's interest in the development to substantial danger of extinguishment by foreclosure or sale in lieu of foreclosure. Any order of relief entered pursuant to this Section 60.10(b) shall reduce the 18-month notice period only to the extent necessary to avoid the situations described in Section 60.10(b)(1) and (2) above. (c) An owner may be relieved of the obligation to comply with the requirement to pay relocation benefits, imposed by Section 60.7, on the following grounds: (1) Payment of the full amount of such benefits will render the owner insolvent. For the purpose of this Section 60.10(c), "insolvent" shall mean that the value of the liabilities of the owner exceeds the value of the owner's assets. Any order of relief entered pursuant to this Section 60.10(c) shall reduce the amount of relocation benefits due only to the extent necessary to avoid rendering the owner insolvent. (d) An owner may petition on the Appeals Board for an adjustment in the method of calculating the fair return price. Such relief shall be granted only to the extent necessary to avoid a result which is confiscatory. For the purpose of this chapter, "confiscatory" shall mean that the owner does not receive a fair return on actual cash investment or adjusted actual cash investment as a result of sale to a qualified entity pursuant to Section 60.8 above. Any order of relief pursuant to this Section 60.10(d) shall increase the fair return price only to the extent necessary to avoid a confiscatory result. (e) An owner may petition the Appeals Board for reduction of the 14-month notice requirement specified by Section 60.8(e). Such reduction may be granted on the following grounds: (1) Due to the date this Chapter was enacted, compliance with applicable provision of federal or state law renders the owner unable to comply both with such federal or state law, and with the 14-month notice requirement; or (2) Compliance with the 14-month notice requirement would subject the owner's interest in the development to substantial danger of extinguishment by foreclosure or sale in lieu of foreclosure. Any order of relief pursuant to this Section 60.10(e) shall reduce the 14-month notice period only to the extent necessary to avoid the situations described in Section 60.10(e)(1) and (2) above. (f) A qualified entity may petition the Appeals Board for relief from the requirements of Section 60.8(b)(2) if maintaining the rents at the levels specified in Section 60.8(b)(2) renders an assisted housing development not financially feasible because the development's operating revenue will not equal or exceed the sum of operating expenses. A qualified entity purchaser shall be entitled to remove one or more units from the rent and occupancy requirements as the Appeals Board finds is necessary for the development to become economically feasible; provided, however, that once the development is again economically feasible, the purchasing qualified entity shall cause the next available units to be units subject to the rent and occupancy requirements until achieving the number and mix of restricted units in the development required by Section 60.8(b)(2) For the purpose of this Section 60.10(f), "operating revenues" shall include rents, subsidy payments received on behalf of tenant households, interest on contingency reserve or other reserve funds not designated to be a sinking fund, and receipts from operation of laundry, parking or other services. "Operating expenses" shall include all costs and expenses related to operation of the development, including debt service on any loans required to be paid currently, but not including any debt incurred for purchase of the development pursuant to this Chapter unless the proceeds of such debt were necessary to pay the fair return price, or were used to pay the cost of capital improvements or rehabilitation necessary to bring the development into compliance with applicable building, electrical, fire, plumbing, and similar code standards. (g) Any owner may petition the Appeals Board for a reduction in the 12-month notice requirement specified by Section 60.9(a). Such reduction shall be granted on the following grounds: (1) Due to the date this Chapter was enacted, compliance with applicable portions of federal or state law renders the owner unable to comply both with such federal or state law, and with the 12-month notice requirement; or (2) Compliance with the 12-month notice requirement would subject the owner's interest in the development to substantial danger of extinguishment by foreclosure or sale in lieu of foreclosure. Any order of relief pursuant to this Section 60.10(g) shall reduce the 12-month notice period only to the extent necessary to avoid the situations described in Section 60.10(g)(1) and (2) above. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.11. CIVIL ACTIONS. (a) Whenever an owner (i) fails to give the notice of intent to prepay and/or terminate as provided in this Chapter; (ii) fails to comply with the provisions of this Chapter concerning purchase by a qualified entity; (iii) attempts to convert or converts subsidized rental units in violation of this Chapter; or (iv) otherwise fails to comply with the provisions of this Chapter, the City, any tenant household of the affected development, any affected qualified entity, or the tenant association of the development may institute a civil proceeding for injunctive relief to restrain the owner from such violation and/or money damages, or for any other remedy available at law or in equity. (b) Upon proof that the owner has willfully or in bad faith violated any provision of this Chapter, any affected tenant household shall receive a judgment of treble the tenant household's actual damages. (c) In any action in which the City is a party, which action is brought to enforce the provisions of this chapter, upon proof that the owner willfully or in bad faith converted a subsidized rental unit, such owner shall be required to pay to the City a sum at least equal to the cost of constructing or acquiring a replacement unit for each subsidized rental unit unlawfully converted, including, for construction, the per- unit cost of land acquisition. Any money received under this Section 60.11(c) shall be used for the development or preservation of housing units affordable to and to be occupied by very low and low income households. (d) The prevailing party in any civil action brought under this Section 60.11 shall be entitled to recover reasonable attorney's fees and costs. Reasonable fees of attorneys of the City's Office of City Attorney shall be based on the fees regularly charged by private attorneys with an equivalent number of years of professional experience in the subject matter areas of the law for which the City Attorney's services were rendered and who practice in the City in law firms with approximately the same number of attorneys as employed by the Office of City Attorney. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.12. CIVIL PENALTIES. (a) Any owner who negligently or intentionally violates any provision of this Chapter shall be liable for a civil penalty not to exceed $5,000 for each separate violation. Such violations shall include, but are not limited to, the making of a false statement or representation in any notice or other document required by this Chapter. (b) Any interested person may petition the Director of Housing to investigate an alleged violation of this Chapter. Upon receipt of such petition, or upon his or her own motion, the Director of Housing shall give the owner 21 days' written notice by United States Mail, first class, certified, return receipt requested, of the date, time and location of a hearing before the Director of Housing, and the nature of the alleged violation. The Director of Housing shall hear the evidence and shall determine whether any violation was negligent or intentional. The Director of Housing shall issue a written decision with findings in support of the decision that state the nature of any violations and any appropriate penalties. (c) The owner or any other party to the hearing may appeal the decision of the Director of Housing to the Housing Preservation Appeals Board ("Appeals Board") by filing with the Appeals Board a written notice of appeal within 30 days of the date of the decision by the Director of Housing. The notice of appeal shall state the grounds for objection to the decision of the Director of Housing. (d) The Appeals Board shall hold a public hearing on the appeal within 45 days of the filing of the notice of appeal and shall decide whether to reverse or affirm the decision of the Director of Housing within 15 days of the hearing. The Appeals Board shall give the owner and any person requesting notice at least 14 days' notice of the date, time and location of the hearing. (e) The Appeals Board shall adopt written findings in support of its decision. (f) The decision of the Appeals Board shall be a final order reviewable by any court of competent jurisdiction. (g) The Appeals Board shall adopt rules governing conduct of its hearings. Such rules shall provide that parties shall have the right to be present, to be represented by counsel, to present evidence and to cross-examine witnesses. (h) The Appeals Board shall have three members appointed by the Mayor. (i) Any penalties collected pursuant to this Section 60.12 shall be used as provided in Section 60.11(c) above. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.13. RULES AND REGULATIONS. The Mayor is authorized to promulgate any rules or regulations necessary or appropriate to carry out the purposes and requirements of this ordinance. (Added by Ord. 332-90, App. 10/3/90) SEC. 60.14. SEVERABILITY. If any provision or clause of this Chapter, or the application thereof to any person or circumstance, is held to be unconstitutional or to be otherwise invalid by any court of competent jurisdiction, such invalidity shall not affect other chapter provisions. Clauses of this Chapter are declared to be severable. (Added by Ord. 332-90, App. 10/3/90)
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