2023 California Code › Government Code - GOV › TITLE 7 - PLANNING AND LAND USE › DIVISION 1 - PLANNING AND ZONING › CHAPTER 4 - Zoning Regulations › ARTICLE 2 - Adoption of Regulations › Section 65863.11.

65863.11. (a) Terms used in this section shall be defined as follows:
(1) “Assisted housing development” and “development” shall have the same meaning as paragraph (3) of subdivision (a) of Section 65863.10.
(2) “Owner” shall have the same meaning as in paragraph (7) of subdivision (a) of Section 65863.10.
(3) “Tenant” means a tenant, subtenant, lessee, sublessee, or other person legally in possession or occupying the assisted housing development.
(4) “Tenant association” means a group of tenants who have formed a nonprofit corporation, cooperative corporation, or other entity or organization, or a local nonprofit, regional, or national organization whose purpose includes the acquisition of an assisted housing development and that represents the interest of at least a majority of the tenants in the assisted housing development.
(5) “Low or moderate income” means having an income as defined in Section 50093 of the Health and Safety Code.
(6) “Very low income” means having an income as defined in Section 50105 of the Health and Safety Code.
(7) “Local nonprofit organizations” means not-for-profit corporations organized pursuant to Division 2 (commencing with Section 5000) of Title 1 of the Corporations Code that have as their principal purpose the ownership, development, or management of housing or community development projects for persons and families of low or moderate income and very low income, and which have a broadly representative board, a majority of whose members are community based and have a proven track record of local community service.
(8) “Local public agencies” means housing authorities, redevelopment agencies, or any other agency of a city, county, or city and county, whether general law or chartered, which are authorized to own, develop, or manage housing or community development projects for persons and families of low or moderate income and very low income.
(9) “Regional or national organizations” means not-for-profit, charitable corporations organized on a multicounty, state, or multistate basis that have as their principal purpose the ownership, development, or management of housing or community development projects for persons and families of low or moderate income and very low income and own and operate at least three comparable rent- and income-restricted affordable rental properties governed under a regulatory agreement with a department or agency of the State of California or the United States, either directly or by serving as the managing general partner of limited partnerships or managing member of limited liability corporations.
(10) “Regional or national public agencies” means multicounty, state, or multistate agencies that are authorized to own, develop, or manage housing or community development projects for persons and families of low or moderate income and very low income and own and operate at least three comparable rent- and income-restricted affordable rental properties governed under a regulatory agreement with a department or agency of the State of California or the United States, either directly or by serving as the managing general partner of limited partnerships or managing member of limited liability corporations.
(11) “Use restriction” means any federal, state, or local statute, regulation, ordinance, or contract that, as a condition of receipt of any housing assistance, including a rental subsidy, mortgage subsidy, or mortgage insurance, to an assisted housing development, establishes maximum limitations on tenant income as a condition of eligibility for occupancy of the units within a development, imposes any restrictions on the maximum rents that could be charged for any of the units within a development; or requires that rents for any of the units within a development be reviewed by any governmental body or agency before the rents are implemented.
(12) “Profit-motivated housing organizations and individuals” means individuals or two or more persons organized pursuant to Division 1 (commencing with Section 100) of Title 1 of, Division 3 (commencing with Section 1200) of Title 1 of, or Chapter 5 (commencing with Section 16100) of Title 2 of, the Corporations Code, that carry on as a business for profit and own and operate at least three comparable rent- and income-restricted affordable rental properties governed under a regulatory agreement with a department or agency of the State of California or the United States, either directly or by serving as the managing general partner of limited partnerships or managing member of limited liability corporations.
(13) “Department” means the Department of Housing and Community Development.
(14) “Offer to purchase” means an offer from a qualified or nonqualified entity that is nonbinding on the owner.
(15) “Expiration of rental restrictions” has the meaning given in paragraph (5) of subdivision (a) of Section 65863.10.
(b) An owner of an assisted housing development shall not terminate a subsidy contract or prepay the mortgage pursuant to Section 65863.10, unless the owner or its agent shall first have provided each of the entities listed in subdivision (d) an opportunity to submit an offer to purchase the development, in compliance with subdivisions (g) and (h). An owner of an assisted housing development in which there will be the expiration of rental restrictions shall also provide each of the entities listed in subdivision (d) an opportunity to submit an offer to purchase the development, in compliance with subdivisions (g) and (h). An owner who meets the requirements of Section 65863.13 shall be exempt from this requirement.
(c) An owner of an assisted housing development shall not sell, or otherwise dispose of, the development at any time within the five years before the expiration of rental restrictions or at any time if the owner is eligible for prepayment or termination within five years unless the owner or its agent shall first have provided each of the entities listed in subdivision (d) an opportunity to submit an offer to purchase the development, in compliance with this section. An owner who meets the requirements of Section 65863.13 shall be exempt from this requirement.
(d) The entities to whom an opportunity to purchase shall be provided include only the following:
(1) The tenant association of the development.
(2) Local nonprofit organizations and public agencies.
(3) Regional or national nonprofit organizations and regional or national public agencies.
(4) Profit-motivated housing organizations or individuals.
(e) For the purposes of this section, to qualify as a purchaser of an assisted housing development, an entity listed in subdivision (d) shall do all of the following:
(1) Be certified by the department, based on demonstrated relevant prior experience in California and current capacity, as capable of operating the housing and related facilities for its remaining useful life, either by itself or through a management agent. The department shall establish a process for certifying qualified entities and maintain a list of entities that are certified, which list shall be updated at least annually.
(2) Agree to obligate itself and any successors in interest to maintain the affordability of the assisted housing development for households of very low, low, or moderate income for either a 30-year period from the date that the purchaser took legal possession of the housing or the remaining term of the existing federal government assistance specified in subdivision (a) of Section 65863.10, whichever is greater. The development shall be continuously occupied in the approximate percentages that those households who have occupied that development on the date the owner gave notice of intent or the approximate percentages specified in existing use restrictions, whichever is higher. This obligation shall be recorded before the close of escrow in the office of the county recorder of the county in which the development is located and shall contain a legal description of the property, indexed to the name of the owner as grantor. An owner that obligates itself to an enforceable regulatory agreement that will ensure for a period of not less than 30 years that rents for units occupied by low- and very low income households or that are vacant at the time of executing a purchase agreement will conform with restrictions imposed by Section 42(f) of the Internal Revenue Code shall be deemed in compliance with this paragraph. In addition, the regulatory agreement shall contain provisions requiring the renewal of rental subsidies, should they be available, provided that assistance is at a level to maintain the project’s fiscal viability.
(3) Local nonprofit organizations and public agencies shall have no member among their officers or directorate with a financial interest in assisted housing developments that have terminated a subsidy contract or prepaid a mortgage on the development without continuing the low-income restrictions.
(f) If an assisted housing development is not economically feasible, as determined by all entities with regulatory agreements and deed-restrictions on the development, a purchaser shall be entitled to remove one or more units from the rent and occupancy requirements as is necessary for the development to become economically feasible, provided that once the development is again economically feasible, the purchaser shall designate the next available units as low-income units up to the original number of those units.
(g) If an owner decides to terminate a subsidy contract, or prepay the mortgage pursuant to Section 65863.10, or sell or otherwise dispose of the assisted housing development pursuant to subdivision (b) or (c), or if the owner has an assisted housing development in which there will be the expiration of rental restrictions, the owner shall first give notice of the opportunity to offer to purchase to each qualified entity on the list provided to the owner by the department, in accordance with subdivision (o), as well as to those qualified entities that directly contact the owner. The notice of the opportunity to offer to purchase must be given before or concurrently with the notice required pursuant to Section 65863.10 for a period of at least 12 months. The owner shall contact the department to obtain the list of qualified entities. The notice shall conform to the requirements of subdivision (h) and shall be sent to the entities by registered or certified mail, return receipt requested. The owner shall also post a copy of the notice in a conspicuous place in the common area of the development.
(h) The initial notice of a bona fide opportunity to submit an offer to purchase shall contain all of the following:
(1) A statement addressing all of the following:
(A) Whether the owner intends to maintain the current number of affordable units and level of affordability.
(B) Whether the owner has an interest in selling the property.
(C) Whether the owner has executed a contract or agreement of at least five years’ duration with a public entity to continue or replace subsidies to the property and to maintain an equal or greater number of units at an equal or deeper level of affordability and, if so, the length of the contract or agreement.
(2) A statement that each of the type of entities listed in subdivision (d), or any combination of them, has the right to purchase the development under this section.
(3) (A) Except as provided in subparagraph (B), a statement that the owner will make available to each of the types of entities listed in subdivision (d), within 15 business days of receiving a request therefor, that includes all of the following:
(i) Itemized lists of monthly operating expenses for the property.
(ii) Capital improvements, as determined by the owner, made within each of the two preceding calendar years at the property.
(iii) The amount of project property reserves.
(iv) Copies of the two most recent financial and physical inspection reports on the property, if any, filed with a federal, state, or local agency.
(v) The most recent rent roll for the property listing the rent paid for each unit and the subsidy, if any, paid by a governmental agency as of the date the notice of offer to purchase was made pursuant to subdivision (g).
(vi) A statement of the vacancy rate at the property for each of the two preceding calendar years.
(vii) The terms of assumable financing, if any, the terms of the subsidy contract, if any, and proposed improvements to the property to be made by the owner in connection with the sale, if any.
(B) Subparagraph (A) shall not apply if 25 percent or less of the units on the property are subject to affordability restrictions or a rent or mortgage subsidy contract.
(C) A corporation authorized pursuant to Section 52550 of the Health and Safety Code or a public entity may share information obtained pursuant to subparagraph (A) with other prospective purchasers, and shall not be required to sign a confidentiality agreement as a condition of receiving or sharing this information, provided that the information is used for the purpose of attempting to preserve the affordability of the property.
(4) A statement that the owner has satisfied all notice requirements pursuant to subdivision (b) of Section 65863.10, unless the notice of opportunity to submit an offer to purchase is delivered more than 12 months before the anticipated date of termination, prepayment, or expiration of rental restrictions.
(i) If a qualified entity elects to purchase an assisted housing development, it shall make a bona fide offer to purchase the development at the market value determined pursuant to subdivision (k), subject to the requirements of this subdivision. A qualified entity’s bona fide offer to purchase shall be submitted within 180 days of the owner’s notice of the opportunity to submit an offer pursuant to subdivision (g), identify whether it is a tenant association, nonprofit organization, public agency, or profit-motivated organizations or individuals, and certify, under penalty of perjury, that it is qualified pursuant to subdivision (e). If an owner has received a bona fide offer from one or more qualified entities within the first 180 days from the date of an owner’s bona fide notice of the opportunity to submit an offer to purchase, the owner shall notify the department of all such offers and either accept a bona fide offer from a qualified entity to purchase or declare under penalty of perjury in writing to the qualified entity or entities and the department on a form approved by the department that, if the property is not sold pursuant to this section during the first 180-day period described in this subdivision or the second 180-day period described in subdivision (l) it will not sell the property for at least five years after the end of the second 180-day period described in subdivision (l). Once a bona fide offer is made, the owner shall take all steps reasonably required to renew any expiring housing assistance contract, or extend any available subsidies or use restrictions, if feasible, before the effective date of any expiration or termination. In the event that the owner declines to sell the property to a qualified entity, the owner shall record the declaration with the county in which the property is located immediately after the end of the second 180-day period described in subdivision (l).
(j) When one or more bona fide offers to purchase have been made that meets the requirements of this section and the owner wishes to sell, the owner shall accept the bona fide offer that meets the requirements of this section and execute a purchase agreement within 90 days of receipt of the offer.
(k) The market value of the property shall be determined by negotiation and agreement between the parties. If the parties fail to reach an agreement regarding the market value, the market value shall be determined by an appraisal process initiated by the owner’s receipt of the bona fide offer, which shall specifically reference the appraisal process provided by this subdivision as the means for determining the final purchase price. Either the owner or the qualified entity, or both, may request that the fair market value of the property’s highest and best use, based on current zoning, be determined by an independent appraiser qualified to perform multifamily housing appraisals, who shall be selected and paid by the requesting party. All appraisers shall possess qualifications equivalent to those required by the members of the Appraisal Institute and shall be certified by the department as having sufficient experience in appraising comparable rental properties in California.  If the appraisals differ by less than 5 percent, the market value and sales price shall be set at the higher appraised value. If the appraisals differ by more than 5 percent, the parties may elect to have the appraisers negotiate a mutually agreeable market value and sales price, or to jointly select a third appraiser, whose determination of market value and the sales price shall be binding.
(l) During the 180-day period following the initial 180-day period required pursuant to subdivision (i), an owner may accept an offer from a person or an entity that does not qualify under subdivision (e). This acceptance shall be made subject to the owner’s providing each qualified entity that made a bona fide offer to purchase the first opportunity to purchase the development at the same terms and conditions as the pending offer to purchase, unless these terms and conditions are modified by mutual consent. The owner shall notify in writing the department and those qualified entities of the terms and conditions of the pending offer to purchase, sent by registered or certified mail, return receipt requested. A qualified entity shall have 30 days from the date the notice is mailed to submit a bona fide offer to purchase and that offer shall be accepted by the owner. The owner shall not be required to comply with the provisions of this subdivision if the person or the entity making the offer during this time period agrees to maintain the development for persons and families of very low, low, and moderate income in accordance with paragraph (2) of subdivision (e). The owner shall notify the department regarding how the buyer is meeting the requirements of paragraph (2) of subdivision (e).
(m) This section does not apply to any of the following: a government taking by eminent domain or negotiated purchase; a forced sale pursuant to a foreclosure; a transfer by gift, devise, or operation of law; a sale to a person who would be included within the table of descent and distribution if there were to be a death intestate of an owner; or an owner who certifies, under penalty of perjury, the existence of a financial emergency during the period covered by the offer to purchase requiring immediate access to the proceeds of the sale of the development. The certification shall be made pursuant to subdivision (p).
(n) Prior to the close of escrow, an owner selling, leasing, or otherwise disposing of a development to a purchaser who does not qualify under subdivision (e) shall certify under penalty of perjury that the owner has complied with all provisions of this section and Section 65863.10. This certification shall be recorded and shall contain a legal description of the property, shall be indexed to the name of the owner as grantor, and may be relied upon by good faith purchasers and encumbrances for value and without notice of a failure to comply with the provisions of this section.
A person or entity acting solely in the capacity of an escrow agent for the transfer of real property subject to this section shall not be liable for any failure to comply with this section unless the escrow agent either had actual knowledge of the requirements of this section or acted contrary to written escrow instructions concerning the provisions of this section.
(o) The department shall undertake the following responsibilities and duties:
(1) Maintain a form containing a summary of rights and obligations under this section and make that information available to owners of assisted housing developments as well as to tenant associations, local nonprofit organizations, regional or national nonprofit organizations, public agencies, and other entities with an interest in preserving the state’s subsidized housing.
(2) Compile, maintain, and update a list of entities in subdivision (d) that have either contacted the department with an expressed interest in purchasing a development in the subject area or have been identified by the department as potentially having an interest in participating in a right-of-first-refusal program. The department shall publicize the existence of the list statewide. Upon receipt of a notice of intent under Section 65863.10, the department shall make the list available to the owner proposing the termination, prepayment, or removal of government assistance or to the owner of an assisted housing development in which there will be the expiration of rental restrictions. If the department does not make the list available at any time, the owner shall only be required to send a written copy of the opportunity to submit an offer to purchase notice to the qualified entities which directly contact the owner and to post a copy of the notice in the common area pursuant to subdivision (g).
(3) (A) Monitor compliance with this section and Sections 65863.10 and 65863.13 by owners of assisted housing developments and, notwithstanding Section 10231.5, provide a report to the Legislature, which may be combined with the report submitted pursuant of Section 50408 of the Health and Safety Code, on or before December 31 of each year, containing information for the previous fiscal year, except that the report due December 31, 2022, shall include information for the 18 months from January 1, 2021, to June 30, 2022, inclusive, that includes, but is not limited to, the following:
(i) The number of properties and rental units subject to this section and Sections 65863.10 and 65863.13.
(ii) The number of properties and units that did any of the following:
(I) Complied with the requirements of this section and Sections 65863.10 and 65863.13.
(II) Failed to comply with the requirements of this section and Sections 65863.10 and 65863.13.
(III) Were offered for sale and therefore subject to the purchase right provisions of this section.
(IV) Were offered for sale and complied with the purchase right provisions of this section and the outcomes of the purchase right actions, including whether the property changed hands, to whom, and with what impact on affordability protections.
(V) Were offered for sale and failed to comply with the purchase right provisions of this section, the reason for their failure to comply, and the impact of their failure to comply on the affordability protections and the tenants who were residing in the property at the time of the failure.
(VI) Claimed exemptions from the obligations of this section pursuant to Section 65863.13 by category of reason for exemption.
(VII) Claimed exemptions from the obligations of this section and lost affordability protections and the impact on the tenants of the loss of the affordability protections.
(VIII) Were not offered for sale and complied with the requirement to properly execute and record a declaration.
(IX) Were not for sale and failed to comply with the requirement to properly execute and record a declaration.
(B) To facilitate the department’s compliance monitoring owners of assisted housing developments in which at least 25 percent of the units on the property are subject to affordability restrictions or a rent or mortgage subsidy contract shall certify compliance with this section and Sections 65863.10 and 65863.13 to the department annually, under penalty of perjury, in a form as required by the department.
(C) The report required to be submitted pursuant to this paragraph shall be submitted in compliance with Section 9795.
(4) Refer violations of this section and Sections 65863.10 and 65863.13 to the Attorney General for appropriate enforcement action.
(p) (1) The provisions of this section may be enforced either in law or in equity by any qualified entity entitled to exercise the opportunity to purchase and right of first refusal under this section or any tenant association at the property or any affected public entity that has been adversely affected by an owner’s failure to comply with this section. In any judicial action brought pursuant to this subdivision, the court may waive any bond requirement and may award attorney’s fees and costs to a prevailing plaintiff.
(2) An owner may rely on the statements, claims, or representations of any person or entity that the person or entity is a qualified entity as specified in subdivision (d), unless the owner has actual knowledge that the purchaser is not a qualified entity.
(3) If the person or entity is not an entity as specified in subdivision (d), that fact, in the absence of actual knowledge as described in paragraph (2), shall not give rise to any claim against the owner for a violation of this section.
(q) It is the intent of the Legislature that the provisions of this section are in addition to, but not preemptive of, applicable federal laws governing the sale or other disposition of a development that would result in either (1) a discontinuance of its use as an assisted housing development or (2) the termination or expiration of any low-income use restrictions that apply to the development.
(r) This section does not apply to either of the following:
(1) An assisted housing development as described in clause (iv) of subparagraph (M) of paragraph (3) of subdivision (a) of Section 65863.10 in which 25 percent or less of the units are subject to affordability restrictions.
(2) An assisted housing development in which 25 percent or less of the units are subject to affordability restrictions that was developed in compliance with a local ordinance, charter amendment, specific plan, resolution, or other land use policy or regulation requiring that a housing development contain a fixed percentage of units affordable to extremely low, very low, low-, or moderate-income households.
(s) The department shall comply with any obligations under this section through the use of standards, forms, and definitions adopted by the department. The department may review, adopt, amend, and repeal the standards, forms, or definitions to implement this section. Any standards, forms, or definitions adopted to implement this section shall not be subject to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2.
(Amended by Stats. 2021, Ch. 360, Sec. 11. (AB 1584) Effective January 1, 2022.)