SUBDIVISION AND COMMON INTEREST DEVELOPMENT LAWS HOW THEY AFFECT CONVENTIONAL HOUSING COOPERATIVES AND OUR PROPOSED NEW MODEL

3 KEY REGULATORY HURDLES IN CALIFORNIA 1.Subdivided Lands Law Public Report requirement, disclosure for benefit of purchasers 2.Subdivision Map Act Tentative and final maps / parcel map requirement, consistency with city’s land use plans 3.Davis-Stirling Act Regulates common interest development governance

DEFINITION OF “STOCK COOPERATIVE” Civil Code 4190 or 6566: “‘Stock cooperative’ means a development in which a corporation is formed or availed of, primarily for the purpose of holding title to, either in fee simple or for a term of years, improved real property, and all or substantially all of the shareholders of the corporation receive a right of exclusive occupancy in a portion of the real property, title to which is held by the corporation.”

SUBDIVIDED LANDS LAW Business and Professions Code §§ PURPOSE Protects purchasers of subdivision interests from misrepresentation, deceit, fraud by requiring disclosure of significant information about the subdivision adherence to standards for creating, operating, financing, documenting the project

SUBDIVIDED LANDS LAW APPLICABILITY Lands divided into 5 or more lots or parcels for sale, lease, or financing immediately or in the future Explicitly includes stock cooperatives having or intended to have 5 or more shareholders But NOT limited-equity cooperatives that: Receive certain government, credit union, or CDFI financing AND Are no more than 10% member-financed AND Are governed by a regulatory agreement between financing agency and the cooperative Also includes creation of 5 or more undivided interests in land (with some exceptions)

SUBDIVIDED LANDS LAW ““Subdivided lands” and “subdivision” refer to improved or unimproved land or lands, wherever situated within California, divided or proposed to be divided for the purpose of sale or lease or financing, whether immediate or future, into five or more lots or parcels. However, land or lands sold by lots or parcels of not less than 160 acres which are designated by lot or parcel description by government surveys and appear as such on the current assessment roll of the county in which the land or lands are situated shall not be deemed to be “subdivided lands” or “a subdivision” within the meaning of this section, unless the land or lands are divided or proposed to be divided for the purpose of sale for oil and gas purposes, in which case the land or lands shall be deemed to be “subdivided lands” or “a subdivision” within the meaning of this section. This chapter also does not apply to the leasing of apartments, offices, stores, or similar space within an apartment building, industrial building, commercial building, or mobilehome park, as defined under Section of the Health and Safety Code, except that the offering of leases for a term in excess of five years to tenants within a mobilehome park as a mandatory requirement and prerequisite to tenancy within the mobilehome park shall be subject to the provisions of this chapter. The leasing of apartments in a community apartment project, as defined in Section in an apartment or similar space within a commercial building or complex, shall be subject to the provisions of this chapter.”

SUBDIVIDED LANDS LAW REQUIREMENTS No one may offer to sell or lease interests in a subdivision without first: 1.Filing notice of intention with the Bureau of Real Estate (CalBRE) 2.Obtaining a public report from the Real Estate Commissioner (after an extensive approval process)

SUBDIVISION MAP ACT Government Code §§ Requires local agencies to adopt ordinances regulating design and improvement of subdivisions. PURPOSE Uniform mapping standards of subdivided parcels (for proper conveyance, title insurance, etc.) Consistency of subdivision planning with overall community development and local land use standards Protect consumers from fraud

SUBDIVISION MAP ACT APPLICABILITY Tentative and final map: All subdivisions of 5 or more parcels (including 5 or more condos, community apartment projects of 5 or more parcels, or conversion to a stock cooperative of 5 or more units) for the purpose of sale, lease, or financing, whether immediate or future. Loophole for new cooperatives? Parcel map: subdivisions of for four or fewer parcels/units, subdivisions otherwise exempt from tentative/final map requirement Can be waived by local ordinance Limited equity housing cooperatives are exempt

“ ‘Subdivision’ means the division, by any subdivider, of any unit or units of improved or unimproved land, or any portion thereof, shown on the latest equalized county assessment roll as a unit or as contiguous units, for the purpose of sale, lease, or financing, whether immediate or future. Property shall be considered as contiguous units, even if it is separated by roads, streets, utility easement, or railroad rights-of-way. “Subdivision” includes a condominium project, as defined in Section 4125 or 6542 of the Civil Code, a community apartment project, as defined in Section 4105 of the Civil Code, or the conversion of five or more existing dwelling units to a stock cooperative, as defined in of Section 4190 or 6566 of the Civil Code. SUBDIVISION MAP ACT

REQUIREMENTS 5 or more units: tentative and final map approval by local agency 4 or fewer units: approval of parcel map (unless exemption applies or waived by local ordinance) Performance of any conditions imposed by local agency in exchange for privilege to subdivide

SUBDIVISION LAWS AND PREC Will the Permanent Real Estate Cooperative be exempt from the subdivision laws? Likely NOT a “stock cooperative”– many members do not have a right of exclusive occupancy Does not meet the definition of other enumerated common interest developments But may be “subdivision” if members receive the right of exclusive occupancy in a portion of the property May be a “subdivision” for the Subdivided Lands Law even without right of exclusive occupancy– (5 or more undivided interests included under the law) unless meets an exemption

SUBDIVISION LAWS AND PREC Any other ways to avoid “subdivision” regulation? Map Act Create new housing coop instead of converting Projects of 4 or fewer units require only a parcel map Undivided interests, or informal rights of exclusive occupancy Subdivided Lands Law Projects of 4 or fewer units are exempt Leasing apartments is exempt if not a community apartment project (presumably exempt if residents are shareholders of corporate owner) Undivided interest projects of up to 10 people if meet exemption (informed investors, no intention to resell, waive protections)– not useful if PREC has lots of investors

DAVIS-STIRLING ACT Civil Code §§ PURPOSE Regulation of governance and operation of CIDs e.g. collection of assessments, director meetings, elections, adoption of operating rules, dispute resolution, amendment of governance docs Standardize treatment of different types of CIDs

DAVIS-STIRLING ACT APPLICABILITY Applies to “common interest developments” defined as: A community apartment project A condominium project A planned development A stock cooperative (includes LEHC as defined in CC 817) Applies only if: membership in community association is mandatory and common area exists

DAVIS-STIRLING ACT REQUIREMENTS Disclosure requirements to new purchasers Annual disclosure requirements to members (policy statement, operating budget and financial statement, schedule of fines, etc.) Voting requirements (mailed written ballot, inspector of elections required, etc.) Operating rules (prior written notice, member rights to contest rule change, etc.)

DAVIS-STIRLING AND PREC Unlike the subdivision laws, Davis-Stirling only applies to the enumerated CIDs. PREC likely does not meet the definition of any of them. Not a community apartment project– residents do not own an entire project in common (they own shares of a corporation) Not a condominium project– residents do not own their units outright (they lease from the corporation) Not a planned development– residents do not own separate parcels (they lease from the corporation) Not a stock cooperative– not enough of the shareholders have right of exclusive occupancy