Rocky Mountain Real Estate Law

Rocky Mountain Real Estate Law

Development, Financing and Other Property News from Colorado's Leading Real Estate Law Firm

California Supreme Court: Mandatory Affordable Housing Requirements Are Valid Land Use Regulations

Posted in Appellate, Eminent Domain, Housing, Land Use, Litigation, Multi-Unit Housing, Real Estate Development, Real Property, Residential, Zoning

Last week, in a case with national significance for multifamily housing developers, housing advocates, and local governments, the California Supreme Court upheld the City of San Jose’s inclusionary housing ordinance.  The ordinance requires new residential projects containing 20 or more units to provide at least 15% of the units at prices affordable to low- and moderate-income families as a condition of development approval.  The ruling in California Building Industry Association v. City of San Jose (CBIA) disproved many observers’ predictions regarding the constitutionality of inclusionary housing ordinances and the outcome in the case may pave the way for courts in other states to uphold similar affordable housing mandates.

In an attempt to remedy severe shortages of affordable housing, many local governments around the country have adopted inclusionary housing ordinances requiring developers to deed-restrict a certain number or percentage of units in new residential projects to make these units affordable to low- and moderate-income families.  For example, the City and County of Denver’s inclusionary housing ordinance, which was most recently amended in 2014, requires 10% of new units in for-sale housing to be made affordable to low- and moderate-income families.

The CBIA’s challenge asserted that San Jose’s mandatory affordable housing set-asides were unconstitutional “exactions” resulting in an uncompensated taking of private property  Exactions occur when a governmental permitting authority demands a dedication of property, money, or services—such as an easement for public use—in exchange for granting a property owner’s request for development approval (i.e., site plan approval, conditional use permit, rezoning, etc.).  In situations where the government conditions development approval on a property owner’s dedication of property for public benefit, the government must demonstrate (1) an essential nexus, or tailoring, between the condition imposed and the government’s purpose in imposing the condition, and (2) a rough proportionality between the nature and extent of the required dedication and the proposed development.  This analysis, commonly known as “heightened scrutiny,” derives from a pair of U.S. Supreme Court cases, Nollan v. California Coastal Commission and Dolan v. City of Tigard.

Refusing to apply Nollan and Dolan to inclusionary housing, the California Supreme Court held instead that the inclusionary housing ordinance was simply a valid land use regulation.  Unlike exactions, zoning and other land use regulations—such as use, height, bulk, and setback restrictions—are given deference by courts, and the burden generally falls on the challenger to prove such regulations invalid.  Zoning regulations are not typically viewed as exactions because they do not require a property owner to give anything to the government as a condition of approval.  The California court reasoned, that because the San Jose’s inclusionary housing ordinance simply places restrictions on the way a property owner can use land and does not require a dedication of property, money or services to the city, the San Jose inclusionary housing ordinance was not subject to heightened scrutiny and was therefore a valid land use regulation.  In so ruling, the court said:

It is well-established that the fact that a land use regulation may diminish the market value that the property would command in the absence of the regulation—i.e., that the regulation reduces the money that the property owner can obtain upon sale of the property—does not constitute a taking of the diminished value of the property.  Most land use regulations or restrictions reduce the value of the property; in this regard the affordable housing requirement at issue here is no different from limitations on density, unit size, number of bedrooms, required set-backs, or building heights.

CBIA is significant because it is the first state supreme court decision addressing inclusionary housing ordinances since the U.S. Supreme Court’s 2013 decision in Koontz v. St. Johns River Water Management District.  Koontz held that the government’s conditioning of development approval on a property owner’s payment of money or providing services—in addition to required dedications of land as in Nollan and Dolan—was subject to the essential nexus and rough proportionality analyses.  Following Koontz, many legal scholars and practitioners predicted that inclusionary housing ordinances might fail the essential nexus and rough proportionality requirements because of the difficulty of establishing a causal link between the creation of new housing supply and increased demand for affordable housing.  The CBIA decision, in rebuking that view, reaffirms two other state supreme court cases that also upheld mandatory inclusionary housing requirements.

If presented with a case similar to CBIA, it is not clear that the current justices of the U.S. Supreme Court would agree with the California ruling.  Yet while CBIA has precedential value only in California, the court’s decision may provide direction to other state courts reviewing the validity of inclusionary housing ordinances, meaning that multifamily developers interested in challenging inclusionary housing ordinances may have an uphill battle.

Special thanks to Otten Johnson law clerk Brittany Wiser for her assistance in preparing this post.  Brittany is a rising third-year student at the University of Denver Sturm College of Law.

U.S. Supreme Court Deals Significant Setback for Local Governments in Sign Case

Posted in Appellate, Land Use, Litigation, Real Estate Development, Zoning
20150113_reedvtownofgilbertsign

Good News Presbyterian Church’s temporary signs were the subject of the Supreme Court’s June decision. Source: fed-soc.org.

Regulating signs in a content neutral manner satisfying First Amendment limitations may become more difficult for local governments following today’s U.S. Supreme Court decision in Reed v. Town of Gilbert.  In today’s opinion, all nine Supreme Court justices agreed that the Town of Gilbert, Arizona’s sign code failed the First Amendment’s content neutrality requirement, although the justices came to that conclusion in different ways.

Last year on this blog, I reported on the Supreme Court’s acceptance of the cert petition in Reed, and the facts of the case can be found on my post there.

In today’s decision, which is the first Supreme Court case in over two decades to address local sign regulations, six justices agreed that the town’s sign code was facially content based; that is, the code improperly distinguished between types of noncommercial speech based on the particular subject matter of the speech.  The town’s sign code made several exceptions to a general permit requirement for signs, including exceptions for political, ideological, temporary event, and other types of signage, and regulated each of these excepted forms of signage in different ways.  A majority of the Court found that these distinctions impermissibly regulated on the basis of the signs’ content, which is prohibited under the Court’s First Amendment doctrine.  In the majority’s eyes, because the code regulated based on content or message of speech, the code was subject to the “strict scrutiny” standard of review, which required the town to demonstrate a compelling governmental interest and narrow tailoring of the regulations to the governmental purpose.  According to the majority, the town failed to meet that standard, and thus the sign code was held invalid.

In separate concurring opinions, three justices agreed with the majority that the town’s sign code improperly distinguished among speech based on content, but disagreed with the application of strict scrutiny to the regulations.  In the concurring justices’ view, the town’s sign regulations would have failed even a much lower standard of review.

The result in Reed is expected to put a much greater obligation on local governments to ensure that sign regulations are content neutral both on the face of the regulations and in the government’s underlying purpose for the regulations.  Some First Amendment watchers anticipate that the decision will result in more freedom for sign owners to display signs of various messages, while others have suggested that the result in Reed will encourage governments to take a more cautious approach to sign regulation that more broadly suppresses speech.

Over the month of July, I will be participating in several hosted online webinar presentations analyzing the Reed decision, including webinars through the American Bar Association and the Planning and Law Division of the American Planning Association.  Check these organizations’ websites for more details and information as these events open for registration.

Our colleagues at the RLUIPA Defense blog have also posted about Reed and its potential impact here.

Amendments to Colorado Urban Renewal Law May Limit Use of Tax-Increment Financing

Posted in Eminent Domain, Land Use, Legislation, Real Estate Development, Real Estate Finance, Special Districts, Tax

In May, the Colorado legislature approved a bill amending the state’s Urban Renewal Law, C.R.S. § 31-25-101 et seq., to place new limitations on urban renewal authorities.  The bill provides counties and other taxing authorities, such as school districts and special districts, with enhanced power in urban renewal and associated tax-increment financing (TIF) decisions by Colorado cities and towns.  Many municipal leaders, landowners, developers and others who benefit from TIF—which serves as an important public financing tool for the provision of new public infrastructure associated with private development projects—opposed the bill on the prediction that it will curtail municipalities’ future ability to utilize TIF.  Governor Hickenlooper, who vetoed similar urban renewal legislation last year, signed this year’s legislation into law.

The bill, HB 15-1348, changes the Urban Renewal Law in the following ways:

  • The bill increases the number of commissioners required on an urban renewal authority from the current law’s requirement of an odd number between 5 and 11. Under the bill, an urban renewal authority must have 13 commissioners, three of which must represent county, special district, and school district taxing authorities.  Under the present Urban Renewal Law, municipalities appoint all members of an urban renewal authority.
  • The bill requires excess collections of TIF revenues, i.e. revenues collected in excess of bond obligations, from property taxes to be repaid to local taxing authorities on a pro rata basis according to each taxing authority’s mill levy. The current Urban Renewal Law requires excess collections to be repaid into the funds of local taxing authorities, but does not provide any specific allocation requirement.
  • The bill provides that any taxing jurisdictions which contribute upfront costs toward an urban renewal project, in the 12-month period prior to the approval of the urban renewal plan, may be reimbursed from TIF revenues associated with the urban renewal project. The current Urban Renewal Law is silent on this matter.
  • The bill establishes a mandatory notification and negotiation process between municipalities or urban renewal authorities and other local taxing entities—such as counties or special districts—affected by a TIF plan to establish by intergovernmental agreement the types of tax revenues, and limits on such tax revenues, of each taxing authority that will be subject to a TIF plan. The bill provides a 120-day period in which such an agreement must be reached prior to adoption of a TIF plan, after which a third-party mediator is appointed to allocate revenues.  Under current law, urban renewal authorities are not required to negotiate with other taxing authorities to share portions of TIF revenue.

Because these changes would complicate the approval of new TIF plans by municipalities, the bill is expected to reduce cities’ and towns’ appetite for future urban renewal projects, with an associated impact on private developers who rely on TIF to finance public infrastructure associated with development projects in urban renewal areas.

Another bill introduced this year in the Senate, SB 15-284, which would require approval by voters in a municipality to approve TIF revenues where an urban renewal area contains agricultural land, was not passed by the Senate in the recently-ended session.

Construction Defects Fight Isn’t Over: Colorado Court of Appeals Weighs In

Posted in Commercial Real Estate, HOA & CCIOA, Housing, Legislation, Multi-Unit Housing, Real Estate Development, Real Property, Residential, Uncategorized

Despite the failure of Senate Bill 177 last week, there is positive news for condo developers. As reported in the Denver Post, the Colorado Court of Appeals ruled last week that a clause in a declaration requiring mandatory arbitration of any construction defect claims cannot be amended without the consent of the developer/declarant. Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al., involved a construction defect lawsuit against the developer/declarant. The declaration contained a provision prohibiting the amendment of a mandatory arbitration clause without the consent of the developer/declarant. Upon gaining control of the project, the homeowners’ association amended the declaration to eliminate the mandatory arbitration provision and sued the developer/declarant. The Colorado Court of Appeals held that the amendment removing the mandatory arbitration provision was invalid because the consent of the developer/declarant was not obtained.

 

Sixty Days and Counting for Colorado Professional HOA Managers to Get Licensed

Posted in Uncategorized

July 1, 2015 is the deadline for HOA Managers to be licensed by the Colorado Division of Real Estate (DRE). HB 13-1277, signed in 2013, is about to go into effect, requiring any person who manages the affairs of a common interest community on behalf of an HOA for compensation to meet minimum qualifications and obtain and maintain a license.

C.R.S. 12-61-1001 et seq. requires HOA managers to submit fingerprints, pay for a criminal background check, submit an application for licensure, and have one or more credentials as an association manager, which require both coursework and an exam.

Colorado currently has over 8,000 registered HOAs, and the Community Association Manager (CAM) Program estimates that it will issue between 1,200-1,500 licenses to professional HOA managers. As of 24 April, 2015, CAM reports that only 50 individuals and 10-12 companies have already been “approved” for licensure.

CAM is expecting a massive rush of applications, though it suspects that rush will come close to the July 1 deadline, as many managers are waiting to see what happens with HB 15-1040, whose passage would lessen the licensure education and exam requirements, and would greatly reduce the number of communities identified as “common interest communities” whose management must meet the licensure requirements.

To be ready for July, HOA management companies should obtain their licensure in compliance with the new law, while boards for professionally-managed HOAs should ensure their management company has taken the necessary steps for licensure, and should require a copy of its license be provided to the board.

Construction Defect Bill Dies in Committee

Posted in Commercial Real Estate, HOA & CCIOA, Litigation, Multi-Unit Housing, Real Estate Development, Real Property

Last night, the democrat-controlled Colorado House State Veterans and Military Affairs Committee voted along party lines to kill Senate Bill 177.  Despite support from both sides of the aisle, including the Metro Mayors Caucus, developers and affordable housing advocates, the bill was unable to garner sufficient support to get it out of committee and onto the House floor, where supporters claimed it had the votes to pass. Supporters largely blamed the trial lawyers for the bill’s failure.

The bill was intended to help spur condominium development in Colorado, which has dropped to historic lows in recent years. It would have done so by requiring that a majority of condominium owners in a project consent to filing class-action construction defect lawsuits, whereas the current law requires only a majority of the board of the homeowners’ association to do so. The bill would have also limited a homeowners’ association’s ability to amend its declaration to eliminate a mandatory arbitration clause.

Debate over the bill centered on whether the lack of condominium development in Colorado was a function of the prevalence of lawsuits against condominium developers or the lack of a market for such units. Ultimately, the vote seemed to come down to whether a homeowner’s right to address construction defects should be limited, and whether the bill would increase the construction of additional affordable housing units.

Law Expands CCIOA Exemption for some Pre-CCIOA HOAs

Posted in HOA & CCIOA, Housing, Multi-Unit Housing, Real Estate Development, Residential, Uncategorized

Colorado House Bill 15-1095, signed into law last week, relieves certain pre-1992 common interest ownership communities from some of the more burdensome requirements of the Colorado Common Interest Ownership Act (“CCIOA”).  In order to take advantage of the exemption, however, the community’s declaration must affirmatively limit annual assessments to $300 per unit or less.

The exemption makes qualifying HOAs subject only to sections 38-33.3-105 to 38-33.3-107 of CCIOA, which address title & taxation, public policy, and eminent domain. Without the exemption, these communities would be subject to many of CCIOA’s provisions, as articulated in C.R.S. 38-33.3-117.

Prior to HB 15-1095, this exemption only applied to post-CCIOA communities with annual assessments of $300 or less per unit, but did not apply not those communities established pre-CCIOA.

Though an uncontroversial bill with a narrow impact, for those pre-CCIOA communities, the passage of this bill allows them to avoid some cumbersome CCIOA compliance requirements. Pre-CCIOA communities with more than ten units but less than $300 in annual assessments can amend their declarations to state their assessment maximum if they wish to take advantage of this exemption.

Update – Construction Defect and Affordable Housing Legislation in Colorado

Posted in Commercial Real Estate, HOA & CCIOA, Housing, Litigation, Multi-Unit Housing, Real Estate Development, Real Property, Residential, Uncategorized

Both sides of the political aisle have expressed interest in legislation to promote affordable housing and to correct what many believe is a problem with Colorado’s construction defects law that is preventing construction of condominiums in the Denver metro area.  One option currently under consideration is Senate Bill 15-177.

As reported here by The Colorado Statesman, whether SB 177 gets to a vote this session remains unclear.  There is some indication that Speaker of the House Dickey Lee Hullinghorst, and other House Democrats including Representative Max Tyler (D-Lakewood) as reported here by the Denver Business Journal, may soon propose alternative bills.

We are among the many who are curious to see the details of what Speaker Hullinghorst and other House Democrats propose.

As U.S. Supreme Court Decides One Sign Case, Cert Petition Gets Filed In Another

Posted in Appellate, Eminent Domain, Land Use, Litigation, Real Property, Zoning

As the outcome of Reed v. Town of Gilbert hangs in the balance, another case challenging a local sign code has been filed with the Supreme Court. This week, the plaintiff in Central Radio Company, Inc. v. City of Norfolk filed a petition for writ of certiorari seeking review of the Fourth Circuit Court of Appeals’ January decision upholding the City of Norfolk, Virginia’s sign regulations against a First Amendment challenge.

The history of Central Radio began in 1998, when Norfolk approved a redevelopment plan allowing for a taking by eminent domain of Central Radio Company’s property as part of an Old Dominion University campus expansion and redevelopment plan. In response to the city’s action and a Virginia state court ruling allowing the city to proceed with its plans, in 2012, the property owners placed a 375 square-foot protest banner on the building which was the subject of the eminent domain proceeding. Because the banner was placed without a permit and exceeded the size limits applicable to temporary signs, the city took enforcement action against Central Radio Company. The trial court denied the plaintiff’s motion for summary judgment, and the Fourth Circuit affirmed. During the course of the proceedings on the plaintiff’s First Amendment action, in 2013, the Virginia Supreme Court found that the city was barred from taking Central Radio Company’s property.

Much like the Gilbert, Arizona sign code in Reed, the Norfolk code regulates signs based upon categories of speech. Category-based regulation of speech is the subject of a federal circuit split that is expected to be resolved by the Reed decision, which will likely be released in June. In upholding the Norfolk sign code, the Fourth Circuit opinion in Central Radio applied logic similar to the Ninth Circuit’s challenged Reed decision. The Central Radio cert petition requests that the Supreme Court require the Fourth Circuit to revisit its decision following the release of the Reed opinion, or in the event that the split goes unresolved following Reed, to resolve the circuit split in favor of the plaintiff. No brief in opposition to the petition has been filed by the City of Norfolk.

Colorado Senate Committee, Mayor Hancock, Support Senate Bill 177

Posted in HOA & CCIOA, Housing, Legislation, Real Estate Development, Residential

The reform of Colorado’s construction-defect law took an important step when the Senate Business, Labor and Technology Committee passed Senate Bill 177 (“SB-177”) on a 6-2 vote.

Prior to voting on SB-177, the Committee heard nearly eight hours of testimony, most notably from Denver Mayor Michael Hancock, who testified in favor of SB-177. Many attribute the historically low rate of condo construction in Colorado—a mere 3% of housing starts today vis-à-vis more than 20% in 2005—to Colorado’s current construction-defect law regime. Count Mayor Hancock among them. He testified that multi-family construction has been curtailed because of developers’ fears of construction-defect litigation and that Colorado’s current law operates as an “artificial barrier to for-sale multi-family housing being built in Denver.” SB-177’s main purpose is “to try and get homeowners and builders to achieve resolution in a dispute before it falls too deeply into the legal system.”

One consequence of the lack of multi-family construction is a shortage of more affordable housing options in Colorado. Mayor Hancock is acutely aware of this issue, stating that “any vibrant, successful city will depend on a true mix of housing types to accommodate the needs of various populations. This includes attainably priced for-sale, multifamily homes that appeal to our growing population of young Millennials, first-time home buyers and older residents looking to downsize their homes.” According to Mayor Hancock, the dearth of multi-family housing options is “pushing our city into a high-cost category and beginning to price out too many of our hard-working residents.”

But the problem goes beyond housing for Mayor Hancock. In his view, by limiting housing options, Colorado’s construction-defect law is also undermining a number of Denver’s goals, including promoting multi-modal transportation options, encouraging density and environmental sustainability, offering a mix of retail uses and diversity of housing types; and connecting residents with opportunities for jobs, healthcare and education. Mayor Hancock believes SB-177 will help increase housing options and advance these goals because it “offers a substantive solution to a pressing impediment to construction of for-sale affordable multifamily housing. It offers a substantive solution to help keep Denver a city of opportunity for all.”

SB-177 now moves to the full Senate. SB-177 is sponsored by Rep. Mark Scheffel, R-Parker, Sen. Jessie Ulibarri, D-Westminster, Rep. Brian DelGrosso, R-Loveland and Rep. Jonathan Singer, D-Longmont.