Legal Alerts Dec 16, 2020

New Surplus Land Act Requirements to Take Effect Jan. 1

California Public Agencies Impacted by AB 1486 Mandates

New Surplus Land Act Requirements to Take Effect Jan. 1

Assembly Bill 1486 brought California public agencies into a new era of required compliance with the Surplus Land Act. Taking effect on Jan. 1, 2020, the Act created new obligations before an agency disposes of surplus land. Over the course of this year, agencies have grappled with these new requirements. These include, among other things, formal findings by the agency’s legislative body declaring the land as surplus, the transmittal of notices of availability to designated housing sponsors and public agencies with jurisdiction over the land, and good faith negotiations if entities express interest in purchasing and developing the land, including for affordable housing purposes.

AB 1486 also mandates a number of important changes that take effect Jan. 1, 2021. Beginning next month, public agencies must, upon the conclusion of negotiations with an interested buyer but prior to disposing of the surplus land, report to the State Department of Housing and Community Development a description of any notices transmitted on such land, a summary of negotiations conducted with entities responding to that notice, and any restrictions proposed to be recorded against the property upon disposition, including affordability covenants. HCD then has 30 days to notify the agency of any violations of the Act. Presuming that the agency has not already disposed of the surplus land, the agency will then have 60 days to cure and correct the alleged violation before HCD may assess a penalty, notify the California Attorney General or before an action may be brought against the agency by any interested party specified in the Act.

For a first violation of the Act, HCD may impose a monetary penalty of 30 percent of the sales price of the property sold in violation of the Act, which must be deposited into a local or state housing trust, and 50 percent for any subsequent violation. These penalties would likely only be calculable after escrow has closed and the land has been transferred in violation of the Act. Agencies should condition the close of escrow on passage of the 30-day window during which HCD could issue a notice of violation and, assuming receipt of a notice of violation from HCD, the 60-day window to either cure or correct the alleged violation. Agencies should also account for possible cancellation of escrow and the sale if the alleged violation is not curable or feasibly correctable, whether due to time or expense.

Of note, the Act states that funds used to pay these penalties may not come from funds already dedicated to affordable housing, implying that such money may, for some agencies, have to come from the agency’s general fund. The agency must spend those penalty moneys to construct affordable housing within five years, or the funds will revert to the state, to be used for those same affordable housing purposes.

Starting Jan. 1, HCD is also required to make educational resources available informing public agencies of their obligations under the Act. HCD issued draft Surplus Land Act Guidelines in November, and is scheduled to release Final Guidelines sometime after Jan. 1.

Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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