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AB-1703 Residential real property: sale of rental properties: right of first offer.(2019-2020)



Current Version: 07/14/20 - Amended Senate         Compare Versions information image


AB1703:v93#DOCUMENT

Amended  IN  Senate  July 14, 2020
Amended  IN  Senate  June 29, 2020
Amended  IN  Senate  September 06, 2019
Amended  IN  Assembly  April 29, 2019
Amended  IN  Assembly  April 10, 2019
Amended  IN  Assembly  March 28, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 1703


Introduced by Assembly Member Bloom

February 22, 2019


An act to add and repeal Article 1.6 (commencing with Section 1102.50) of Chapter 2 of Title 4 of Part 4 of Division 2 of, and to add and repeal Section 2923.56 of, the Civil Code, relating to real property.


LEGISLATIVE COUNSEL'S DIGEST


AB 1703, as amended, Bloom. Residential real property: sale of rental properties: right of first offer.
Existing law establishes various real estate disclosure requirements applicable to the transfer of residential real property.
This bill would require an owner of residential real property, defined to include a single-family residential property that is occupied by a tenant or a multifamily residential property, property except as specified, to take various actions before offering the residential real property for sale to any purchaser, soliciting any offer to purchase the residential real property, or otherwise entering into a contract for sale of the residential real property. The bill would exempt from these provisions residential real property in which a majority of the units are rented at a rate higher than affordable rent for a moderate-income household. The bill would exempt certain transfers of a residential real property from its provisions, including, among others, a transfer between spouses, domestic partners, parent and child, siblings, grandparent and grandchild, a transfer pursuant to a court order, and a transfer by eminent domain.
This bill would require the owner of the residential real property to notify each tenant and each qualified organization, as defined, of the owner’s intent to sell the residential real property. The bill would provide each qualified organization with 10 days to notify the property owner of their interest in purchasing the property and further provide a qualified organization with either 60 days or 40 days, depending on the number of units of the property, to submit an offer to purchase the residential real property. The bill would provide that a property owner may sell the property to any party if the property owner does not receive any interest to purchase the property from a qualified organization or receive an offer from a qualified organization within these timeframes. The bill would allow a property owner to reject any offer received from a qualified organization and sell to a party that is not a qualified organization, but would provide a qualified organization that submits a rejected offer with 10 days to invoke a right of first refusal to accept a subsequent offer accepted by the property owner, as specified.
This bill would require a qualified organization that purchases a residential real property pursuant to these provisions to retain all existing tenancies and to restrict the units of the property to rents affordable to persons and families of low and moderate income, with the maximum average income of the tenants not to exceed 80% of the area median income, as specified. The bill would provide that these affordability requirements shall be recorded, as specified, and that the affordability requirements are enforceable, as specified. The bill would require the qualified organization to commit to providing the tenants of a single-family residential real property or a current or future resident organization in a multifamily residential real property with 18 months to purchase the entire residential real property property, or, if ownership of the land will be retained by a community land trust under a 99-year ground lease, the opportunity to purchase improvements, after the qualified organization takes title of the property.
This bill would require the Department of Housing and Community Development to develop a process for qualified organizations, including, among others, a local public entity, eligible nonprofit corporation, limited equity housing cooperative, and resident organizations formed for the purpose of acquiring a multifamily residential real property, to notify the department of their interest in purchasing residential real property. The bill would require the department to maintain a list of those organizations that have submitted this notice on its internet website.
The bill would require each owner that sells a residential real property to record, or cause to be recorded, a certification of compliance under penalty of perjury at the time of sale, as specified, and would make failure to file the certificate an infraction punishable as specified. By expanding existing crimes, the bill would impose a state-mandated local program.
Existing law imposes various requirements to be satisfied prior to exercising a power of sale under a mortgage or deed of trust. Existing law, with respect to residential real property containing up to 4 dwelling units, requires a mortgagee, trustee, beneficiary, or authorized agent to provide to the mortgagor or trustor a copy of the recorded notice of default and a copy of the recorded notice of sale.
This bill would additionally require a mortgagee, trustee, beneficiary, or authorized agent to, upon filing a notice of default, provide to the mortgagor or trustor a list of qualified organizations located within the county of the residential real property, as defined. The bill would also require the mortgagee, trustee, beneficiary, or authorized agent to notify the tenant of the residential real property of the filing of a notice of default.
This bill would apply its provisions until January 1, 2023.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NOYES  

The people of the State of California do enact as follows:


SECTION 1.

 Article 1.6 (commencing with Section 1102.50) is added to Chapter 2 of Title 4 of Part 4 of Division 2 of the Civil Code, to read:
Article  1.6. Emergency Right to Purchase Act

1102.50.
 For purposes of this part:
(a) “Department” means the Department of Housing and Community Development.
(b) (1) “Residential real property” means any of the following:
(A) A single-family residential property that is occupied by a tenant.
(B) A multifamily residential property, whether vacant or occupied by tenants.

(2)“Residential real property” does not include a property in which a majority of units are rented at a rent greater than an affordable rent for a moderate-income household as defined in Section 50053 of the Health and Safety Code.

(2) “Residential real property” does not include any of the following:
(A) A property that is currently subject to a regulatory agreement with a governmental agency that restricts rents to occupancy by low-income households and is being transferred to a nonprofit entity, or a limited partnership or limited liability company controlled by a nonprofit, that agrees to a condition of the sale or transfer to record a new regulatory agreement with a governmental agency that restricts occupancy to eligible low-income households for at least 30 years.
(B) A property owned by a local, state, or federal government.
(C) A property owned by and operated as a hospital, convent, monastery, extended care facility, or convalescent home.
(D) A dormitory owned and operated by an educational institution.
(E) A single-family property that an owner occupies as their principal residence.
(F) A single-family property with an accessory dwelling unit or other secondary dwelling unit where an owner occupies either the single-family property or the secondary unit as their principal residence.
(G) A property owned by a cooperative corporation that is owned, occupied, and controlled by a majority of residents.
(c) “Qualified organization” means an organization registered pursuant to Section 1102.56.

1102.52.
 (a) An owner of residential property shall comply with the requirements of this section before taking any of the following actions:
(1) Offering the residential real property for sale to any purchaser other than a qualified organization or tenant.
(2) Soliciting any offer to purchase the residential real property from any purchaser other than a qualified organization or tenant.
(3) Accepting any unsolicited offer to purchase the residential real property from any party other than a qualified organization or tenant.
(4) Entering into a contract for sale of the residential real property with any party other than a tenant or qualified organization, whether through listing or off-market sale, whether individual properties or a bundled portfolio of properties.
(b) (1) An owner of residential real property shall send notice of the owner’s intent to sell the property to each tenant, and to each qualified organization that has registered with the department pursuant to Section 1102.56.
(2) The notice required by this subdivision shall include the location and a description of the residential real property.
(c) (1) A qualified organization may, within 10 days of receipt of the notice, send notice to the property owner expressing interest in purchasing the property.
(2) If the property owner does not receive notice expressing interest in purchasing the property from any qualified organization, the property owner may proceed in selling the property without regard to this section.
(d) If the property owner receives a written notice expressing interest in purchasing the property from any qualified organization, the property owner shall provide the interested party with a disclosure package that provides, at a minimum, all of the following information:

(1)Specifications of the residential real property.

(2)The income of each rental unit of the residential real property.

(3)Expenses of the residential real property.

(4)The contact information of each tenant of the residential real property.

(1) The name and contact information of each tenant in each rental unit of the residential real property.
(2) The number of bedrooms and bathrooms in each rental unit.
(3) The move-in date of each tenant of the residential real property.
(4) Base rent for each rental unit of the residential real property.
(5) The residential real property’s costs that are passed through to each tenant, if any.
(6) Whether each tenant has a written lease or rental agreement.
(7) The annual expenses for the residential real property, including, but not limited to, management, insurance, utilities, and maintenance costs.
(e) (1) After receiving the disclosure package, if the qualified organization remains interested in purchasing the residential real property, the qualified organization shall, within 20 days, communicate its interest to purchase the property to each tenant.
(2) Within 20 days of receiving the disclosure package, the qualified organization may request to meet and confer with the property owner to confirm interest in purchasing the residential real property. The property owner shall meet and confer with the qualified organization upon request.
(f) (1) A qualified organization desiring to purchase a residential real property consisting of five or more units shall submit an offer to purchase the property within 60 days of receiving the disclosure package required pursuant to subdivision (d). If the property consists of four or fewer units, the qualified organization desiring to purchase a residential real property shall submit an offer to purchase the property within 40 days of receiving the disclosure package.
(2) If the property owner does not receive an offer to purchase the property within the applicable timeframes in paragraph (1), the property owner may proceed in selling the property without regard to this section.
(3) If a property owner receives an offer from both a tenant of a single-family residential real property or a resident organization in a multifamily residential real property, and some other qualified organization, the property owner shall give priority to the tenant’s or the resident organization’s offer.
(g) (1) (A) If the property owner accepts an offer submitted pursuant to this subdivision for a single-family residential real property, the property owner shall afford the qualified organization 30 days after the date of entering into the contract with the qualified organization to secure financing.
(B) If, within 30 days after the date of contracting for the single-family residential real property, the qualified organization presents the property owner with the written decision of a lending institution or agency that states that the institution or agency estimates that a decision with respect to financing or financial assistance will be made within 45 days after the date of contracting, the property owner shall afford an extension of time consistent with the written estimate.
(2) (A) If the property owner accepts an offer submitted pursuant to this subdivision for a multifamily residential real property containing two to four units, the property owner shall afford the qualified organization 90 days after the date of the entering into contract with the qualified organization to secure financing
(B) If, within 90 days after the date of contracting for the multifamily residential real property containing two to four units, the qualified organization presents the property owner with the written decision of a lending institution or agency that states that the institution or agency estimates that a decision with respect to financing or financial assistance will be made within 120 days after the date of contracting, the property owner shall afford an extension of time consistent with the written estimate.
(3) (A) If the property owner accepts an offer submitted pursuant to this subdivision for a multifamily residential real property containing more than four units, the property owner shall afford the tenant or qualified organization 120 days after the date of the entering into contract with the tenant or qualified organization to secure financing
(B) If, within 120 days after the date of contracting for the multifamily residential real property containing more than four units, the tenant or qualified organization presents the property owner with the written decision of a lending institution or agency that states that the institution or agency estimates that a decision with respect to financing or financial assistance will be made within 160 days after the date of contracting, the property owner shall afford an extension of time consistent with the written estimate.
(4) If the tenant or qualified organization does not secure financing within the applicable timeframe of this subdivision, the property owner may proceed in selling the property without regard to this section.
(h) (1) A property owner may reject any offer submitted to purchase a residential real property pursuant to this section.
(2) If the property owner receives an offer pursuant to subdivision (f) and rejects that offer, the property owner may sell the property to any other buyer subject to paragraph (3).
(3) If the property owner rejects an offer received pursuant to subdivision (f) and then intends to accept an offer from a party that is not a qualified organization, the property owner shall do both of the following:
(A) Notify the qualified organization that the property owner intends to accept an offer from a party that is not a qualified organization.
(B) Provide the qualified organization of a rejected offer with 10 days to invoke a right of first refusal to accept the offer submitted by a party that is not a qualified organization on the same terms.
(4) A qualified organization that does not receive notice from a property owner as required by subdivision (b) shall be given 80 days to invoke a right of first refusal to an offer submitted by a party that is not a qualified organization that is accepted by the property owner.
(i) Notices required pursuant to this section shall be delivered by electronic mail or by certified mail.
(j) This section shall not apply to the following transfers of residential real property:
(1) An inter vivos transfer, whether or not for consideration, between spouses, domestic partners, parent and child, siblings, or grandparent and grandchild.
(2) A transfer for consideration by a decedent’s estate to members of the decedent’s family if the consideration arising from the transfer will pass from the decedent’s estate to, or solely for the benefit of, a charity. For purposes of this paragraph, “members of the decedent’s family” includes all of the following:
(A) A spouse, domestic partner, parent, child, grandparent, or grandchild.
(B) A trust for the primary benefit of a spouse, domestic partner, parent, child, grandparent, or grandchild.
(3) A transfer of bare legal title into a revocable trust, without actual consideration for the transfer, where the transferor is the current beneficiary of the trust.
(4) A transfer to a named beneficiary of a revocable trust by reason of the death of the grantor of the revocable trust.
(5) A transfer pursuant to court order or court-approved settlement.
(6) A transfer by eminent domain or under threat of eminent domain.

1102.54.
 (a) A qualified organization that acquires a residential real property pursuant to Section 1102.52 shall be subject to all of the following:
(1) All existing tenancies of the residential real property shall be retained on the same terms that were in effect before the acquisition. acquisition, except as permitted by state and local law.
(2) (A) The qualified organization shall restrict the rental rate of the vacant units of the residential real property to be affordable to persons and families of low and moderate income and lower income households, with the maximum average rent of the units to be affordable to persons and families with 80 percent of the area median income.
(B) (i) If, upon acquiring the residential real property the average rental rate of the units exceeds the maximum average rental rate required pursuant to subparagraph (A), the owner of the residential real property shall rent vacant units at a rate affordable to persons and families whose incomes do not exceed 60 percent of the area median income until the average rental rate complies with subparagraph (A).
(ii) If the average rental rate of the residential real property complies with subparagraph (A), the owner of the residential real property may rent vacant units at a rental rate affordable to persons and families of low and moderate income, provided that the average rental rate remains in compliance with subparagraph (A).
(C) For purposes of this paragraph, whether a rental rate is affordable shall be determined in the manner described in Section 50053 of the Health and Safety Code.
(3) (A) The qualified organization shall commit to provide the tenant of a single-family residential real property or current or future resident organization in a multifamily residential real property the opportunity to purchase the entire residential real property within 18 months of taking title to the residential real property. The with fewer than 20 units the opportunity to purchase the entire residential real property, or, if ownership of the land will be retained by a community land trust under a 99-year ground lease, the opportunity to purchase improvements, within 18 months of taking title to the residential real property.
(B) For a multifamily residential real property with between 2 and 20 units, the qualified organization may offer this opportunity to purchase only to a current or future resident organization that would take title as a limited-equity housing cooperative, as defined in Section 817.
(C) The tenant or resident organization may assign their right to purchase the residential real property to any qualified organization.
(b) For purposes of this section:
(1) “Area median income” means the same as defined in Section 50093 of the Health and Safety Code.
(2) “Lower income households” means the same as defined in Section 50079.5 of the Health and Safety Code.
(3) “Persons and families of low and moderate income” means the same as defined in Section 50093 of the Health and Safety Code.

1102.56.
 (a) (1) The Department of Housing and Community Development shall develop a process by which any of the organizations described in subdivision (b) may notify the department of their interest in purchasing residential real property pursuant to the part.
(b) The following types of organizations may submit a notification to the department pursuant to subdivision (a):
(1) A local public entity, as defined in Section 50079 of the Health and Safety Code.
(2) An eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.
(3) A limited partnership in which the managing general partner is an eligible nonprofit corporation.
(4) A limited liability company in which the managing member is an eligible nonprofit corporation.
(5) A community land trust, as defined in clause (ii) of subparagraph (C) of paragraph (11) of subdivision (a) of Section 402.1 of the Revenue and Taxation Code.
(6) A cooperative corporation. corporation controlled by a majority of residents.
(7) A limited equity limited-equity housing cooperative as defined in Section 817.
(8) A resident organization formed for the purpose of acquiring a multifamily residential real property in which the residents reside to convert the property to resident ownership.
(9) A tenant of a single-family residential real property.
(c) The department shall maintain on its internet website an up-to-date listing of all qualified organizations that have submitted a notification to the department pursuant to subdivision (a) on its internet website.

1102.58.
 (a) Each owner that sells a residential real property shall record, or cause to be recorded, a certification of compliance under penalty of perjury at the time of sale, that one of the following applies:
(1) The owner has substantially complied with the requirements of this article, with a copy of the notice to tenants attached
(2) The owner or transaction is exempt from the requirements of this article pursuant to Section 1102.52.
(b) (1) Each certification of compliance shall include the address of the relevant residential real property.
(2) Failure to file the certification of compliance shall be an infraction punishable in accordance with the fine schedule established pursuant to subdivision (b) of Section 36900 of the Government Code.
(c) The affordability requirements in Section 1102.54 shall be contained in a covenant or restriction recorded against the residential real property at the time of sale, which shall run with the land and shall be enforceable, against any owner who violates a covenant or restriction and each successor in interest who continues the violation, by any of the following:
(1) A resident of a unit subject to this section.
(2) A residents’ association with members who reside in units subject to this section.
(3) A former resident of a unit subject to this section who last resided in that unit.
(4) An applicant seeking to enforce the covenants or restrictions for a particular unit that is subject to this section, if the applicant conforms to all of the following:
(A) Is of low or moderate income, as defined in Section 50093 of the Health and Safety Code.
(B) Is able and willing to occupy that particular unit.
(C) Was denied occupancy of that particular unit due to an alleged breach of a covenant or restriction implementing this section.
(D) Is on an affordable housing waiting list, is of low or moderate income, as defined in Section 50093 of the Health and Safety Code, and is able and willing to occupy a unit subject to this section.

1102.58.1102.60.
 (a) Except as provided in subdivision (b), this part shall not preempt or invalidate either of the following: a local ordinance, regulation, or other policy that provides a tenant or qualified organization with a right of first offer, right of first refusal, or other opportunity to purchase a residential real property.

(1)A local ordinance, regulation, or other policy that provides a tenant or a group of tenants the opportunity to purchase a residential real property.

(2)A local ordinance, regulation, or other policy that provides a tenant or qualified organization a right to submit the first offer for a residential real property.

(b) If a local ordinance, regulation, or other policy conflicts with this article, the provision that provides the tenant or qualified organization with a stronger right to purchase the residential real property shall prevail.

1102.60.1102.62.
 This article shall remain in effect only until January 1, 2023, and as of that date is repealed.

SEC. 2.

 Section 2923.56 is added to the Civil Code, to read:

2923.56.
 (a) With respect to residential real property, as defined in subdivision (b) of Section 1102.50, a mortgagee, trustee, beneficiary, or authorized agent shall do both of the following upon recording a notice of default:
(1) Provide the mortgagor or trustor with a list of the qualified organizations located within the county of the residential real property that have provided notice to the Department of Housing and Community Development pursuant to Section 1102.56.
(2) Provide notice to each tenant of the residential real property of the notice of default being filed.
(b) Notices required pursuant to this section shall be delivered by electronic mail or by certified mail.
(c) This section shall remain in effect only until January 1, 2023, and as of that date is repealed.

SEC. 3.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.