Alert November 12, 2008

Los Angeles City Council Repeals the 15% Ordinance

On October 15, 2008, the Los Angeles City Council passed legislation eliminating the Los Angeles Housing Authority’s unlimited right of first refusal to purchase or lease 15% of all multi-family residential units constructed after 1974.

Background

In response to a loss of a large number of apartment rental units during the 1970s and after the adoption of Proposition 13 in 1978, cities in California passed inclusionary housing ordinances, among other legislation, to protect or increase the amount of affordable housing. Typically, these ordinances required a developer either to construct a specified percentage of lower-income units within a development or pay a fee in lieu of providing those units.

Initially adopted in 1974, the City Council enacted Ordinance No. 145,927 (commonly referred to as the “15% Ordinance”) requiring developers to dedicate 15% of all newly constructed residential units to low or moderate income families. If a developer, after exercising “every reasonable effort,” was unable to comply with the construction of the requisite affordable units, the 15% Ordinance offered developers a waiver from the affordable housing requirements. This waiver required a developer to grant the Los Angeles Housing Authority a continuous right of first refusal to either purchase or lease at fair market value up to 15% of the dwelling units. For example, with apartment buildings, the Housing Authority would have been able to exercise its right of first refusal whenever all occupants of any unit in the development terminated their occupancy, and after such termination, fewer than 15% of the total number of units in the development were occupied as low- or moderate-income dwelling units. This covenant of right of first refusal was recorded against all new multi-family construction within the City of Los Angeles before any building permit was issued or final tract map approved.

Rescission

Although the legislation dates back over 30 years, the funding to implement the 15% Ordinance was never obtained and the city simply issued letters to developers indicating it was not exercising its right of first refusal due to funding constraints. Through the passage of Ordinance No. 180,308, which is scheduled to take effect on or around November 15, 2008, the city has rescinded the 15% Ordinance and all agreements entered into pursuant to the 15% Ordinance are of no further force and effect.

Recommendation

The city is authorized to record an instrument constituting a general release and rescission of any agreements pertaining to the 15% Ordinance. As such, we strongly encourage developers of multi-family projects who were affected by the 15% Ordinance to contact the city or its local title officer and request such release be recorded against its property.