Staying on Top of the Surplus Land Act – Practice Tips After Recent UpdatesJuly 27, 2022
When local agencies sell or lease their surplus land to others, California’s Surplus Land Act (SLA) (Government Code sections 54220 to 24234) requires them to prioritize that land for affordable housing, open space, and school use. Agencies must let affordable housing developers, local park and recreation districts and departments, and school districts know that the land is available, and give those entities a chance to purchase or lease the land before initiating negotiations with others.
In response to the state’s chronic and serious shortage of affordable housing, lawmakers amended the SLA in 2020 with the goal of increasing the number of sites available for affordable housing development, and made further amendments in 2021. The amendments clarify and amend the SLA in significant ways, including by strengthening the law’s reporting and enforcement requirements. While it remains to be seen whether these updates will bolster California’s affordable housing supply, local agencies now have more responsibilities when selling or leasing land for five years or more. In July 2022, the Department of Housing and Community Development (HCD) released several technical assistance documents—including an FAQ and a guide to SLA exemptions—designed to help agencies stay on top of these requirements.
How the amendments changed the SLA
Amendments in 2020 (AB 1486, AB 1255) and 2021 (AB 1180) touched on several different parts of the law. And in April 2021, the HCD issued updated Surplus Land Act Guidelines with more detail on how local agencies must implement the SLA.
- Defining “local agencies”: The amendments clarify which local agencies the SLA applies to. These include: general law and charter cities and counties, and all districts within the state, including school, sewer, water, utility, and local and regional park districts, joint powers authorities, successor agencies to former redevelopment agencies, housing authorities, and other political subdivisions of the state that can acquire and own real property.
- Defining “disposition of land”: The SLA applies to an agency’s “disposition of land.” The April 2021 Guidelines clarify that this includes both the sale and lease of agency-owned land, but not: (1) leases with a term of less than five years, which includes any lease extensions, amendments or options, or (2) leases under which no development or demolition will occur. HCD’s technical assistance document “Surplus Land Act Frequently Asked Questions” clarifies that leases simply allowing “tenant improvements and minor maintenance” fall under this second category and are not subject to the SLA.
- Exempt surplus land: Certain categories of surplus land, known as “exempt surplus land,” are not subject to the SLA. The amendments add several new categories of exempt surplus land, including surplus land that:
- a local agency is transferring to a federally recognized California Indian tribe.
- a local agency is transferring to another local, state, or federal agency for the agency’s use.
- is a former street, right of way, or easement, and is conveyed to an owner of an adjacent property.
- is put out for competitive bid for a housing development that either: (1) restricts 100 percent of units to low and moderate income households, with at least 75% of units for lower income households, or (2) is a one acre or larger mixed use development, with a minimum of 300 residential units, at least 25% of which are reserved for lower income households.
HCD’s technical assistance document “Guide to Exemptions from the Standard Surplus Land Act Process” breaks down the different categories of SLA exemptions and includes decision trees for determining whether particular exemptions apply to a transaction.
- Steps to take before disposing of land: The amendments and 2021 Guidelines add steps that local agencies must follow before entering into negotiations to sell or lease surplus land. These steps must be taken in a particular order, and now include:
- Taking formal action at a regular public meeting to either declare the land “surplus land” or “exempt surplus land,” supported by written findings. If a local agency declares surplus land “exempt,” the 2021 Guidelines direct the agency to send HCD the written determination of exemption at least 30 days before disposing of the land.
- Sending out a “notice of availability” to HCD as well as to specified public agencies and nonprofits announcing that the land is available for low and moderate income housing, open space and park and recreation, school facilities, or development in infill opportunity zones or transit village plans.
- Giving these entities 60 days to respond to the notice of availability. During this time, the local agency may not issue a request for proposals regarding the surplus land.
- The agency must send HCD descriptions of any notices of availability sent and any negotiations conducted with responding entities.
HCD’s technical assistance document “HCD’s Implementation of the Surplus Land Act” discusses the different steps necessary for compliance.
Increased state oversight and higher stakes for violations
The SLA amendments expanded HCD’s role in overseeing compliance with the law and HCD’s 2021 Guidelines direct local agencies to contact HCD for guidance if they are unsure whether the SLA applies to a particular transaction.
The Guidelines also lay out a process for HCD to issue notices of violation and for local agencies to correct them. HCD is empowered to notify the California Attorney General if a local agency fails to correct the issues raised, and can pursue injunctive and declaratory relief. The SLA also creates a private right of action for “beneficially interested” persons or entities, who are permitted to file suit against a local agency to enforce the SLA.
Local agencies that violate the SLA face potentially serious consequences. If an agency receives a notice of violation and then sells the land without correcting the violation, the agency will be liable for a penalty of 30 percent of the final sale price. Penalties for subsequent violations rise to 50 percent of a property’s sales price. Penalty moneys are deposited into a local housing trust fund, and must be used to finance newly constructed housing units affordable to extremely low, very low, or low-income households. The Surplus Land Act does not set penalties for land leased in violation of the SLA.
Anaheim’s Angel Stadium controversy and efforts to further amend the SLA
The City of Anaheim’s attempted sale of its Angel Stadium property has put the SLA in the spotlight and shown that the State is ready to step in to enforce the law. In December 2019, the City approved a proposal to sell its 151-acre stadium site to Angels team owner Arte Moreno. The deal called for a $150 million cash payment for the land, and another $170 million to fund affordable housing and a park. After housing advocates alerted HCD of the planned sale, HCD sent the City a warning letter in April 2021 detailing how the transaction might violate the SLA. In December 2021, HCD then sent the city a notice of violation. It found that the stadium deal was not exempt from the amended SLA as the City had claimed, and highlighted a series of violations: the City had not formally declared the land as surplus, had failed to send out notices of availability, and had not notified HCD before agreeing to terms to dispose of the property. When the City failed to correct the violations, HCD referred the matter to the California Attorney General. The Attorney General sought a stipulated judgment under which the deal could still go forward, but the City would have to deposit $96 million in a local housing trust for construction of affordable housing, and to commit an additional $27 million for constructing up to 466 affordable rental units on site.
Although the sale was ultimately cancelled because of other legal issues, the City’s actions spurred lawmakers to try to further shore up the law. Anaheim had faced criticism for agreeing to sell the stadium site for well below its appraised value. One current proposal under consideration – AB 2357 (Ting 2022) – would require penalties imposed for SLA violations to be equal to the greater of a property’s sale price or of its appraised fair market value at the time of disposition. This bill aims to remove an incentive for an agency to lower a property’s sale price in order to preemptively reduce SLA penalties. Although it remains to be seen if AB 2357 will become law, the bill is an example of how the legislature continues to try to amend the SLA to encourage affordable housing development in California.
Contact Marlene Dehlinger for more information on how your agency can comply with the Surplus Land Act.