1 ORDINANCE NO. ___
AN ORDINANCE OF THE CITY COUNCIL
OF THE CITY OF EAST PALO ALTO
ADDING CHAPTER 14.26 OF THE EAST PALO ALTO MUNICIPAL CODE
AUTHORIZING THE EAST PALO ALTO OPPORTUNITY TO PURCHASE
ACT
WHEREAS, the City Council finds that East Palo Alto is experiencing a shortage of affordable housing, especially for extremely low-income, very low-income, low-income and moderate-income residents, and a displacement crisis; and WHEREAS, rapid displacement is evidenced in East Palo Alto by high rates of eviction, increasing rents, and increasing home values; and WHEREAS, there is a disproportionate impact of displacement, homelessness, and unmet affordable housing and homeownership needs in East Palo Alto borne by African American, Latinx, and Pacific Islander communities of color; and WHEREAS, sixty percent (60%) of East Palo Alto’s population are renters, and over half of these renters are cost-burdened, meaning they spend over thirty percent (30%) of their monthly income on rent; and
WHEREAS, according to the Bay Area Equity Atlas and the Urban Displacement Project, seventy-two percent (72%) of low-income households in East Palo Alto live in gentrifying neighborhoods; and
WHEREAS, due to state law, tenants living in single-family homes and tenants living in buildings built after 1988 are not protected by rent stabilization (although the Just Cause for Eviction provision still applies); tenants in rent-stabilized units are not protected from displacement by owner-move in; and when a tenant moves out, the rent for that unit can be raised to market value; and
WHEREAS, according to the American Community Survey (2015-2019) and San Mateo County Income Limits, the median household income in East Palo Alto of $67,087 is less than half the county’s median household income, and most East Palo Alto households fall into the “extremely low-income” to “very low-income” category, or 30- 50% AMI, making residents highly susceptible to dramatic shifts in the housing market; and
2 WHEREAS, according to the Center for Responsible Lending, during the foreclosure crisis from 2004-2008, African Americans and Latinxs in California were more than twice as likely as non-Hispanic Whites to lose their homes to foreclosure; and WHEREAS, there is a concentration of properties in East Palo Alto owned by individual and entity investors and the majority of these investors are not residents of the City of East Palo Alto; and
WHEREAS, historically, East Palo Alto residents, both owners and renters, have been denied opportunities to build wealth through property ownership due to discriminatory housing policies, including the practice of redlining that impacted longer term residents and continues to impact successive generations of East Palo Alto residents; and
WHEREAS, it is a necessary and important public purpose to provide relief for these economic and social ills arising from the housing challenges facing East Palo Alto residents; and
WHEREAS, approximately 5.8% of properties in East Palo Alto are owned by East Palo Alto residents with a primary residence elsewhere in the city; and WHEREAS, a limited exemption for these local residents who own other properties within East Palo Alto will promote the purpose of providing relief for these economic and social ills experienced by residents of East Palo Alto; and WHEREAS, Tenant and Community Opportunity to Purchase Act programs have been adopted in a number of jurisdictions including Washington DC and San Francisco to protect residents’ ability to stay in a neighborhood in a cost effective manner; and WHEREAS, the City Council desires to prevent further displacement of East Palo Alto households, to supply a variety of affordable rental and ownership housing options, and to protect the health, safety and general welfare of the public through an opportunity to purchase program; and
WHEREAS, this action is exempt from the California Environmental Quality Act ("CEQA") under the following, each as a separate and independent basis, including but not limited to, the following: CEQA Guidelines Section 15378 (regulatory actions).
Section 15061 (b) (3) (no significant environmental impact), and Section 15183 (actions consistent with the general plan and zoning.)
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO DOES ORDAIN AS FOLLOWS:
3 SECTION 1. RECITALS
The above recitals are true and correct and incorporated herein by reference.
SECTION 2. AMENDMENT TO THE EAST PALO ALTO
MUNICIPAL CODE
The City Council hereby adds Chapter 14.26 (“East Palo Alto Opportunity to Purchasing Act”) to the East Palo Alto Municipal Code in Title 14 (“Housing”) to read as follows:
Chapter 14.26
East Palo Alto Opportunity to Purchase Act
14.26.010 Title and Purpose
A. This Chapter shall be referred to as the “East Palo Alto Opportunity to Purchase Act” or “EPA OPA” program.
B. The purpose of this Chapter is to confer upon Tenants, Qualified Nonprofits, and the City of East Palo Alto (“Potential Eligible Purchasers”) a Right of First Offer and a Right of First Refusal upon the transfer or sale of Residential Property as defined herein to prevent displacement of lower-income tenants, to facilitate ownership for residents, and to create more affordable housing opportunities in East Palo Alto.
14.26.020 Definitions
“Absentee Owner(s)” means an owner or owners of a residential property who do not occupy the residential property as the owner’s or owners’ principal residence. “Accessory Dwelling Unit (ADU)” means a separate dwelling unit providing complete independent living facilities for one or more persons containing living, sleeping, kitchen and sanitation facilities which are defined as a full bathroom (tub/shower, sink and, a toilet) located on the same lot as the main dwelling unit. An existing single-family residence may be converted to accessory dwelling unit(s) in conjunction with the development of a new main dwelling unit on the site and in conformity with the development standards for a new accessory unit as set forth in Chapter 18.96. Subject to the restrictions contained in Chapter 18.96, an accessory dwelling unit may be either attached to, or detached from or incorporated into the main dwelling unit. An Accessory Dwelling Unit also includes an efficiency unit, as defined in Health and Safety Code Section 17958.1 or a manufactured home, as defined in Health and Safety Code Section 18007, located on the same lot as the main dwelling.
4 “Administrative Guidelines” means any requirements for implementation and administration of this Chapter adopted by the City Council or designee in accordance with Section 14.26.170.A of this Chapter.
“50% AMI Income Household” means households whose income does not exceed fifty percent (50%) of the area median income, adjusted for family size and as published annually by the City of East Palo Alto.
“Appraised Value” means the value of the property subject to this Chapter, as of the date of the appraisal, based on an objective, independent property valuation, performed according to professional appraisal industry standards. “Bona Fide Offer to Purchase” means an offer to purchase a property subject to this Chapter, or the interest in the property that is either:
For a price and other material terms that are at least as favorable as those accepted by a purchaser in an arm’s length third-party contract; or,
In the absence of an arm’s length third-party contract, an offer to purchase with a price and other material terms comparable to that at which a willing seller and a willing buyer would sell and purchase the property, or the appraised value. “The City” means the City of East Palo Alto, including any departments within the City that are assigned any responsibilities under this Chapter. “Condominium” means an estate in real property consisting of an undivided interest in common in a portion of a parcel of real property, together with a separate interest in space in a residential structure located on the real property in compliance with Civil Code Section 783. A condominium may include, in addition, a separate interest in other portions of the real property.
“Day or Days” means calendar day(s) unless otherwise stated. “Dwelling Unit” means a structure or the part of a structure that is used as a residence that provides complete, independent living facilities including permanent provisions for living, sleeping, eating, cooking and sanitation.
“Duplex” means a single building that contains two dwelling units or two dwelling unit on a single parcel. This use is distinguished from accessory dwelling units and junior accessory dwelling units, which are accessory residential units. “Junior Accessory Dwelling Unit (JADU)” means a dwelling unit that is no more than 500 square feet in size and contained entirely within a single-family residence. 5 “Low-Income Households” are those households whose income does not exceed sixty percent (60%) of the area median income, adjusted for family size and as published annually by the City of East Palo Alto
“Listing or Marketing” means adding the property on Multiple Listing Service (MLS) or any other private or public online database, or adding or disseminating information about the property on paper or digitally, with the intent of informing prospective ThirdParty Purchasers or their representatives about the opportunity to purchase, promoting the property, or receiving communications from prospective buyers. “Median-Income Households” are those households whose income does not exceed eighty percent (80%) of the area median income, adjusted for family size and as published annually by the City of East Palo Alto.
“Moderate-Income Households” are those households whose income does not exceed one hundred and twenty percent (120%) of the area median income, adjusted for family size and as published annually by the City of East Palo Alto. “Multi-Family Dwelling” means any property in East Palo Alto with two or more dwelling units.
“Non-Exempt” means a residential property or a transfer that is not exempt under Section 14.26.040 of this Chapter.
“Owner” means any natural person, corporation, association, partnership, joint venture, limited liability company, trustee, business entity and its respective agents, or any other entity, who is the owner of record of a residential property. “Owner-Occupied Single-Family Dwelling” means a single-family dwelling that is occupied by the owner(s) as the owner’s or owners’ principal residence. “Owner-Occupied Duplex” means a duplex that is occupied by the owner(s) as the owner’s or owners’ principal residence.
“Owner-Occupied Triplex” means a triplex that is occupied by the owner(s) as the owner’s or owners’ principal residence.
“Potential Eligible Purchaser” means the qualified entity (Tenants, Qualified Nonprofits, or the City) purchasing a property under this Chapter. “Principal Residence” means a residential dwelling that is occupied and is the usual place of return of a natural person. A dwelling will qualify as a primary residence when:
(1) the person has lived in the dwelling for more than fifty percent (50%) of the time in the year prior to the proposed sale; and (2) the person acknowledges the dwelling as the 6 person’s primary residence by voter registration, address on tax returns, homeowners exemption, and/or mailing address.
“Purchaser(s)” means subsidized Tenants, Qualified Nonprofits, or the City who are purchasing a Residential Property under this Chapter.
“Qualified Nonprofit” means an organization that is exempt from federal income tax under 26 USC Section 501(c)(3), or a California cooperative corporation that has the capacity to acquire, provide and manage affordable housing for low, very low, and extremely low income households, has a commitment to prevent displacement, has a demonstrated commitment to community engagement, and is certified by the City Council or designee pursuant to Section 14.26.050 of this Chapter via an application process as set forth in the Administrative Guidelines.
“Rent” means the consideration, including security deposit, cleaning deposit and any other deposits, bonus, benefit or gratuity demanded or received for or in connection with the use or occupancy of rental units and housing services. Rent includes monies and the fair market value of goods or services rendered to or for the benefit of the landlord under the rental agreement.
“Residential Property” means any property containing one or more dwelling units and located in the City of East Palo Alto.
“Single-Family Dwelling” means a property, building, structure or dwelling unit, or portion of a property, building, structure, or dwelling unit principally designed for the residential habitation of one household, identified by one parcel number, and having only one kitchen and one set of common areas, or, where there are two or more kitchens, with all secure entrances leading to the same set of interior common areas. “Subsidized Purchaser” is any Tenant, Qualified Nonprofit, or City receiving public or private subsidy to support a purchase made pursuant to this Chapter. “Tenant” means a renter, tenant, subtenant, lessee or sublessee of a rental unit, or successor to a renter's interest, or any group of tenants, subtenants, lessees, or sublessees of any rental unit, or any other person entitled to the use or occupancy of such rental unit. “Third-Party Purchaser” means any person or entity that has entered into a bona fide contract of sale for a Residential Property prior to an Owner giving the Potential Eligible Purchaser(s) an opportunity to purchase at a price and terms that represent a Bona Fide Offer to Purchase.
“Triplex” means a single building that contains three dwelling units or three dwelling unit on a single parcel. This use is distinguished from accessory dwelling units and junior accessory dwelling units, which are accessory residential units. 7 14.26.030 Applicability
This Chapter shall apply to the sale or transfer of all Residential Property in the City of East Palo Alto unless otherwise exempted herein.
14.26.040 Exemptions
A. Exempt Residential Property. The following types of Residential Property are not subject to the requirements of this Chapter:
1. Owner-Occupied Single-Family Dwellings, including those with an Accessory Dwelling Unit(s) (inclusive of any Junior Accessory Dwelling Unit) located on the same parcel, when the Owner has occupied the SingleFamily Dwelling or the ADU as the Owner’s Principal Residence for more than one (1) year.
2. Non-Owner-Occupied Residential Property owned by an East Palo Alto resident, when the Owner has occupied a Residential Property within East Palo Alto as the Owner’s Principal Residence for more than one (1) year. This exemption shall not apply when any Residential Property is owned by:
a. A real estate investment trust, as defined in Section 856 of the Internal Revenue Code;
b. A corporation; or
c. A limited liability company in which at least one member is a corporation.
3. Owner-Occupied Condominiums when the Owner has occupied the Condominium as the Owner’s Principal Residence for more than one (1) year.
4. Any Owner-Occupied Duplex with or without any Accessory Dwelling Unit(s) (inclusive of any Junior Accessory Dwelling Unit) located on the same parcel when the Owner has occupied any Dwelling Unit on the property as the Owner’s Principal Residence for more than one (1) year.
5. Any Owner-Occupied Triplex with or without any Accessory Dwelling Unit(s) (inclusive of any Junior Accessory Dwelling Unit) located on the same parcel when the Owner has occupied any Dwelling Unit on the property as the Owner’s Principal Residence for more than one (1) year. 8 6. Residential Property owned by the local, state, or federal government.
7. Residential Property subject to resale price control under Chapter 18.37 of East Palo Alto’s Municipal Code.
8. Residential Property owned by and operated as a hospital, convent, monastery, extended care facility, convalescent home, or dormitories owned by educational institutions.
B. Exempt Transfers. The following transfers of Residential Property are not subject to the requirements of this Chapter:
1. An inter vivos transfer, whether or not for consideration, between spouses, domestic partners, parents and children, siblings, and/or grandparents and grandchildren.
2. A transfer for consideration by a decedent’s estate if the consideration arising from the transfer will pass from the decedent’s estate to, or solely for the benefit of, charity.
3. A transfer of legal title or an interest in an entity holding legal title to a Residential Property pursuant to a bona fide deed of trust or mortgage, and thereafter any transfer by foreclosure sale or deed in lieu of foreclosure pursuant to a bona fide deed of trust or mortgage. This exemption does not supersede any rights to purchase afforded to Potential Eligible Purchasers under the California Civil Code Sections 2924(f)-(h), 2924(m)-(n), or 2929.3.
4. A transfer of bare legal title into a revocable trust, without actual consideration for the transfer, where one or more transferors is a current beneficiary of the trust.
5. A transfer by devise, descent, or operation of the law upon the death of a natural person.
6. A transfer pursuant to court order or court-approved settlement.
7. Any transfer to a public agency, including but not limited to a transfer by eminent domain or under threat of eminent domain.
8. Any transfer of a fractional interest in a Residential Property that is less than fifty percent (50%) of an undivided interest in the Residential 9 Property.
9. Any transfer in which the transferee receives a low-income housing credit under 28 U.S.C. § 42.
10. A transfer of a Residential Property having no more than four (4) Dwelling Units made for the purpose of either: (a) paying for imminently necessary health care expenses of an Owner of the Residential Property, or (b) an emergency circumstance placing the Owner in financial hardship and at imminent risk of foreclosure or bankruptcy and the Owner has occupied the Residential Property as the Owner’s Principal Residence during the prior year. For purposes of this subsection only, “Owner” shall be limited to a natural person having an undivided interest in the Residential Property of at least fifty percent (50%). An Owner may claim this Exempt Transfer within one (1) year of having vacated the Residential Property where the Owner demonstrates the existence of the conditions set forth in (a) or (b) of this subsection.
C. Transfer Exemption Procedures. The Owner shall submit a Certificate of Exemption signed under penalty of perjury to the City after deciding to sell and before marketing the property self-certifying one of the exemptions described in
14.26.040.B. A Certificate of Exemption must be accompanied by supporting documents as set forth in the Administrative Guidelines. The City shall make the template Certificate of Exemption accessible on the City website. This section shall not be construed to or used in a manner that unreasonably delays an Owner’s valid and lawful transfer of a real property interest under Transfers Exempted.
14.26.050 Qualified Nonprofits
A. Certification, Term, and Renewal. To effectuate the purpose of this Chapter, the City Council shall certify and recertify Qualified Nonprofits via an application process as set forth in the Administrative Guidelines. A nonprofit organization’s certification as a Qualified Nonprofit shall be valid for five (5) years. The City Manager or designee shall solicit new applications for Qualified Nonprofit status at least once each calendar year, at which time existing Qualified Nonprofits shall be eligible to apply for renewed certification. A list of Qualifying Nonprofits shall be published on the City’s website.
B. Disqualification of Qualified Nonprofits. The City Manager or designee shall promptly investigate any complaint alleging that a Qualified Nonprofit has failed to comply with this Chapter. If after providing the Qualified Nonprofit with notice and opportunity to respond, the City Manager or designee determines that an organization listed as a Qualified Nonprofit has failed to comply with the requirements of this 10 Chapter, the City Manager or designee shall bring a recommendation to City Council to limit, suspend, or revoke that organization’s certification as a Qualified Nonprofit.
14.26.060 Assignment of Rights
A. A Tenant living in a Non-Exempt Single-Family Dwelling with Absentee Owner(s) may assign rights under this Chapter to a Qualified Nonprofit.
B. A Qualified Nonprofit assignee according to Paragraph A of this Section shall sign and submit a “Statement of Rights and Obligations” to the Tenant. The content of the statement shall be set forth in the Administrative Guidelines.
C. The assignment of rights described in Paragraph A of this Section may occur at any time in the process, but must occur during the process provided in Sections
14.16.080 and 14.26.090.
D. Qualified Nonprofit assignees or the assignor shall not accept any payment or reward in exchange for the assignment of rights under this section. Continuing to rent the Single-Family Dwelling at an affordable rate shall not be considered payment or reward for purposes of this section.
14.26.070 Tenant, Qualified Nonprofit and City Opportunity to Purchase A. Before the Owner of a Residential Property may list or market that property for sale to any purchaser, the Owner shall give the Potential Eligible Purchaser(s) specified in Paragraphs B, C, and D of this Section an opportunity to purchase at a price and terms that represent a Bona Fide Offer to Purchase.
1. The Owner is not required to give the Potential Eligible Purchaser(s) specified in Paragraphs B, C, and D of this Section an opportunity to purchase at a price and terms that represent a Bona Fide Offer to Purchase when the Owner has received an unsolicited offer unless the Owner takes any action to accept the unsolicited offer.
B. Process for Tenant Opportunity to Purchase:
1. This Section applies to Tenant-Occupied Single-Family Dwellings and Condominiums with Absentee Owners that do not reside in East Palo Alto as a Principal Residence.
2. Potential Eligible Purchasers. Potential Eligible Purchasers under this Paragraph B includes Tenants, Qualified Nonprofits, and the City. Rights and 11 priorities are given the order of (1) Tenants, (2) Qualified Nonprofits, and (3) the City, as described in Paragraphs B(5) and B(6).
3. Notice of Intent to Sell. The Owner under this Paragraph B must provide all Potential Eligible Purchasers as specified in Paragraph B(2) with a Notice of Intent to Sell. The City shall make the template Notice of Intent to Sell accessible on the City website.
4. Statement of Interest. All Potential Eligible Purchasers as specified in Paragraph B(2) are allowed to submit a Statement of Interest to Purchase. The City shall make the template Statement of Interest accessible on the City website.
5. Right of First Offer.
a. In the event that a Tenant submits a Statement of Interest in response to the Notice of Intent to Sell, said statement shall be given priority over any Statement of Interest submitted by a Qualified Nonprofit or the City. Nothing prohibits the Tenant(s) from assigning their Right of First Offer or Right of First Refusal to a Qualified Nonprofit after submitting a Statement of Interest.
b. In the event that Qualified Nonprofit(s) and no Tenant submits a Statement of Interest in response to the Notice of Intent to Sell, said statement(s) shall be given priority over any statement submitted by the City.
c. In the event that no Tenant or Qualified Nonprofit submits a Statement of Interest, any Statement of Interest submitted by the City shall be considered.
6. Right of First Refusal.
a. In the event that the Owner rejects all offer(s) submitted by Potential Eligible Purchasers and receives a Third-Party Purchaser Bona Fide Offer to Purchase, the Owner must notify all the Potential Eligible Purchasers who timely submitted a Statement of Interest and an offer, and provide the Potential Eligible Purchasers an opportunity to submit a matching offer, giving priority in the order described in Paragraph B(2). b. A Qualified Nonprofit can be conferred a Right of First Offer and Right of First Refusal for a Tenant-Occupied Single-Family Dwelling with an Absentee Owner(s) if a Tenant (1) assigns in writing the Tenants’ Right 12 of First Refusal to the Qualified Nonprofit, or (2) executes a written waiver of the Tenants’ Right of First Refusal; or (3) no Tenant submits a Statement of Interest pursuant to Section 14.26.080.
c. The City can be conferred a Right of First Offer and a Right of First Refusal for a Tenant-Occupied Single-Family Dwelling with Absentee Owner(s) if a Tenant (1) executes a written waiver of the Tenants’ Right of First Refusal; or (2) no Tenant or Qualified Nonprofit submits a Statement of Interest pursuant to Section 14.26.080.
C. Process for Qualified Nonprofit or City Opportunity to Purchase:
1. This Section applies to the following properties with an Owner(s) who does not reside in East Palo Alto as a Principal Residence:
a. Non-Tenant Occupied Single Family Dwellings and Condominiums with Absentee Owner(s);
b. Duplexes and Triplexes, with or without tenants, with Absentee Owner(s); and
c. Multi-Family Dwellings, with four (4) or more units, with or without tenants.
2. Potential Eligible Purchasers. Potential Eligible Purchasers under this Paragraph C includes Qualified Nonprofits and the City. Rights and priorities are given the order of (1) Qualified Nonprofits and (2) the City, as described in Paragraphs D(5) and D(6).
3. Notice of Intent to Sell. The Owner under this Paragraph C is required to provide all Potential Eligible Purchasers with a Notice of Intent to Sell.
4. Statement of Interest. All Potential Eligible Purchasers as specified in Paragraph C(2) are allowed to submit a Statement of Interest.
5. Right of First Offer.
a. In the event that any Qualified Nonprofit submits a Statement of Interest in response to the Notice of Intent to Sell, said statement(s) shall be given priority over any statement submitted by the City. b. In the event that no Qualified Nonprofit submits a Statement of Interest, any Statement of Interest submitted by the City shall be considered, and the City may proceed to the Right of First Offer process.
6. Right of First Refusal.
13 a. In the event that the Owner rejects the offer(s) submitted by all Potential Eligible Purchasers and receives a Third-Party Purchaser Bona Fide Offer to Purchase, the Owner must notify all the Potential Eligible Purchasers, who timely submitted a Statement of Interest and an offer, as defined herein in Paragraph (C)(2) and give priority in the order described.
b. In the event that the Qualified Nonprofits do not submit a match to the Bona Fide Offer to Purchase, the City’s match will stand.
14.26.080 Notice of Intent to Sell; Statement of Interest A. Notice of Intent to Sell. An Owner of a Non-Exempt Residential Property shall provide all Potential Eligible Purchasers notice of their intent to sell prior to listing or marketing a Residential Property for sale (“Notice of Intent to Sell”). The Notice of Intent to Sell shall be provided at least thirty (30) days before listing or marketing the Residential Property (“Notice Period”). The Notice of Intent to Sell shall be sent to each Potential Eligible Purchaser as set forth in the Administrative Guidelines, and shall include the following:
1. A statement that the Owner intends to sell the Residential Property.
2. A statement describing the rights of Potential Eligible Purchasers under this Chapter and stating the deadlines for exercising those rights.
3. Instructions for submitting a Statement of Interest pursuant to Paragraph B of this Section.
B. Statement of Interest. Within fifteen (15) days of receiving the Owner’s Notice of Intent to Sell, a Potential Eligible Purchaser shall notify the Owner, at the email address provided by the Owner in the Notice of Intent to Sell, of the Potential Eligible Purchaser’s intent to submit a Statement of Interest, in order to be eligible to submit a Statement of Interest. Prior to the expiration of the Notice Period set forth in Paragraph A of this Section, any Potential Eligible Purchaser defined in Section
14.26.070 may deliver a Statement of Interest to the Owner of the Residential Property (“Statement of Interest”). The Statement of Interest shall notify the Owner of the Potential Eligible Purchaser’s interest in exercising the Right of First Offer and/or Right of First Refusal under this Chapter.
C. Disclosure Package. Within five (5) days of receiving a Statement of Interest, the Owner must provide a disclosure package that includes documents and information set forth in the Administrative Guidelines, and at minimum, an itemized 14 list of annual income and expenses, including but not limited to rent and other income collected, and costs of management, insurance, utilities, maintenance, and repairs.
D. Effect of Statement of Interest. Receipt of a timely Statement of Interest and disclosure package shall extend the Notice Period by thirty (30) days for Single Family Dwellings; sixty (60) days for two or three (2-3) unit Multi-Family Dwellings; and ninety (90) days for four or more (4+) unit Multi-Family Dwellings. During this extended Notice Period, Potential Eligible Purchasers may submit an offer to purchase the property pursuant to Section 14.26.090.
E. Prohibition on Listing or Marketing Property During Notice Period. The Owner of a Residential Property shall be prohibited from listing or marketing the Residential Property for sale prior to the expiration of the Notice Period.
14.26.090 Right of First Offer
A. Right of First Offer. A Potential Eligible Purchaser that submits a Statement of Interest shall have the right to make an offer to purchase a Residential Property prior to the listing or marketing of the Residential Property (“Right of First Offer”). The Potential Eligible Purchaser may deliver to the Owner of the Residential Property an offer to purchase the property at any time prior to the expiration of the Notice Period set forth in Section 14.26.080.E. The Owner may accept or reject any offer to purchase received from a Potential Eligible Purchaser following the steps set forth in Section 14.26.070.
B. Acceptance of Offer to Purchase. Upon acceptance of an offer to purchase a Residential Property made pursuant to Paragraph A of this Section, the Potential Eligible Purchaser shall make reasonable and good faith efforts to close the transaction. A Potential Eligible Purchaser shall have thirty (30) days to close the transaction for the sale of a Single-Family Dwelling. A Qualified Nonprofit and/or the City shall have ninety (90) days to close the transaction for the sale of a two to three (2-3) unit Multi-Family Dwelling; and one hundred and twenty (120) days to close the transaction for the sale of a four or more (4+) unit Multi-Family Dwelling. The deadline to close a transaction for the sale of a Single-Family Dwelling shall be extended for an additional 60 days if the Potential Eligible Purchaser provides written documentation that its lender will require a commercial loan for the purchase of the property (for a total of 90 days to close). Nothing in this Paragraph shall prevent the Owner and the Potential Eligible Purchaser from agreeing to further extend the deadline to close the transaction.
C. Termination of Right of First Offer. Upon (1) rejection of all offers to purchase made within the Notice Period, or (2) the expiration of the Notice Period, the Owner may list and market for sale the Residential Property and may solicit and conditionally accept offers from a Third-Party Purchaser, subject to the requirements 15 of Section 14.26.100.
14.26.100 Right of First Refusal
A. Disclosure of Offer to Purchase. An Owner that takes any action to accept an Bona Fide Offer to Purchase from a Third-Party Purchaser shall disclose that offer to any Potential Eligible Purchaser that has submitted a Statement of Interest and an offer within 15% of the offer received by the Owner from the Third Party Purchaser, and shall provide said Potential Eligible Purchaser a Right of First Refusal pursuant to the requirements of this Chapter (“Right of First Refusal”). Within two (2) days of receipt of a Third-Party Purchaser Bona Fide Offer to Purchase, the Owner shall disclose to each Potential Eligible Purchaser that submits a Statement of Interest and an offer all material terms of any Bona Fide Offer to Purchase of the Residential Property, together with all commercially reasonable disclosures, in substantially the same form and having substantially the same content as would be provided to any prospective Third-Party Purchaser. Any written offer received by the Owner shall be provided to said Potential Eligible Purchasers who have submitted a Statement of Interest and an offer; provided, however, that any confidential information not necessary to comply with the requirements of this Paragraph shall be redacted from such offers.
B. Right of First Refusal. Any Potential Eligible Purchaser that submits a Statement of Interest and an offer may exercise a Right of First Refusal and accept the Bona Fide Offer to Purchase of the Residential Property within the time period set forth in Paragraph C of this Section. To exercise its Right of First Refusal, the Potential Eligible Purchaser must accept all material terms of the Offer to Purchase except for the time to close as described in Paragraph D of this Section and the deposit amount as described in Section 14.26.110.E; provided, however, the financing of the Potential Eligible Purchaser’s purchase shall not be considered a material term of the Offer to Purchase so long as it does not affect the net value of the Sale to the Owner.
C. Time to Exercise Right of First Refusal. The Owner shall provide any Potential Eligible Purchaser that submits a Statement of Interest and an offer at least five (5) days to accept the Offer to Purchase for a Single-Family Dwelling, or at least twenty (20) days to accept the Offer to Purchase of a two or more (2+) unit MultiFamily Dwelling. The acceptance of an Offer to Purchase by any Potential Eligible Purchaser extinguishes any Right of First Refusal of other Potential Eligible Purchasers.
D. Time to Close. Upon acceptance of the Offer to Purchase, the Potential Eligible Purchaser shall have at least thirty (30) days to close the transaction for the 16 sale of a Single-Family Dwelling, or a total of ninety (90) days if the Potential Eligible Purchaser is a Qualified Nonprofit and/or the City and provides written documentation that its lender will require a commercial loan for the purchase of the property; at least ninety (90) days to close the transaction for the sale of a two or three (2-3) unit Multi-Family Dwelling; and one hundred and twenty (120) days to close the transaction for the sale of a four or more (4+) unit Multi-Family Dwelling.
Nothing in this Paragraph shall prevent the Owner and the Potential Eligible Purchaser from agreeing to further extend the deadline to close the transaction.
E. Rejection of Offer or Failure to Close. If each Potential Eligible Purchaser entitled to receive an Offer to Purchase rejects or fails to accept such Offer to Purchase within the time set forth in Paragraph C of this Section or if a Potential Eligible Purchaser that accepts an Offer to Purchase fails to close the transaction within the time set forth in Paragraph D of this Section, the Owner may immediately proceed with the sale or transfer of the Residential Property to a Third-Party Purchaser.
F. Notwithstanding any other provision of this section, conditional sales agreements between an Owner and a Third-Party Purchaser are permitted so long as the agreement is subject to the contingency that no Potential Eligible Purchaser exercises a Right of First Refusal conferred by this Chapter.
14.26.110 Contract Negotiation
A. Bargaining in Good Faith. The Potential Eligible Purchaser and Owner shall bargain in good faith. The following constitute prima facie evidence of bargaining without good faith:
1. The failure of an Owner to offer the Potential Eligible Purchaser a price or term at least as favorable as that offered to a third party, without a reasonable justification for so doing;
2. The failure of an Owner to make a contract with the Potential Eligible Purchaser which substantially conforms with the price and terms of a thirdparty contract within the time periods specified in this Chapter, without a reasonable justification for so doing; or
3. The intentional failure of a Potential Eligible Purchaser or an Owner to comply with the provisions of this Chapter.
B. Reduced Price. If the Owner sells or contracts to sell the Residential Property to a Third-Party Purchaser for a price more than fifteen percent (15%) less than the price 17 offered to the Potential Eligible Purchaser or for other terms which would constitute bargaining without good faith, the sale or contract is void and the Owner shall comply anew with all requirements of this Chapter as applicable.
C. Financial Assurances. The Owner may not require the Potential Eligible Purchaser to prove financial ability to perform as a prerequisite to entering into a contract. The Owner may not require the Potential Eligible Purchaser to pay the purchase price in installments unless the Owner provides deferred purchase money financing on terms reasonably acceptable to the Potential Eligible Purchaser. The Owner may require the Potential Eligible Purchaser to prove that the Potential Eligible Purchaser, either alone or in conjunction with a third party, has comparable financial ability to the Third-Party Purchaser before the Owner will be required to grant deferred purchase money financing to the Potential Eligible Purchaser on the same terms and conditions agreed between the Owner and the Third-Party Purchaser. If the Potential Eligible Purchase can prove comparable financial ability alone, the Owner may not require the Potential Eligible Purchaser to secure a third-party guarantor. This proof cannot be required as a prerequisite to contracting. It may be required only as a prerequisite to the Owner granting deferred purchase money financing at settlement.
D. Transfers of Interest in a Partnership or Corporation and Master Leases. In the event of a transfer of interest in a partnership or corporation or in the event of a master lease or agreement that is considered a sale but which does not involve a transfer of record title to the real property, the Owner shall be bargaining in good faith if the Owner offers the Potential Eligible Purchaser the opportunity to acquire record title to the real property or offers the Potential Eligible Purchaser the opportunity to match the type of transfer or agreement entered into with the third party. With respect to either type of offer, all provisions of this Chapter apply.
E. Deposit. The Owner shall not require the Potential Eligible Purchaser to pay a deposit of more than three percent (3%) of the contract sales price to make a contract.
The deposit is refundable in the event of a good faith failure of the Potential Eligible Purchaser to perform under the contract unless otherwise provided in the contract.
14.26.120 Long-Term Affordability and Tenant Relocation Assistance in Properties Purchased Under this Chapter
A. For Qualified Nonprofits, City, and Subsidized Purchaser(s)
1. All Residential Properties purchased under this Chapter, except for SingleFamily Dwellings purchased with no subsidy, shall be subject to rental affordability restrictions and restrictions on the resale value of a given property as defined in this subsection.
18 2. In exchange for the rights conferred under this Chapter, Subsidized Purchasers shall sign and submit an initial Statement of Rights and Obligations, available on the City website, agreeing to maintain the Residential Property as permanently affordable and be bound to this effect.
This Statement of Rights and Obligations shall be submitted at the same time as the Statement of Interest as specified in subsection 14.26.080.B.
B. Rental Units. If the average rental rate of the units, which shall be based on the existing tenancies of the non-purchasing Tenants in the properties upon purchase, exceeds a rent affordable to 50% AMI households, the new Owner shall rent each vacant unit to 50% AMI income households until the 50% AMI rental rate average is achieved.
Future rental rates of any vacant units shall not exceed a rent affordable to Low-Income Households.
C. Ownership Units. The sales price shall be calculated based on Chapter 18.37 of the East Palo Alto Municipal Code and the inclusionary housing guidelines. The sales price for any vacant units shall be set at an affordable price to Median Income Households and to Moderate Income Households, with the first vacant unit restricted to Median Income Households. The resale or transfer of ownership units shall be subject to long-term affordability covenants consistent with Chapter 18.37.100 of the East Palo Alto Municipal Code.
D. Permanent affordability standards shall remain in force for 99 years and are renewed at year 100. This shall be evidenced by one of the following:
1. A restrictive covenant placed on the deed to the Residential Property that runs with the land and is enforceable by the City against the purchasers and their successors;
2. A Community Land Trust lease, which is a 99-year renewable land lease with affordability and Owner-occupancy restrictions; or
3. Affordability covenants in land leases or other recorded documents not specifically listed in this subsection, which run with the land and are enforceable.
E. The sale of a Residential Property pursuant to this Chapter shall not impair the rights of any Tenant under Chapter 14.04 of the East Palo Alto Municipal Code or any other applicable state law or local ordinance. Further, any Tenant who resides in any unit at the time of the sale of a Residential Property under this Chapter shall not be subject to eviction based on their failure to meet income restrictions or other eligibility requirements imposed by this Section.
19 F. All covenants created in accordance with this section shall be recorded with the San Mateo County’s Recorders Office.
G. Required Filing to Certify Compliance with Affordability Restrictions. In the case that permanent affordability restrictions materialize as a covenant enforceable by the City, the Owner(s) of the Residential Property shall file a document every three (3) years with the City in which the Owner(s) affirmatively state the rents for each unit in the Residential Property.
14.26.130 Prohibited Conduct
A. The sale or transfer of any Residential Property subject to this Chapter and not exempt pursuant to Section 14.26.040 is prohibited unless the Owner complies with Section 14.26.040.C. Any change of Ownership of real property as defined in Revenue & Taxation Code § 64(c) shall be considered a sale or transfer of Real Property for purposes of this Chapter.
B. A Tenant or Potential Eligible Purchaser shall not sell any right afforded to them under this Chapter or sell a waiver of any such right.
C. An Owner shall not (1) coerce a Potential Eligible Purchaser to waive their rights under this Chapter; (2) retaliate against or harass a Tenant seeking to exercise their rights under this Chapter; or (3) engage in conduct intended to prevent a Tenant from exercising their rights under this Chapter.
D. Any agreement between the Owner and a Potential Eligible Purchaser to shorten the time periods provided for exercise of any right afforded under this Chapter is prohibited unless all other Potential Eligible Purchasers have waived their rights under this Chapter. Notwithstanding the foregoing, any Potential Eligible Purchaser may affirmatively indicate that they have no interest in a Residential Property prior to the expiration of any deadlines and in accordance with the Administrative Guidelines.
Nothing in this Paragraph shall prohibit an agreement to extend the deadlines set forth herein.
20 14.26.140 Confidentiality
Any information exchanged between an Owner(s) and Potential Eligible Purchasers under this Chapter that is intended to facilitate the sale of property including, but not limited to, disclosures, any intent to sell, and terms and conditions of an offer of sale, shall be kept confidential to the greatest extent permitted by law. This Section shall not prohibit disclosure of information necessary to effectuate the purpose of this Chapter to any Owner, Tenant, or Qualified Organization, or to the City of East Palo Alto or its agents or contractors, nor shall this Chapter be construed to limit disclosure of information in response to a lawfully issued subpoena or court order.
14.26.150 Enforcement
A. Owner Certification. By no later than thirty (30) days after any Sale, the Owner(s) shall record with the San Mateo County’s Recorder's Office, through the escrow company that facilitates the sale of the property, a signed declaration, under penalty of perjury, affirming that the Sale of that Property substantially complied with the requirements of this Chapter and will also instruct the escrow company to file a copy of the Owner Certification with the City. The City will publish all such addresses on its website.
B. The City Attorney, any non-exempt Owner subject to the provisions of this Chapter, and/or any Potential Eligible Purchaser may bring a civil action to enforce this Chapter and shall be entitled to the remedies set forth in this section to the greatest extent permitted by law.
C. A prevailing party in any action to enforce this Chapter shall be entitled to civil damages and damages according to proof and reasonable attorneys’ fees and costs. Any court of competent jurisdiction may enforce the affordability requirements of this Chapter, when applicable. Any court of competent jurisdiction may enjoin a transfer or sale of Property, or rescind a sale of Property, where the Owner failed to comply with requirements of this Chapter, and may order that an Owner comply with the requirements of this Chapter. Civil damages may include:
1. Any violation of the requirements of this Chapter shall be subject to a civil penalty not to exceed $1,000 per day of violation. Each failure to provide the required notice or disclosure under this Chapter shall be considered a separate violation for each unit on a Property.
2. If the Owner’s violation was knowing or willful, mandatory civil penalties equal to ten percent (10%) of the sale price for a first violation; twenty percent (20%) for the second, and thirty percent (30%) for each thereafter. 21 D. Suspension or Disqualification of Qualified Nonprofits. The City shall promptly investigate any complaint alleging that a Qualified Nonprofit has failed to comply with Section 14.26.150 of this Chapter. If, after providing the Qualified Nonprofit with notice and opportunity to be heard, the City determines that a Qualified Nonprofit has failed to comply with this Chapter, the City may suspend or revoke a Qualified Nonprofit’s certification.
14.26.160 Financial Assistance
A. For the consideration and approval of the City Council, the City Manager or designee shall develop guidelines for providing financial assistance to allow for the acquisition of Residential Property pursuant to this Chapter. Financial assistance may be provided to Potential Eligible Purchasers. Nothing in this provision commits the City Council to providing a specified level of funding for the acquisition of Residential Property under this Chapter.
B. The provision of financial assistance under Paragraph A of this Section to any Tenant who acquires an interest in a Residential Property pursuant to this Chapter must be conditioned on the Tenant’s agreement to reside at the Residential Property for at least three (3) years. The City Manager or designee is authorized to impose a lien on said Residential Property to enforce the requirements of this Section.
14.26.170 Implementation
A. The City Council shall adopt Administrative Guidelines necessary to implement the requirements of this Chapter and may adopt additional rules and guidelines for purposes of administering this Chapter. The provision of Sections
14.26.010 through 14.26.160 shall take effect ninety (90) days after the City Council adopts Administrative Guidelines. Thereafter, the City Council may delegate to the City Manager the authority to amend the Administrative Guidelines as needed.
B. The City shall annually post and update the City’s website with information on the East Palo Alto Opportunity to Purchase Act process, including information about sales and rights under this Chapter.
C. The City Manager or designee shall develop all online and printed forms and databases Qualified Nonprofit list and registry, and other administrative services to ensure efficient management of the program.
SECTION 3. CALIFORNIA ENVIRONMENTAL QUALITY ACT
22 This Ordinance is not subject to CEQA because it is not a “project” which would have a direct physical change or a reasonably foreseeable indirect physical change on the environment pursuant to California Environmental Quality Act ("CEQA") Guidelines section 15378. Even if it were a project subject to CEQA review, this project would be exempt from CEQA Guideline Section 15378 (regulatory actions), Section 15061(b)(3) (no significant environmental impact), and Section 15183 (actions consistent with the general plan and zoning).
SECTION 4. SEVERABILITY.
If any section, subsection, sentence, clause, phrase, or word of this Ordinance is for any reason held to be invalid by a court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed and adopted this Ordinance, and each and all provisions hereof, irrespective of the fact that one or more provisions may be declared invalid.
SECTION 5. EFFECTIVE DATE.
This Ordinance shall take effect and be in full force thirty (30) days after the date of its adoption. However, the requirements of this Ordinance shall not be enforced until July 1, 2022.
SECTION 6. PUBLICATION.
The City Clerk is hereby directed to cause publication of this Ordinance as required by Government Code Section 36933.
This Ordinance was introduced at the______________ meeting of the City Council of the City of East Palo Alto.
PASSED AND ADOPTED this _____ day of ______________, 2022 by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
______________________________
23 Ruben Abrica, Mayor
ATTEST: APPROVED AS TO FORM:
___________________________ _______________________________ City Clerk Rafael E. Alvarado Jr., City Attorney