RSG Solutions

October 12, 2023

By Jim Simon, Principal, Mark Sawicki, Director, and Alex Lawrence, Senior Associate

This week, Governor Newsom signed two important pieces of Legislation impacting the Surplus Land Act: Assembly Bill 480 (Ting) and Senate Bill 747 (Caballero). Together, both bills make significant changes to the Surplus Land Act (Government Code 54220-54234).

As we are working with many of our clients on disposition of publicly owned properties that are potentially subject to these rules, this article outlines some of the key aspects of the new law that go into effect January 1, 2024. This article contains what RSG believes to be some (not all) of the more impactful changes; for a complete copy of the bills, you can click on the hyperlinks in the article or reach out to us to discuss your specific situation.

Exemptions Broadened

The types of properties that are statutorily exempt have been expanded. Previously, properties needed to be as small as 5,000 square feet to be exempt. The Legislature increased this threshold to 21,780 square feet (one-half acre), perhaps recognizing that such small properties provide limited opportunities for development of affordable housing.

Several types of properties were added to the list of those exempt for “agency’s use,” including sites for broadband equipment or wireless facilities, port-owned property that assists logistic uses, and buffer sites near waste disposal properties. However, the list of properties exempt for “agency’s use” is not all-inclusive. Land that is being used or is planned to be used by an agency pursuant to an adopted written plan may also fall within the definition of “agency’s use.”

If an agency is entering into a lease of surplus land for a term of 15 years or less, or a lease in which no demolition would occur (regardless of the lease term), this is not considered a “disposition” and therefore it is exempt from the Surplus Land Act.

Numerous other new exemptions were added by these bills, including specific exemptions for rural mixed-use sites, community land trusts, airport properties with restrictions for residential use by the FAA, transit agency properties, and educational agencies.

Exemption Process Streamlining

After January 1, agencies do not need to formally declare certain properties to be “exempt surplus” as they do currently. Such exempt properties include certain City and County-owned property to be developed with affordable housing, subject to specific affordability and development standards, land less than ½ acre (21,780 sf), and former streets, right of ways, or easements conveyed to an owner of adjacent property, among others. Surplus land declarations for these properties will now be done administratively and included in a notice that is available for public comment at least 30 days before the exemption takes effect.

However, agencies that declare property as “exempt surplus” due to a valid legal restriction prohibiting housing must provide “documentary evidence” such as a contract, agreement, deed restriction, statute, or regulation. Such evidence is not presently required to declare this exemption.

Housing Site Exemptions Modified

The law continues to provide an exemption for sites that will be developed for affordable housing (including ancillary ground floor commercial uses). However, a competitive solicitation is no longer required, and agencies do not need to send notices to certain public agencies or “housing sponsors” (the same parties that would otherwise receive a notice of availability for surplus land). Affordability restrictions on ownership housing must now extend to 55 years (versus 45 years), matching the duration for multifamily housing. There is also a new exception for tribal trust lands that is limited to 50 years for rental or ownership housing.

Mixed-use development sites larger than 1 acre that provide at least 300 units of housing, 25 percent of which are affordable, continue to be exempt. Such properties must also continue to be put out to open competitive bid and public agencies and “housing sponsors” must be notified. However, the exemption now only applies to properties less than 10 acres and affordability must now be restricted for 55 years for both ownership and rental units, or 50 years for a tribal trust.

There is a new exemption for large sites (10 acres or greater) that will be developed with housing or a mixed-use project that is pursuant to an adopted plan, ordinance, or State statute. The development project must contain the greater of 300 housing units or an amount that is ten times the number of acres of land, of which 25 percent must be affordable.

The law also provides some clarification on the definition of multi-parcel larger sites that did not previously exist.

Penalties for Violations Effectively Increased

Previously, the penalty for a violation under the Surplus Land Act was based on the actual sale price of the property, which in some circumstances could be considered less than the fair market value of the property. Now the basis for the penalty is a disposition value defined as the greater of the actual sale price, the independently appraised fair market value, or the discounted net present value of a lease, where applicable. Penalties remain at 30 percent of the disposition value for the first violation, and 50 percent of value for any subsequent violation.

Our team is appreciative of the efforts of the California Association for Local Economic Development (CALED) and others who sought input and advocated for amendments to the Surplus Land Act that are responsive to and better reflect the experience and needs of our clients. We will continue to advise you on how the existing and new laws can impact your ability to use public properties to meet your community’s goals.