California Has New Pathway for Residential Use of Vacant Ground Floor Retail/Commercial Space
State Housing Law Allows "By Right" Accessory Dwelling Units in Multifamily Housing Structures
- The COVID-19 pandemic has accelerated the amount of empty storefronts in many mixed-use residential/commercial buildings and there is little likelihood of filling many empty retail spaces with successful retail operations in the near future.
- California Assembly Bill No. 68 (AB 68), which went into effect at the beginning of 2020, provides an important and, thus far, underutilized tool to add accessory dwelling units within existing multifamily structures.
- The legislation provides owners of mixed-use projects with the opportunity to convert vacant retail space into a much more economically feasible use that also would help with California's existing housing shortage.
For mixed-use multifamily/commercial buildings, ground floor retail is often sought by urban and city planners to serve the residential uses above and in the surrounding neighborhood, while endeavoring to activate the street with people, excitement and a sense of presence. In practice, even pre-pandemic, ground floor retail in mixed-use multifamily/commercial developments often struggled with: a shift away from brick and mortar, high rates of vacancy, an underwhelming tenant mix and little activation of the streetscape. Although there are exceptions to these general conditions, industry observers say there is a glut of retail space. The COVID-19 pandemic has accelerated the amount of empty storefronts in many mixed-use residential/commercial buildings and there is little likelihood of filling many empty retail spaces with successful retail operations in the near future.
California Assemblymember Phil Ting most likely did not have a crystal ball to focus on vacant storefronts and the COVID-19 pandemic when he authored AB 68, which went into effect at the beginning of 2020. However, AB 68 provides an important and, thus far, underutilized tool to help combat empty storefronts in existing multifamily structures with accessory dwelling units.
Overview of the Law
Pursuant to AB 68, California permits the introduction of accessory dwelling units (ADUs) within existing "multifamily residential structures." In specific, it allows "multiple accessory dwelling units within the portions of existing multifamily dwelling structures that are not used as livable space, including, but not limited to, storage rooms, boiler rooms passageways, attics, basements, or garages, if each unit complies with state building standards for dwellings."1 Vacant retail space within an existing multifamily dwelling structure would qualify since the vacant retail space would be located within an existing multifamily dwelling structure. As such, AB 68 provides a powerful tool that would allow the conversion of these spaces to an accessory dwelling unit use. Vacant retail spaces may be particularly well suited for livable spaces given light, air, entrances and other characteristics intended to make retail spaces enjoyable. Underutilized parking garage space within an existing multifamily dwelling structure would also qualify.
AB 68 includes a formula for determining the number of permissible accessory dwelling units. It allows accessory dwelling units in the amount of "… up to 25 percent of the existing multifamily dwelling units"2 present within the multifamily dwelling unit structure. For multifamily buildings with tens or hundreds of units, this formula could result in extraordinary opportunities.
Importantly, even if a local jurisdiction has zoning or land use development standards or restrictions that discourage or prohibit ground floor residential, "a local agency shall ministerially approve an application for a building permit," so long as 1) each unit complies with state building standards for dwellings and 2) the total number of accessory dwelling units does not exceed 25 percent of the existing multifamily dwelling units within the existing multifamily structure.3 Ministerial approval removes an agency's discretion in considering such conversion. The only exception is if the local agency adopted an ordinance by July 1, 2018, providing for the approval of accessory dwelling units in multifamily dwelling structures, that local agency "… may impose standards, including, but not limited to, design, development, and historic standards on said accessory dwelling units. These standards shall not include requirements on minimum lot size."
Conclusion and Considerations
This legislation provides owners of mixed-use development with a valuable and, thus far underutilized tool that can convert vacant or poorly performing retail into a much more economically feasible use that also would help with California's existing housing shortage. With creative designs that might include porches, stoops, landscaping and windows, owners of mixed-use projects with struggling or vacant retail may unexpectedly provide new, much needed housing and even give a modicum of joy to urban planners and city administrators by actually activating the ground floor.
Finally, in another sign of the burgeoning ADU market, the California Department of Housing and Community Development recently released an Accessory Dwelling Unit Handbook, which is intended to identify the many recent legislative changes, address frequently asked questions and provide additional resources. Holland & Knight has also covered prior legislative changes related to ADUs in "California's 2021 Housing Laws: What You Need to Know" and "California's 2020 Housing Laws: What You Need to Know."
For further questions regarding how AB 68 or other California housing laws could apply to your specific situation, contact the authors or another Holland & Knight attorney.
1 See California Gov't Code § 65852.2(e)(1)(C)(i).
2 See California Gov't Code § 65852.2(e)(1)(C)(ii).
3 See California Gov't Code § 65852.2(e).
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