Housing: real property transfer taxes: affordability covenants.

Senator Gonzalez, with principal coauthor Assembly Member McKinnor, advances a measure that retools how affordable-housing covenants are managed by enabling local agencies to cure or modify certain affordability provisions within regulatory agreements, while also imposing a city-specific cap and conditional exceptions on Los Angeles’s documentary transfer tax for newer properties. The proposal frames these changes as a statewide affordability tool while threading in a targeted revenue adjustment for Los Angeles, contingent on ballot-initiative outcomes.

At the core, the bill adds a new statewide framework to govern regulatory agreements tied to affordable-housing programs. It defines key terms—such as “affordable housing program,” “first lien capital,” “event of default,” and “regulatory agreement”—and authorizes a local agency administering an affordable-housing program to enter into or alter a regulatory agreement to cure an event of default, or to waive, modify, or delete a provision related to curing a default, if specific conditions are met. The enumerated topics for potential modification include subordination to first lien capital, resale restrictions to identifiable eligible purchasers, income and rent limits, target populations or set-aside requirements, and the term of the regulatory restriction that exceeds 55 years. Any such modification must keep rents within the affordable limits established by the California Tax Credit Allocation Committee, and if the term is extended, the new term must be no shorter than 55 years from the initial recording date. A project with an altered regulatory agreement may be exempt from conflicting land-use restrictions, except where both parties to state action or instruments recorded by a state agency are involved. The changes do not supersede foreclosure or other statutes governing deeds of trust, mortgages, or the extinguishment of junior interests. The bill also states findings and declarations asserting that preserving affordable housing is a statewide concern and that the provisions apply to all cities, including charter cities.

The measure describes the operative framework in which these changes would take effect and clarifies the scope and safeguards. It defines terms the chapter relies on, including “affordable housing program,” “first lien capital,” “event of default,” and “regulatory agreement,” and it sets a framework in which local agencies may tailor or adjust affordability covenants within the specified categories, subject to sponsor consent for waivers or amendments and subject to rent limits tied to established CT CAC rent limits. It preserves foreclosure-law protections, and it positions the amendments as a statewide tool to preserve affordability and tenant protections by enabling targeted adjustments in default scenarios, while maintaining long-term affordability commitments.

Separately, the bill creates a city-specific provision adjusting the Los Angeles documentary transfer tax for newer property transfers. Under the new revenue provision, the city may not impose a documentary transfer tax greater than a fixed rate for transfers involving real property with a first certificate of occupancy issued within the past 15 years. The measure provides exceptions: higher tax rates may apply for taller buildings (over 85 feet) that did not meet certain labor standards, and it allows higher rates for single-family properties under disaster-recovery circumstances if a set of timing and occupancy conditions are met. The definition of “single-family housing property” excludes ADUs and JADUs. The operative date for these provisions is contingent on ballot initiatives: if three specified measures are withdrawn, the provision becomes operative on January 1, 2026; if the measures fail to qualify for a November statewide election, the provision becomes operative on a date 39 days after February 25, 2026. If neither condition is satisfied, the provision does not become operative. The text clarifies that this is a special statute for Los Angeles and notes it would interact with, but not supplant, the broader statewide affordability-covenant framework.

Taken together, the measure presents a two-track approach to housing policy: a statewide mechanism to provide flexible, contract-based adjustments to long-term affordability covenants in affordable-housing developments—subject to rent-limits, sponsor consent, and a guardrail against undermining foreclosure protections—and a city-specific, ballot-contingent adjustment to Los Angeles’s documentary transfer tax, aimed at balancing revenue needs with the city’s urban development priorities. The bill contemplates fiscal and implementation considerations, including potential revenue effects for Los Angeles and administrative costs for local agencies, while relying on existing regulatory and tax structures for enforcement and compliance.