DESCRIPTION:
California’s Senate Bill 8 has a little-known provision that can turn a vacant property into a forced affordable housing obligation β and most developers don’t find out until it’s too late.
In this video, Stephen Morris (CPA, MBT, CCIM) breaks down exactly how SB8’s replacement unit requirements work, why “delivered vacant” doesn’t protect you, and what you must investigate during due diligence before you close.
π What you’ll learn:
What SB8 actually does beyond the headlines
The 5-year lookback rule and how it applies to vacant properties
Why single-family homes aren’t automatically safe (even in cities without rent control)
The 10-year lookback period for Ellis Act removals
Why tenant income verification is nearly impossible β and what to do instead
The difference between Los Angeles (RSO city) and San Diego (non-RSO city) under SB8
What due diligence steps can protect your project
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π ACCURACY NOTE:
In this video I reference units “built before 1980” as subject to LA’s Rent Stabilization Ordinance. To be precise: LA’s RSO applies to units built before October 1, 1978 β not 1980. Other cities with RSOs may have different cutoff dates. I also use the phrase “median average wage” β the correct legal term is Area Median Income (AMI), which is the standard used in SB8 and all California affordable housing law. The analysis and conclusions in the video are unaffected by these clarifications.
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β FREQUENTLY ASKED QUESTIONS:
Q: Does SB8 apply if the property was vacant when I bought it?
A: Yes. The lookback period applies regardless of whether the property was vacant at the time of purchase. The city looks back 5 years (or 10 years for Ellis Act removals) from the date of your demolition permit application β not your acquisition date.
Q: How do I prove no low-income tenants lived there?
A: You’ll need utility records, owner affidavits, and potentially tenant contact information and income verification. Cities typically want to see tax returns to verify income, which is extremely difficult to obtain after the fact. This is why due diligence before closing is critical.
Q: What happens if I can’t prove who lived there?
A: The city will presume a low-income tenant occupied the unit. Your replacement unit will then be subject to affordable housing restrictions β meaning significantly reduced rental income or a restricted sale price that may fall below your construction costs.
Q: Does this apply in cities without rent control, like San Diego?
A: Yes. SB8’s replacement unit requirements are statewide and apply even in cities without a local Rent Stabilization Ordinance. San Diego is a perfect example β you still need to conduct the full income lookback analysis.
Q: What’s the difference between the 5-year and 10-year lookback?
A: Generally, the 5-year lookback applies to properties that were occupied by tenants. The 10-year lookback applies when units were previously removed from the rental market through the Ellis Act. If a property has traded hands multiple times and had an Ellis Act removal in its history, tracing tenants back 10 years can be extremely difficult.
Q: Can I get around the replacement requirement?
A: Potentially, if you can demonstrate through irrefutable documentation that no tenant lived in the unit within the lookback period, or that any tenant’s income was above 80% of AMI. This is a high evidentiary bar. Consult a qualified real estate attorney and CPA before proceeding.
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ποΈ Navigating SB8 or another California regulatory issue on your development?
We’ve been through it firsthand. Reach out at π adviseretax.com
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π Subscribe for real estate tax strategy and development insights: @advisere
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TAGS:
SB8 California, Senate Bill 8, California development law, affordable housing requirements, replacement unit requirements, real estate development California, SB330, rent stabilization Los Angeles, Costa Hawkins, Ellis Act California, real estate due diligence, California housing law, real estate CPA, Stephen Morris CPA, Advise RE, Los Angeles development, San Diego real estate, vacant property California
