Starting on January 1, 2022, new California Civil Code section 714.6 will impact whether a conservation easement or other restriction will be treated as a permanent restriction on real property. The California legislature recently enacted AB 721, adding Civil Code section 714.6, which permits a developer of an affordable housing project to invalidate certain covenants and restrictions recorded against a property that would limit or restrict the construction of an affordable housing project on the property. Thanks in large part to the California Council of Land Trusts and active legal practitioners in the conservation law community, conservation easements are largely exempted from this law—so long as the easement holders and conservation easements comply with specific requirements. This article provides a summary of the new law as well as drafting suggestions for conservation easements and other restrictions that will be recorded after January 1, 2022.
Summary of the Law: Background and Civil Code Section 714.6
California law permits the removal of conditions and restrictions on property that discriminate based on race, color, sex, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, veteran or military status, or genetic information, even if the condition or restrictions were recorded and put in place before the current ownership.1 Such removal is accomplished by preparing a document entitled Restrictive Covenant Modification2 and submitting it to the county recorder, who then presents it to county counsel for approval and, once approved, records the modification.
The legislature enacted AB 721 to facilitate the construction of affordable housing where property restrictions would not otherwise allow it, using the same Restrictive Covenant Modification tool. Under Civil Code 714.6, a developer of an affordable housing project may now be released from recorded covenants, restrictions, or private limits that restrict the number, size, or location of the residences that may be built on a property or that restrict the number of persons or families who may reside on a property.3 In addition, the developer is now permitted to record a Restrictive Covenant Modification to invalidate any such housing restrictions. To do so, the developer must prepare a Restrictive Covenant Modification and submit it together with required supporting documentation to the recorder, who, in turn, presents it to county counsel to confirm that the proposed project is an affordable housing development under Civil Code section 714.6(j)(1), whether an exemption under Civil Code section 714(g) or (h) applies, and therefore whether the Restrictive Covenant Modification should be recorded.4 If approved by county counsel, the recorder will record the Restrictive Covenant Modification and the prior-recorded housing restrictions are nullified as to the affordable housing project.5
The new law is important for land trusts and landowners who intend to encumber land with conservation easements or other restrictions on residential development.
Although Civil Code section 714.6 appears to be mainly targeted at restrictions in areas that already permit housing development but are discriminatory or otherwise unreasonably limiting,6 the broad language of the law also applies to recorded restrictions on open space, agricultural lands, parks, and other property that permit only limited development or do not permit development at all.
Fortunately, there are some exceptions to the application of this law.
The Limited Conservation Easement Exemption:
Civil Code section 714.6(g)(1) specifically states that the law does not apply to:
- A conservation easement7 that is recorded as required under Civil Code section 815.5, and held by a non-profit with a conservation purpose,8 government entity,9 or tribe,10 as provided in Civil Code section 815.3; or
- Any recorded interest in land comparable to a conservation easement and held by a governmental entity.
But compliance with Civil Code section 815 is not enough to prevent the development restrictions under a conservation easement from being invalidated by an affordable housing developer. The conservation easement also must satisfy at least one of the following criteria:
- The conservation easement must have been recorded before January 1, 2022.
- As of the date of the recording of the conservation easement, it was held by a land trust or other entity accredited by Land Trust Accreditation Commission (LTAC) or is a member of California Council of Land Trusts (CCLT), and that accreditation or membership is noted in the conservation easement itself or the accreditation or membership information is provided by the land trust or other entity within thirty (30) days after request or any written notice of the intention to record a Restrictive Covenant Modification required under section 714.6(g)(3).
- The conservation easement was funded in whole or in part by a local, state, federal, or tribal government or was required by any of them as mitigation or as a condition of approval for a project, and notice of the funding or mitigation requirement is provided in the text of the conservation easement.
- It is held by a land trust or other entity whose purpose is to conserve or protect indigenous cultural resources and that purpose is stated in the text of the conservation document.
- As of the date of recording, the conservation easement burdens property that is located entirely outside the boundaries of any urbanized area or urban cluster, as designated by the U.S. Census Bureau. Note that this exemption may not be nearly as helpful as it appears to be. The U.S. Census Bureau defines “urban area” as “densely developed territory that contains 50,000 or more people” and “urban cluster” as “densely developed territory that has at least 2,500 people but fewer than 50,000 people.”11 The Census Bureau delineates urban area and urban cluster boundaries. Given that population of only 2,500 – 50,000 people may denote an urban cluster, as defined by the Census Bureau, it is important to confirm with the Census Bureau that an easement is entirely outside any urban cluster boundaries to take advantage of this exception, if none of the other exceptions apply.
An affordable housing developer must provide at least sixty (60) days’ prior written notice of the intended modification of any conservation easement to the parties to the conservation easement and any third-party beneficiaries or other entities entitled to receive notice of changes to or termination of the conservation easement.12 The county counsel must confirm that the notices were sent before the Restrictive Covenant Modification may be recorded.13
The Settlement Agreement Exemption:
California Civil Code section 714.6(h) contains an additional exemption for recorded settlement agreements, conservation agreements, or conservation easements that
(1) were entered into before January 1, 2022; and (2) limit the density or preclude development in order to mitigate for environmental impacts of a proposed project or to resolve a dispute about the level of permitted development on the property. For any recorded settlement agreements, conservation agreements, or conservation easements entered into after January 1, 2022, to limit density or preclude development in order to mitigate for the environmental impacts of a proposed development, the settlement must be approved by the court and the court must find that the density limitation is for the express purpose of protecting the natural resource or open-space value of the property.
The Local Law Exemption:
A third exemption applies to local building codes or other rules regulating the number of persons that may reside in a dwelling or the size of a dwelling or otherwise permit a development that is inconsistent with a local general plan, zoning ordinance, or specific plan that applies to the affordable housing development.14
The State and Federal Law Exemption:
Lastly, the right of an affordable housing developer to invalidate recorded covenants, restrictions, or private limits does not apply to deed restrictions, public access easements, or other covenants required by a state agency to comply with state or federal law, so long as the document states that it was recorded to satisfy a state agency requirement.
And a Final Note regarding Attorney Fees:
If an affordable housing developer sues to enforce its rights under this law and prevails, the developer will be entitled to recover litigation costs and attorneys’ fees incurred after a Restrictive Covenant Modification is recorded, but the law specifically states that it does not override the right of a conservation easement holder to injunctive relief and recovery of damages and to prevailing party litigation costs and attorneys’ fees under Civil Code section 815.7.15
Drafting New Restrictions to Avoid Potential Invalidation Under AB 721
When drafting conservation easements for California property, we all know that the drafter must ensure that the easement satisfies the requirements of California Civil Code section 815 et seq. in order to be perpetual. Now, the drafter must also be certain to avoid potential invalidation of development restrictions under AB 721. Here are some drafting pointers for easements recorded after January 1, 2022:
- When reciting that the land trust is authorized to hold the conservation easement under California Civil Code section 815.3, include its LTAC accreditation status and/or membership with CCLT.
- If the conservation easement is funded in any part by a local, state, federal, or tribal government, be sure to recite those funding sources and required restrictions (this is often a funding agency requirement anyway).
- If the conservation easement is required by a local, state, federal, or tribal government as mitigation or as a condition of approval for a project, recite the mitigation or condition requirement.
- Be sure to include in the notice provision the contact information for all third-party beneficiaries or funding sources that would have an interest in any invalidation of the development restrictions, even if the land trust or landowner would otherwise be obligated to notify that party, so that the beneficiary or funder will receive the required notice of a Restrictive Covenant Modification from the developer. It may also be prudent to include language specific to AB 721, requiring notice to the California Attorney General of any notice of intent to record a Restrictive Covenant Modification.
For all easements, declarations of restrictions, notices of unrecorded grant agreements, and other restrictions, recite all contextual facts that would exempt the restriction from AB 721, specifically that:
- the restriction is to mitigate for the environmental impacts of a proposed development and the settlement has been approved by a court, finding that the density limitation or development preclusion is for the express purpose of protecting the natural resource or open-space value of the property; or
- the restriction is required by a state agency to comply with state or federal law, which law the restriction is intended to comply with, and that the restriction is recorded to satisfy the state agency requirement; or
- the restriction is recorded in accordance with local building codes, the general plan, zoning ordinances, or an applicable specific plan (see Cal. Civ. Code § 714.6(f)).
If a land trust holding a conservation easement receives a request for evidence of LTAC accreditation or CCLT membership or a notice of the intent to file a Restrictive Covenant Modification, provide the LTAC accreditation or CCLT membership information to the requestor within thirty (30) days.
In addition, if a land trust, landowner, funder, governmental entity, or other stakeholder receives a notice of an intent to file Restrictive Covenant Modification, it is imperative to contact legal counsel right away and to review the notice, all information about the developer and proposed development, and the specific terms and condition of the easement or other restriction to see if an exemption applies.
Please note that the foregoing drafting pointers should not be considered legal advice and that the terms of each easement and determination of the appropriate response to any intent to file should be evaluated by qualified counsel.