Surplus Land Act (SLA)

The SLA requires all local agencies to give affordable housing developers the right of first refusal when disposing of publicly owned lands. The Surplus Land Act (Gov. Code § 54220 et seq.) was initially passed into law in 1968 as a tool to help local governments to further public interest by putting under-utilized public land to work. The law has historically been used to motivate local governments to focus on various land uses including public amenities such as parks and schools. In recent years, the legislature has adopted amendments requiring owners of surplus land to prioritize affordable housing development or risk noncompliance with the SLA.

AB1486, effective on January 1, 2020, implemented several important changes to the Surplus Land Act. The Amendment broadens the scope of what the state considers surplus land. In general, AB 1486 reduces exemptions, adds new restrictions on how agencies can use and dispose of land, institutes new penalties for noncompliance, and is now applicable to more local agencies.

The state’s guidelines dictate that ‘Local agency’ means every city, whether organized under general law or by charter, county, city and county, district, including school, sewer, water, utility, and local and regional park districts of any kind or class, joint powers authority, successor agency to a former redevelopment agency, housing authority, or other political subdivision of this state and any instrumentality thereof that is empowered to acquire and hold real property.

The SLA requires local agencies to contact HCD twice. First, when a local agency declares land surplus and issues a Notice of Availability (NOA), the local agency must send the NOA to HCD. (Gov. Code, § 54222, sub. (a)(1). Second, the local agency must contact HCD again, once 60 days have passed after the issuance of an NOA and any required 90-day good faith negotiations have concluded.

Additionally, agencies are required to report a “central inventory of all surplus land” to HCD annually by April 1. All disposition of surplus lands must be approved by HCD before the sale or lease can be finalized. (Gov. Code, § 54230.5, sub. (b)(1).

Yes. Any property that goes through the SLA process will be subject to a recorded covenant requiring any residential development with 10 or more units to provide at least 15% of units available to lower income households

Yes. The law states that the SLA does not apply to surplus lands “so long as the local agency entered into the exclusive negotiating agreement or legally binding agreement on or before September 30, 2019, and the disposition of the property is completed by December 31, 2022.” Further, in the case that “a legally binding agreement to dispose of property is either an enforceable option to lease or option to purchase and the option is exercised or expires after December 31, 2022, the local agency must notify HCD, in writing, within 30 days of the option’s execution or the option’s expiration.”

If the local agency fails to correct a violation within 60 days from the date of the NOA, an administrative penalty shall be invoiced by HCD to the local agency of 30 percent of the final sale price of the land sold in violation of the SLA; for each subsequent violation 50 percent of the final sale price.

Exemptions to the SLA generally include:

• Properties for which disposition agreements (e.g., Exclusive Negotiating Agreement, Purchase and Sale Agreement, Disposition and Development Agreement) were entered into prior to December 31, 2019 (or 2020 for successor agencies) with disposition occurring before December 31, 2022.
• Exempt surplus land for affordable housing, provided that the project meets specified affordability requirements.
• Small parcels (<5,000 sq ft, or if certain conditions are met, then <10,000 sq ft)
• Surplus land that is a former street, right of way, or easement, and is conveyed to an owner of an adjacent property
• Interagency transfers for use in line with agencies’ mandates.
• Leases that are less than five (5) years or where no demolition or redevelopment will occur [SLA Guidelines section 102(h)(1)].

No, local agencies may sell or lease surplus land at fair market value or below fair market value. However, local agencies are not required to sell or lease land below fair market value. (Gov. Code, § 54226.)

Kosmont Realty can help a public agency navigate all the phases and requirements of land disposition in compliance with the SLA so that agency staff can maximize potential value/use of the property without incurring avoidable penalties.