On October 11, Gov. Gavin Newsom signed Senate Bill 747 and Assembly Bill 480 into law, which together clarify important provisions of the Surplus Land Act relating to leasing and increase flexibility for public agencies disposing of property under the Act.

The Surplus Land Act (the "Act"), codified in Gov. Code Sections 54220 et. seq., establishes requirements for public agencies intending to sell or lease surplus property. Under the Act, public agencies must take a formal action declaring property "surplus," provide advance notice to certain interested parties of the proposed disposition, and negotiate in good faith with interested parties, with a particular emphasis on prioritizing the development of affordable housing.

In recent years, legislation and guidance published by Housing and Community Development (HCD) have imposed new requirements on public agencies and penalties for dispositions that violate the Act (See AB 1486, Ting, 2019). The legislation created a series of exemptions from the noticing requirements, which required formal action of governing boards to declare properties "exempt surplus land." These modifications expanding the scope of the Act have created confusion among public agencies, particularly surrounding guidance by HCD that the Act applied to leases of more than 5 years, where no such requirement was found in the text of the Act.

Together, Senate Bill 747 and Assembly Bill 480 provide much-needed clarification and increased flexibility for public agencies disposing of surplus property. Among other changes, the amendments:

• Clarify that while the Act does apply to certain leases, it does not apply to leases of 15 years or less (including any renewal options), nor does the Act apply to leases under which no development or demolition will occur, regardless of lease term.

• Create new categories of "exempt" surplus land, including where the property sold for development and includes a required minimum percentage of affordable housing units, or parcels that are under half an acre in size and not contiguous to land owned by a state or local agency and used for open space or affordable housing purposes.

• Expand the definition of "valid legal restrictions" that would make housing prohibited, thus qualifying as exempt surplus land under the Act.

• Permit agencies to issue 30 day notices of findings of exemption instead of taking governing board action for certain categories of exemptions.

• Clarify the restrictions on certain activities agencies may take prior to the noticing process to allow agencies to obtain appraisals and conduct other due diligence, and, for certain affordable housing projects covered by exemptions, to issue Requests for Qualifications or Requests for Proposals and enter into leases, options and exclusive negotiating agreements.

• Clarify that property that is retained for the "agency's use" (and therefore not surplus land) includes property owned by a port that is used to support logistics uses, sites for broadband equipment or wireless facilities, and waste disposal sites.

• Prohibit the imposition of financial penalties for violating the Act for non-substantive violations that do not impact the availability or construction of affordable housing.

Together, these bills provide additional flexibility for public agencies disposing of surplus lands by clarifying the type of leases subject to the Act, and expand the definition of "exempt" surplus land. Public agencies should carefully review the Act when contemplating the sale or lease of agency property.