Lay of the Land
On December 13, 2017, the Los Angeles City Council passed and Mayor Eric Garcetti signed a “linkage fee” ordinance that has been in the works for over two years and is projected to bring more than $100 million in annual revenue to the City. The ordinance was published on December 18, 2017.
The linkage fee, so called because of the nexus between the development of nonresidential and market rate projects and the increased need to provide affordable housing, will be charged to project applicants commensurate with the characteristics of each particular project. Proceeds will be used to preserve existing affordable housing covenants and develop new affordable housing projects.
The ordinance requires developers to pay a linkage fee prior to issuance of a building permit. The City has established a market-based fee schedule that sets different fees on a per square foot basis depending on a proposed project’s type and location, ranging from $3-$5/square foot for nonresidential uses and $8-$15/square foot for most residential uses.
Linkage fee requirements will be phased in over time after the ordinance takes effect.[1] Developers who submit building permit or entitlement applications within 4 months of the ordinance’s effective date will not be required to pay any linkage fee. Beginning 4 months after the ordinance goes into effect—and assuming an effective date of February 17, 2018 as indicated by the City—pro-rated linkage fee amounts will be applied to developers who submit their building permit or entitlement applications (1/3 of the total linkage fee for those applications submitted on or after June 18, 2018; 2/3 of the total linkage fee for applications submitted on or after December 20, 2018; and the total linkage fee for application submitted on or after June 17, 2019). No additional fees will be assessed for applicants seeking extension of expired building permits. A linkage fee may be refunded to an applicant if a building permit application expires without having been utilized to begin construction of the development project. 
The ordinance also exempts certain projects or portions of projects from the linkage fee requirements, and applies deductions or credits to assessed linkage fees for certain projects or portions of projects. Among others, linkage fee requirements do not apply to:
- Projects that include less than 15,000 square feet of added nonresidential floor area in any nonresidential building (other than parking garages/parking facilities).
- For-sale or rental housing developments containing restricted affordable units where certain percentages of the total units/guest rooms are dedicated for different affordability levels.
- Any residential development project that is subject to affordable housing requirements that exceed the linkage fee ordinance’s requirements in either fee amount or on-site affordable housing percentages.
The ordinance also applies, among others, the following deductions and credits to the assessed fee amount owed by a project applicant:
- If the development project is the result of a change in use from nonresidential to residential, the linkage fee amount that would have been required for the prior use is deducted from the fee required to be paid based on the new use. This deduction does not apply to any portion of the development that consists of new construction.
- The first 15,000 square feet of nonresidential use in a mixed-use building are excluded from the calculation of floor area for purposes of determining the linkage fee.
- Floor area of the residential portion of a mixed-use project that is subject to affordable housing requirements exceeding the linkage fee requirements is excluded from the calculation of floor area for purposes of determining the linkage fee.
- If HCID accepts an offer by the applicant to dedicate offsite land to build affordable housing, the value of the land to be dedicated may be deducted from the linkage fee amount owed.
Linkage fees will be adjusted annually for inflation, and will also be adjusted every five years (starting from July 1, 2018) based on a new market area analysis to be undertaken by the City and HCIDLA. Linkage fees may be protested by written request for adjustment or waiver within 90 days of imposition of the fee; failure to follow the appropriate protest procedures bars the applicant from bringing an action later to challenge the fee.
The imposition of the linkage fee is estimated to generate about 1,500 units of new affordable housing per year once it is fully implemented. Developers will need to anticipate the additional fees or take advantage of the phasing periods, exemptions and deductions as they plan future projects.
[1] Pursuant to the City Charter, the ordinance would take effect on January 18, 2018, 30 days after its publication. Pursuant to state law under the Mitigation Fee Act, the ordinance would take effect 60 days after the final Council action, on February 17, 2018. While the City has not, as of the date of posting, affirmatively confirmed the applicability of the Mitigation Fee Act to the particular fee established by the ordinance, the City has taken the position in the Council file and Clerk’s notice that the effective date will be February 17, 2018. Therefore, all of the phasing dates in this posting assume the City’s designated effective date of February 17, 2018.