Client Alert

SB 35 Works, Increasing Affordable Housing Production

The California Court of Appeal’s recent ruling in Ruegg & Ellsworth v. City of Berkeley (2021) ____ Cal.App.5th ____ delivered a victory for developers and housing advocates in its opinion upholding the validity of Senate Bill 35 (“SB 35”), which provides a ministerial approval process for certain housing and mixed-use projects, to a project that would replace a surface parking lot in a developed area of Berkeley.  Without SB 35, this prime location would remain surface parking.  With SB 35, a parking lot will be replaced with 260 residential units, with half the units restricted to low-income households.  SB 35 did what it was intended to do—provide housing in a city that failed to meet its share of the regional need for housing.

Background

The Legislature enacted SB 35 in 2018, which added Section 65913.4 to the California Government Code.  SB 35 provides a pathway for ministerial approval of housing development projects that meet multiple requirements, including the following:  (i) provide either ten or fifty percent affordable housing, depending on the jurisdiction, (ii) if mixed use, at least two-thirds of the square footage must be residential, (iii) meet applicable objective standards, (iv) be on a site zoned for housing or a mix of uses that includes housing, and (v) not be located on a site where “[t]he development would require the demolition of a historic structure that was placed on a national, state, or local historic register.” (Gov. Code § 65913.4, subd. (a)(7)(C).)  Projects that can be approved ministerially do not require review under the California Environmental Quality Act, which can be costly and lengthy.

A developer submitted an SB 35 application for a mixed-use development at 1900 4th Street, which is currently a surface parking lot along an otherwise vibrant street in Berkeley.  The project site is near the West Berkeley Shellmound, a city landmark that is entirely subsurface. 

The city rejected the SB 35 application based on several arguments.  First, the city claimed that SB 35 did not apply to charter cities, which can govern their own municipal affairs.  Second, the city stated that the project did not meet SB 35’s criteria because it conflicted with the City's Affordable Housing Mitigation Fee requirements for very low-income units, conflicted with the city’s requirements regarding traffic impacts, and might require demolition of a historic structure.  In response, the developer sued the city.  After losing in the trial court, the developer appealed, winning on all issues.  The key takeaways from the Court of Appeal decision are discussed below.

1. SB 35 Protects Historic Structures, But Did Not Protect Subsurface Tribal Cultural Resources (Although It Does Now)

SB 35 cannot be used by projects that would require demolition of a historic structure.  The court concluded that the shellmound, although a historical and cultural resource, was not a “structure” within the meaning of SB 35 and the project did not require demolition of a structure, even if it might disturb some subsurface remnants or artifacts. 

To reach its conclusion, the court examined the 2020 amendments to SB 35, which added provisions requiring the local government to engage in “scoping consultation” with California Native American tribes “traditionally and culturally affiliated with the geographic area,” if requested by such a tribe upon notice of the intended project application.  (Gov. Code § 65913.4, subd. (b).)  These amendments permit a tribe to insist that a proposed SB 35 project go through the standard discretionary review process to protect “tribal cultural resources.”  The Legislative findings stated the amendments were necessary because, as originally drafted, SB 35 did not protect tribal cultural resources. 

2. SB 35 Applies To Charter Cities

The city argued that SB 35 impermissibly interfered with its “home rule” authority over historic preservation because there were other ways to incentivize the construction of affordable housing.  The court disagreed, concluding that SB 35 is reasonably related to resolving the statewide interest in providing more affordable housing and does not unduly interfere with the city’s historical preservation authority.  The court found SB 35 accomplishes its goal of increasing the production of affordable housing narrowly because it interferes with local governance only if a city has failed to meet its regional housing needs obligations and only if a project meets numerous requirements.

3. SB 35 Applies To Mixed-Use Developments

The court also concluded that SB 35 applies to mixed-use developments that meet its criteria.  The trial court incorrectly concluded that SB 35 was limited to project sites where the general plan or zoning required at least two-thirds of the site to be used for residential uses.  Instead, SB 35 applies to mixed-use projects where at least two-thirds of the projects’ square footage would be used for residential uses.  The court reached its conclusion, in part, by heading SB 35’s language stating that it must be “interpreted and implemented in a manner to afford the fullest possible weight to the interest of, and the approval and provision of, increased housing supply.” 

4. Fees Are Not Objective Standards

In compliance with SB 35’s requirements for the city, fifty percent of the project’s units would be restricted to low-income households, but the city denied the project application on the ground that the proposed project failed to comply with the “objective requirements” of the city’s Affordable Housing Mitigation Fee ordinance.  That ordinance requires twenty percent of units in multifamily projects to be affordable to a mix of low and very low-income households or payment of an in-lieu fee. 

The court found that a fee is not an objective planning standard.  The court did not address whether the city could grant approval of the project under SB 35 and subsequently require a fee for affordable housing, but in a footnote noted that the project likely offsets the impact on affordable housing created by its market rate housing.  This footnote suggests that a city requiring payment of an in-lieu fee may be vulnerable to a Mitigation Fee Act challenge.   

5. In A Denial Letter, An Agency Must Make More Than A Vague Reference To The Objective Standards A Project Does Not Meet

The city’s letter responding to the SB 35 application informed the developer that the project potentially conflicted with objective standards for traffic impacts, but the letter did not provide an explanation of the standard or a reference to where the standard could be found.  The court found the city’s response inadequate under SB 35.   

Conclusion

The case sets an important precedent for the future interpretation of SB 35.  While legislative updates to SB 35 have clarified that the statute provides protection for tribal cultural resources and applies to mixed-use projects (rather than sites with mixed-use land use designations), the remaining holdings of the case show that SB 35 should be interpreted in a manner that best supports affordable housing.   

Cox, Castle & Nicholson LLP is a full service law firm offering comprehensive legal services to the business community and specialized services for the real estate and construction industries.  Reproduction is prohibited without written permission from the publisher.  The publisher is not engaged in rendering legal, investment, business or insurance counseling through this publication.  No statement is to be construed as legal, investment, business or insurance advice.

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