Developer Says Gilroy Is Using Environmental Review to Stall 116 Homes and Must Answer by Nov. 15

A developer proposing 116 single-family homes on Hecker Pass Road in Gilroy, California, has formally accused the city of violating state housing law. The developer says the city is delaying the project and using its environmental impact report to impose conditions it cannot legally require. Mana Camden Fund, LLC, represented by Holland & Knight, sent the notice to the city on August 17, 2026, under the Housing Accountability Act. That law treats a city's failure to stop a "course of conduct undertaken for an improper purpose" that effectively blocks a project as a denial, even if the city never takes a vote. The firm followed up with a supplemental letter on October 16. That letter says the city must respond by November 15, 2026.

The project is a "builder's remedy" application. Under that part of state law, a city whose housing element did not meet state requirements when the application was filed cannot reject the project for conflicting with local zoning. The case raises a question many California cities and builders face: if a city cannot apply its zoning to a project, can it apply the same rules as environmental mitigation?

The Project

The site is on the west edge of Gilroy, along State Route 152 (Hecker Pass Highway) near Third Street. It sits inside the Hecker Pass Specific Plan area, a planning district of about 423 acres that mixes agricultural, agri-tourist commercial and clustered residential designations. The project would demolish an existing house, a barn known as the South Hoey Barn, and accessory buildings, and would remove 22 trees. According to the state's CEQA filing, construction would run in 12 phases over about 23 months.

The city's project page says the project "does not align with the land use designations, zoning, or several goals and policies" of the Hecker Pass Specific Plan or the Gilroy 2040 General Plan. The land is designated for agri-tourist commercial use and agriculture. The Draft EIR, as quoted by the developer, states that the specific plan assigned none of its 521 planned homes to the agri-tourist designation. Normally, the project would need plan and zoning amendments. The developer instead relies on the builder's remedy.

The affordable share has changed over time. Early city descriptions listed 20% affordable units, and the January 2025 Notice of Preparation listed 24 low-income units. In August 2025 the developer converted the application to "Builder's Remedy 2.0" under AB 1893. That version requires at least 7% of units for extremely low-income households, 10% for very low-income, or 13% for low-income. The August 2025 conversion set aside eight extremely low-income homes; the current plan has nine.

How the Project Became a Builder's Remedy Case

The Gilroy City Council adopted its housing element on May 1, 2023. The developer filed its SB 330 preliminary application in mid-May 2023. The state Department of Housing and Community Development (HCD) certified the housing element on August 21, 2023, according to the developer's letters. The question was whether the housing element counted as compliant on the day it was adopted or only once the state certified it.

The city said the builder's remedy did not apply. In a November 30, 2023 letter reported by the Gilroy Dispatch, a city planner wrote that the adopted housing element "contained everything required by state law." The developer says HCD sided with it in an email to city staff on October 17, 2023, and closed its review of the matter on February 16, 2024. The city deemed the application complete on March 28, 2024. In its April 26, 2024 inconsistency analysis letter, staff still wrote that the City Council "did adopt a Housing Element in substantial compliance with State Law." The city has since continued processing the project, and its project page now describes it as submitted under the Builder's Remedy 2.0 provisions.

Three Years of Review

The table below combines dates from the city's project page and the developer's letters.

What the Draft EIR Identifies

The city's Notice of Availability lists significant environmental effects in 10 areas: aesthetics, agricultural resources, air quality, biological resources, cultural resources, greenhouse gases, hazards, noise, transportation and tribal cultural resources. The specific effects include blocked scenic views from Hecker Pass Highway, conversion of 5.42 acres of Prime Farmland, effects on Swainson's hawk, Crotch's bumble bee and three special-status bat species, demolition of the historic South Hoey Barn, traffic noise at the new homes, and vehicle miles traveled above the CEQA threshold.

The summary form the city filed with the State Clearinghouse pairs each effect with a mitigation measure. For four effects it offers none. The form states that "no mitigations are available" for the three aesthetics effects (scenic vistas, existing views and scenic quality rules) and for the conflict with agricultural zoning on all 24.3 acres. Most of the other measures are not in dispute. They include Tier 4 construction equipment or a construction operations plan (MM 7-3), a ban on natural gas and required EV charging infrastructure (MM 12-1), changes to emergency response plans (MM 13-1), and steps to reduce vehicle miles traveled (MM 17-2).

The form lists the areas of controversy raised by agencies and the public. They are visual impacts, loss of farmland, biological resources, loss of historic resources, inconsistency with the Hecker Pass Specific Plan, greenhouse gas emissions and vehicle miles traveled, and circulation and transportation.

What the Developer Is Challenging

The developer makes two claims. The first is delay: the administrative draft EIR reached city staff in September 2025, but the public draft did not come out until August 2026. The developer also points to staff turnover, including a second change of assigned planner confirmed in May 2026. The second claim is about mitigation. The developer says the Draft EIR keeps measures that come from the Hecker Pass Specific Plan and city policy, the same rules the builder's remedy displaces, and that each would cut density or make the project infeasible. The Draft EIR was published with those measures unchanged, according to the developer's October 5 comments.

The developer's legal argument rests on Tiburon Open Space Committee v. County of Marin (2022). In that case, a state appeals court held that when another law limits an agency's discretion, its environmental review is limited too, and mitigation that conflicts with those legal limits "need not be proposed or analyzed." The developer says the right result under CEQA is for the EIR to state that the city cannot legally require these measures and to call the impacts significant and unavoidable. It says the Draft EIR mentions the Hecker Pass Specific Plan 331 times and discusses the builder's remedy only briefly. The developer asked the city to revise the Draft EIR and recirculate it for another 45 days. It notes that this request adds time and cost but says it is needed to protect the EIR from a later challenge.

The Comparison to Earlier Hecker Pass Projects

The developer argues the city is holding this project to a higher standard because it is a builder's remedy project. State law forbids that. The developer's main evidence is a 2017 Mitigated Negative Declaration for the Hecker Pass Commercial project, which it calls an earlier project on the same property. That project was a winery building and two mixed-use buildings with restaurants, retail and 22 live/work units. It found the conversion of farmland would have no new impacts and required no farmland mitigation. Its only wildlife measure was a preconstruction survey for protected nesting birds. It contains no measures for Swainson's hawk, bumble bees or bats. The 2017 document covers one six-acre parcel (APN 810-20-006). The current application covers three parcels totaling 24.3 acres. The 2017 document also placed the historic Ousley Farm/Hoey Ranch about 0.15 miles northeast, across the highway.

The developer also cites the 2004 Final EIR for the Hecker Pass Specific Plan and South Valley Community Church. For the church project's proposed removal of the historic Conrotto Winery, that EIR required a display along Hecker Pass Highway, a historic walk or other approaches using winery structures and artifacts. It did not require keeping or moving the winery. The same table in that EIR rated the winery's removal "significant and unavoidable" even with that measure in place.

The developer also says the city refused to let this project tier off the 2004 specific plan EIR and required a new EIR, while other projects in the area were allowed to tier.

What the City's Record Shows

The city has not published a response to the notice. Its own letters show the positions in dispute. The April 26, 2024 inconsistency analysis letter cited the 50-foot agricultural buffer in Policies 3-12 and 5-12 (the plans showed 15 feet). It described the Hoey barn as "culturally significant" and said the property "may be subject to" the Agricultural Mitigation Policy. The February 12 and April 15, 2026 review letters cited Specific Plan Policies 4-5 and 5-68, which prohibit sound walls along Hecker Pass Highway and call for setbacks, building orientation and berms instead. The April letter asked the developer to show how its proposed fence "substantially complies" with those policies.

The developer quotes a July 16, 2026 email from City Attorney Andy Faber. In it, Faber said a decision on removing the disputed measures "shouldn't be at the draft EIR stage." The developer says the email showed a fundamental disagreement over how far the Housing Accountability Act limits the city's ability to deny or condition the project by refusing to certify its EIR.

Gilroy's meeting records show no public hearing scheduled on the project. The September 14, 2026 City Council agenda lists a closed session on anticipated litigation (one case) but does not name the matter. At the September 3, 2026 Planning Commission meeting, a resident used public comment to point people to the September 28 community meeting on the Draft EIR. On August 22, Mayor Pro Tempore Zach Hilton posted a summary of the Draft EIR and the developer's claims on his blog, which labels the project as Council District 3.

How the "Course of Conduct" Rule Works

The Housing Accountability Act counts it as a disapproval when a city "fails to cease a course of conduct undertaken for an improper purpose, such as to harass or to cause unnecessary delay or needless increases in the cost" of a housing project. The law sets out a notice process. The developer sends written notice, the city must give notice of it within five days, and the city then has a set period to respond. The city must either commit to stop the conduct or explain why the conduct is needed. Actions taken "in furtherance of complying with" CEQA are excluded. The developer says that exclusion does not cover mitigation that CEQA itself does not allow.

The developer's August notice says it "is also currently preparing an immediate legal filing." Its October letter says litigation could expose the city to "potential bad-faith penalties of up to $5.8 million, plus attorneys' fees."

Why It Matters for Developers and Cities

Most builder's remedy disputes so far have been about eligibility. This one concerns what the city can require after the application was accepted and an EIR was prepared, including how much of the local plan the city can bring back through environmental review. The answer affects what a builder's remedy site is worth. Here, the measures in dispute include a farmland mitigation requirement, a 50-foot buffer the developer says costs eight lots, a 145-foot noise setback option, and preservation or relocation of a barn.

The case also shows how the 2023 housing element cycle continues to produce disputes. Gilroy adopted its element in May 2023 and HCD certified it that August. This application, filed in the gap between those two dates, is still in review more than three years later.

For cities, the case may decide whether keeping disputed measures in an EIR to resolve later counts as acting "in furtherance of complying with" CEQA, which the course-of-conduct rule excludes.

The Risks and Obstacles

For the developer: Recirculation, which it requested, adds at least 45 days of review and more consultant cost. The developer has not shown that the 2017 project covered the same land in full. That project's document lists one six-acre parcel. The Draft EIR identifies the barn as a historical resource, which carries weight under CEQA whatever the zoning outcome. The law requires an "improper purpose," so the developer must show more than slow processing.

For the city: If a court finds that keeping legally infeasible measures was part of an improper course of conduct, the city could face the penalties and attorneys' fees the developer cites. If the city removes the measures and certifies a Final EIR without recirculating it, it may face a challenge from project opponents. The administrative draft, as the developer quotes it, already states the alternative conclusion: if the barn measures are found infeasible or the farm buffer waiver is approved, those impacts would be significant and unavoidable.

What to Watch

This article is factual background and is not legal, financial, or investment advice.