REPORT TO PLANNING COMMISSION
SUBJECT
Title
Forward a Recommendation to the City Council to Take the Following Actions:
Proposed Project: Introduce an Ordinance to Amend Sunnyvale Municipal Code (SMC) Title 19 (Zoning) to Repeal and Replace Chapter 19.78 (Dual Urban Opportunity (DUO) Housing) and Title 18 (Subdivisions) to Repeal and Replace Chapter 18.26 (Urban Lot Splits (ULS)) to Conform with New State Laws; and to Amend Title 19 (Zoning) and Title 3 (Revenue and Finance) to Conform with State Legislation Regarding Deferral and Reduction of Development Impact Fees for Certain Housing Projects Pursuant to Senate Bill 937 and Assembly Bill 2553.
File #: PLNG-2025-0078
Environmental Review: The action is exempt pursuant to California Environmental Quality Act (CEQA) Guidelines Sections 15061(b)(3) and 15378(b)(4)-(5) and Government Code Sections 65852.21(j) and 66411.7(m).
Project Planner: Gabriela Ventura, (408) 730-7407, gventura@sunnyvale.ca.gov
Report
REPORT IN BRIEF
This report proposes amendments to the Sunnyvale Municipal Code (SMC) to address recent changes in State laws affecting housing development and development impact fees. The proposed ordinance amendments address two issues:
1. DUO Housing and Urban Lot Splits: Recent changes to Senate Bill (SB) 9, including SB 450 and Assembly Bill (AB) 1061, changed requirements for two-family housing and lot splits in single-family residential zones. The City’s existing DUO and ULS regulations need to be updated to conform with these changes.
2. Development Impact Fees: SB 937 and AB 2553 established new requirements regarding when certain development impact fees may be collected and when transportation impact fees must be reduced for qualifying housing projects.
Staff also identified several clarifying amendments based on the City’s experiences processing DUO and ULS applications. To address these requirements, staff recommends:
• Repealing and readopting Chapter 19.78 (Dual Urban Opportunity Housing)
• Repealing and readopting Chapter 18.26 (Urban Lot Splits)
• Modifying Chapter 19.74 (Park Dedication Fee for Rental Housing Projects)
• Modifying Chapter 19.75 (Housing Impact Fee)
• Modifying Chapter 3.50 (Transportation Impact Fee)
• Modifying Chapter 3.52 (Lawrence Station Area Plan Transportation Impact Fee)
• Modifying Chapter 3.54 (El Camino Real Specific Plan Transportation Impact Fee)
• Modifying Chapter 3.56 (Moffett Park Specific Plan Transportation Impact Fee)
The City Council is scheduled to consider this item on October 27, 2026.
BACKGROUND
SB 9 took effect on January 1, 2022, and was codified in California Government Code Sections 65852.21 and 66411.7. The SB 9 legislation requires local agencies to ministerially approve qualifying lot splits in single-family zoning districts and additional dwelling units on single-family zoned parcels
Cities are permitted to adopt objective zoning, design, and subdivision standards for these project types, provided such standards do not physically preclude the construction of two housing units of at least 800 square feet each per lot. The law also limits the minimum side and rear setback requirement to four feet and eliminates parking requirements for qualifying sites near transit corridors and car-share locations (these are sites with car share vehicles such as ZipCars or GIS Car Share within a block of the project). Sunnyvale does not currently have a car-share location.
In response to SB 9, the City Council adopted amendments to the Sunnyvale Municipal Code (SMC) creating Chapter 19.78 (Dual Urban Opportunity Housing) and Chapter 18.26 (Urban Lot Splits) in December 2022 to establish local procedures for these new housing types and subdivision processes. The SMC uses the term Dual Urban Opportunity Housing (DUO) to refer to the independent dwelling units allowed under SB 9 and “Urban Lot Split” (ULS) to refer to associated lot split provisions.
DUOs may be detached or attached. DUO development can also include Accessory Dwelling Units (ADUs), as long as the total number of units does not exceed four dwelling units on the original lot, with or without a lot split. Since adoption, the City has issued five building permits for DUO units (three of which included a lot split).
SB 450 (effective January 1, 2025) and Assembly Bill (AB) 1061 (effective January 1, 2026) changed SB 9 requirements, which triggered some of the proposed amendments associated with this staff report.
In addition to SB 9 changes, SB 937 and AB 2553 also went into effect on January 1, 2025. SB 937 requires local agencies to defer the collection of certain development fees for qualifying residential development projects until issuance of building final or certificate of occupancy. AB 2553 changes the definition of a major transit stop and places new limits on the City’s ability to require fees and transportation improvements from qualifying development in major transit stop areas.
This report provides analysis of these State laws and describes the recommended code updates. Staff is also proposing clarifying amendments based on experience processing DUO/ULS permits in recent years.
EXISTING POLICY
LAND USE AND TRANSPORTATION ELEMENT
Goal LT-7 DIVERSE HOUSING OPPORTUNITIES - Ensure the availability of ownership and rental housing options with a variety of dwelling types, sizes, and densities that contribute positively to the surrounding area and the health of the community.
HOUSING ELEMENT
Goal H-1 PROVISION OF ADEQUATE HOUSING SITES - Provide adequate sites for the development of new housing through appropriate land use and zoning to address the diverse needs of Sunnyvale’s residents and workforce.
Policy H-1.6 Housing Opportunities in Single-Family Neighborhoods. Allow for a greater variety of housing options within traditionally single-family residential neighborhoods, including accessory dwelling units, duplexes and lot splits consistent with Government Code Section 65852.21 (i.e., Senate Bill 9)
Program H21. MISSING MIDDLE HOUSING. Establish regulatory modifications to encourage construction of missing middle product type housing units. Missing middle housing types are defined as smaller units, such as tri-plex, four-plex, cottage courts, townhouses, and Dual Urban Opportunity (DUO) units that are “affordable by design” for workforce income households earning up to approximately 150 percent of Area Median Income. Modifications will increase housing opportunities in higher resource areas with low-density, single-family zoning and may include the following:
• Zoning modifications to allow smaller lot sizes, modified setbacks, and shared easements to ensure maximum allowable densities are feasible
• Tiered fee structures
• Expedited/priority plan review
• Combining districts/small lot subdivisions in zoning districts such as R1.5 and R1.7
• Density bonus and/or inclusionary requirements
• Reducing or eliminating parking minimums for projects within a half mile of public transit, pursuant to Government Code Section 65863.2.
• Regulatory modification to result in ministerial approval processes for certain product types not requiring lot splits.
ENVIRONMENTAL REVIEW
The actions being considered are exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b)(3) as they have no potential for causing a significant effect on the environment. Further, with respect to the proposed amendments relating to dual opportunity housing (DUO) and urban lot splits (ULS), ordinances implementing SB 9 (as amended) are statutorily exempt from CEQA under Government Code Sections 65852.21(j) and 66411.7(m). State law requires that DUO and ULS applications be reviewed and approved ministerially, and CEQA does not apply to ministerial projects. (Public Resources Code Section 21080(b)(1).) The proposed code amendments implementing SB 937 and AB 2553 are not a project subject to CEQA as they are administrative and fiscal activities that do not directly or indirectly cause a physical change to the environment. (CEQA Guidelines Section 15378(b)(4)-(5).)
DISCUSSION
This section summarizes the recent State legislative changes, the issues they create for the City’s existing regulations, and how those issues are addressed through the proposed code updates.
SB 450 (Housing development: approvals)
Senate Bill 450 went into effect on January 1, 2025, further streamlining the development review process by requiring local jurisdictions to approve qualifying applications within 60 days of deeming them complete. The bill also prohibits local agencies from adopting or applying zoning, subdivision, or design standards that do not uniformly apply within the underlying zoning district, thereby preventing cities from applying additional requirements that specifically target DUO and ULS developments.
AB 1061 (Housing developments: urban lot splits: historical resources)
Previously, SB 9 generally excluded parcels that qualified as a heritage resource. Assembly Bill 1061, which went into effect on January 1, 2026, narrowed these restrictions for certain ULS projects. AB 1061 does not include changes to DUO requirements that would affect Sunnyvale, however, clarifications are proposed to ensure consistency with state law. Specifically, urban lot splits are not allowed if the proposed split would require demolishing or altering a contributing structure, including any modification to an existing exterior structural wall, within a heritage resource or heritage resource district. Urban lot splits are also not allowed for any local landmark or within a local landmark district.
SB 937 (Payment Deferral of Development Impact Fees)
Senate Bill 937, effective January 1, 2025, requires local jurisdictions to defer collection of certain development impact fees for qualifying residential projects. The City's code therefore needs to be updated to reflect when these fees may be collected for qualifying residential projects. The intent of the legislation is to reduce significant upfront costs for housing developers by shifting fee payments to later stages of project completion. Development impact fees have typically been collected at building permit issuance and include traffic impact fees, housing impact fees, park dedication in-lieu fees for rental housing, and water and sewer service fees.
The key provisions of this state law are summarized below:
• Prohibits local agencies from collecting development impact fees until the final inspection or certificate of occupancy (COO) issuance by the building division. Note that deferred payment of impact fees will not be reflective of the fee amount in place at the time of payment as the fees are calculated years earlier; either at the time of a SB 330 Preliminary Application - if one is submitted - or at the time of building permit issuance.
• Utility service fees are paid at the time of connection.
• Fees may be collected on a pro rata basis, or by a certain percentage of dwellings that have received their COO or final inspection.
• Local agencies may require the property owner to execute a contract to pay the fees owed as a condition of issuance of the building permit. In compliance with the requirement, a model form of the contract/agreement for fee deferral is posted on the City’s website.
The provisions of SB 937 apply to all residential development creating net new housing units, including the “designated residential development projects,” as defined below:
• 100% Affordable Housing Projects
• Low Barrier Navigation Centers (interim housing for people exiting homelessness)
• Residential projects subject to AB 2011 (Ministerial, by-right approval for affordable housing project on infill areas currently zoned for office, retail and parking uses), SB 35 (Urban Infill Projects that are multifamily or mixed use where at least 2/3 of the square footage is for residential use), and SB 4 (Residential development on land owned by a religious or higher education institution).
• Residential Projects entitled to a Density Bonus
• Projects with fewer than 10 units
AB 2553 (Reduced Traffic Impact Fees (TIF) near Major Transit Stops)
Assembly Bill 2553 went into effect on January 1, 2025 and makes a number of changes. First, the bill extends AB 2097 (which eliminated minimum parking requirements for development projects located within one-half mile of a major transit stop). The bill also revises the definition of a “major transit stop” to modify the frequency of bus service intervals from 15 to 20 minutes during morning and afternoon peak commute periods. Third, qualifying housing projects are eligible for a reduced TIF if they meet all of the following criteria:
1. Located within a transit priority area or major transit stop;
2. Located within a one-half-mile radius of convenience retail uses;
3. Provides either the minimum number of parking required by the Zoning Ordinance or no more than one space for zero to two-bedroom units and two spaces for three or more bedroom units, whichever is less.
The reduced TIF shall be proportional to the estimated rate of automobile trip generation associated with the housing development. AB 2553 also prohibits land dedication for road widening for the purposes of traffic mitigation unless the housing project is not within a transit priority area and has a linear street frontage of 500 feet or more. The law allows land dedications to be required for the installation of public improvements such as sidewalks or utility infrastructure. The City may also discretionarily impose a land dedication requirement as a condition of approval of a specific housing development project for traffic safety features if the City makes a finding, specific to the housing development and supported by substantial evidence, that the land dedication requirement is necessary to preserve the health, safety, and welfare of the public, including pedestrians, cyclists, and children.
OTHER RELATED STATE LAWS
Additional laws have been enacted that affect residential development. Staff will include analysis of those laws and recommended municipal code changes as part of other ongoing studies, including the Housing Element program on missing middle housing.
PROPOSED CODE UPDATES
Staff is proposing amendments to the SMC DUO and ULS chapters to align with state law requirements and enhance the clarity of certain standards. The reorganization of these chapters has resulted in a number of text changes and therefore staff is proposing to repeal and replace SMC Chapter 18.26 and Chapter 19.78 in their entirety. The proposed updates are in Attachment 2. The following summary highlights all changes proposed.
Chapter 18.26 and Chapter 19.78 Related to SB 450 and AB 1061
In conformance with AB 1061, the proposed ordinance includes clarifications regarding the applicability of DUO and ULS provisions to Heritage Resource sites and districts. Specifically, the draft ordinance clarifies that dual opportunity housing developments (DUOs) are not permitted on parcels that are designated heritage landmarks or within heritage landmark structures; DUOs would be allowed on a site with a heritage resource (as long as not within contributing structure). Consistent with the state law, the proposed ordinance clarifies that urban lot splits (ULS) are not permitted on sites that are landmarks, but are permitted for other parcels even if they include a heritage resource structure or are within heritage resource districts as long as the proposed urban lot split does not require the demolition or alteration of a contributing structure in a listed historic district or the removal of any existing exterior structural wall of a structure in a listed historic district. For clarity, staff also proposes adding a definition of “contributing structure” to Chapter 19.78. A contributing structure is a structure on a heritage resource property that contributes to the historical, architectural, or cultural significance of a district or site under state or federal historic preservation laws.
Below is a summary of the changes to State law as they relate to heritage resources:
The draft ordinance also clarifies applicability for sites within the Downtown Specific Plan (DSP), including identification of eligible residential blocks where DUO and ULS development is permitted.
Removal of Specific Requirements
To maintain consistency with SB 450, the draft ordinance removes requirements that do not “apply uniformly to the underlying zoning districts,” including maximum Floor Area Ratio (FAR) limits and certain design standards specific to DUO and ULS projects. The ordinance also clarifies that DUO projects are subject to the recently adopted Lower Density Residential Objective Design Standards.
Clarifying Development Standards
Staff has reorganized the draft ordinance to improve clarity and ensure that objective development standards are easy to identify and apply. Key updates include:
• Addition of Table 19.78.040 identifying the objective development standards applicable to DUO and ULS projects.
• Clarification that removal of a protected tree that conflicts with the proposed DUO location shall be approved as part of the DUO application without requiring a separate Tree Removal Permit.
• Inclusion of applicable stormwater management requirements.
• Addition of a prohibition on short-term rentals for DUO and ULS units.
• Updates to tenant replacement requirements to align with current state law.
• Clarification that development standards may not physically preclude the construction of two primary dwelling units.
• Addition of applicable park in-lieu fee requirements.
• Clarification that DUO and ULS applications are ministerial, do not require public notice or a public hearing, and are not appealable.
These amendments are intended to improve consistency, readability, and usability for both applicants and staff.
Review Timeline and Findings
Consistent with SB 450, the proposed ordinance includes a revised review timeline requiring ministerial approval within 60 days of an application being deemed complete. The ordinance also clarifies the circumstances under which a DUO application may be denied. A project can only be denied if the building official makes a written finding, based on evidence, that the project would have a specific adverse impact on public health and safety that cannot be reasonably addressed or avoided. An adverse impact to the physical environment alone is not sufficient to deny a project.
Minor Updates to Existing SMC Chapters Related to SB 937 and AB 2553
To ensure consistency with state law, staff proposes minor edits to the following chapters of the SMC. The edits consist of references to state law for the timing of the payment of impact fees and requirements for AB 2553.
• Chapter 19.75 (Housing Impact Fee)
• Chapter 3.50 (Transportation Impact Fee)
• Chapter 3.52 (Lawrence Station Area Plan Transportation Impact Fee)
• Chapter 3.54 (El Camino Real Specific Plan Transportation Impact Fee)
• Chapter 3.56 (Moffett Park Specific Plan Transportation Impact Fee)
Fiscal Impact
The modifications to the SMC described in this report will have no new direct fiscal impact on the City. The timing for impact fee payment is already required by the state; the code amendments make specific reference to the State regulations, which have already reduced the value of the impact fees to the City.
Public Contact
Public contact was made by posting the Planning Commission meeting agenda on the City's official-notice bulletin board at City Hall. In addition, the agenda and this report are available at the NOVA Workforce Services reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
A public hearing notice was also published in the Sun newspaper at least 20 days prior to the hearing (in accordance with recent legislation in AB 2904). An email message was sent to interested parties advising them of the public hearings.
As of the date of staff report preparation, staff has not received any public comments.
ALTERNATIVES
Recommend to City Council:
1. Introduce the Ordinance (Attachment 2) Amending Sunnyvale Municipal Code Title 19 (Zoning) to Repeal and Replace Chapter 19.78 (Dual Urban Opportunity Housing) and Title 18 (Subdivisions) to Repeal and Replace Chapter 18.26 (Urban Lot Splits) to Conform with New State Laws; and to Amend Title 19 (Zoning) and Title 3 (Revenue and Finance) to Conform with State Legislation Regarding Deferral and Reduction of Development Impact Fees for Certain Housing Projects Pursuant to Senate Bill 937 and Assembly Bill 2553, and Find that this Action is Exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Sections 15061(b)(3) and 15378(b)(4)-(5) and Government Code Sections 65852.21(j) and 66411.7(m).
2. Introduce the Ordinance with modifications.
3. Do not introduce the Ordinance and provide feedback on desired changes.
STAFF RECOMMENDATION
Recommendation
Recommend to City Council Alternative 1:
Introduce the Ordinance (Attachment 2) Amending Sunnyvale Municipal Code Title 19 (Zoning) to Repeal and Replace Chapter 19.78 (Dual Urban Opportunity Housing) and Title 18 (Subdivisions) to Repeal and Replace Chapter 18.26 (Urban Lot Splits) to Conform with New State Laws; and to Amend Title 19 (Zoning) and Title 3 (Revenue and Finance) to Conform with State Legislation regarding Deferral and Reduction of Development Impact Fees for Certain Housing Projects Pursuant to Senate Bill 937 and Assembly Bill 2553, and Find that this Action is Exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Sections 15061(b)(3) and 15378(b)(4)-(5) and Government Code Sections 65852.21(j) and 66411.7(m).
JUSTIFICATION FOR RECOMMENDATION
The proposed ordinance ensures that the Sunnyvale Municipal Code remains consistent with current state law. The proposed amendments also further General Plan goals related to housing production by reducing barriers to development and streamlining the review and approval process for eligible projects. These changes will also help staff provide accurate and consistent information to the community.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
x General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Gabriela Ventura, Associate Planner
Reviewed by: Aastha Vashist, Principal Planner
Reviewed by: Matt VanHua, Assistant Director of Community Development
Reviewed by: Trudi Ryan, Director of Community Development
Reviewed by: Connie Verceles, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. Reserved for Report to Council
2. Draft Ordinance Addressing Various State Housing Laws