Sixth District Court of Appeal Holds that an EIR Need Not Consider All Possible Future Uses for Property Sold Under the Surplus Lands Act

The Flanders Foundation v. City of Carmel-by-the-Sea, et al. (2012) 202 Cal.App.4th 603

On January 4, 2012, the Sixth District Court of Appeal held that the City of Carmel-by-the-Sea did not violate CEQA by failing to analyze in its EIR all potential uses of a property that was to be sold under the Surplus Lands Act (the Act), even though the uses were specifically mentioned in the Act. The court also held that the city could reject environmentally superior alternatives to a project based on a determination by the city that the alternatives were economically infeasible, and the economic feasibility study did not need to be contained in the EIR as long as it was in the administrative record. The court determined, however, that the city’s failure to provide a response to a public comment that suggesting a new alternative to the project was a violation of CEQA, even though the alternative was not a feasible option.


 The Flanders Mansion is located within, and surrounded on all sides by, a 35-acre nature preserve owned by the city of Carmel-by-the-Sea. The mansion is a 6,000-square-foot Tudor Revival English Cottage, built in 1924, designed by noted architect Henry Higby Gutterson, and listed on the National Register of Historic Places. The mansion sits on a 1.25-acre parcel and has been vacant since 2003, but in previous years was used as a private residence, an art institute and office space. The preserve is an environmentally sensitive habitat area (ESHA).

 The city proposed to sell the mansion because the mansion was in need of significant rehabilitation and the city wanted to ensure its protection. The Draft EIR prepared by the city analyzed four project alternatives: (1) the no project alternative; (2) a lease for single-family residential use (residential lease alternative); (3) a lease for public/quasi-public use (public lease alternative); and (4) a sale with conservation easements and mitigations (sale plus alternative). The Draft EIR designated the two lease alternatives as environmentally superior alternatives because the city would retain ownership of the property and preserve flexibility on how the property is used in the future. If those alternatives were found to be infeasible, however, the Draft EIR concluded that the sale plus alternative would be the environmentally superior alternative.

 In April 2009, the city circulated a Final EIR, which included responses to comments on the Draft EIR. Some of the comments criticized the EIR as failing to analyze the potential environmental impacts of selling or leasing the Mansion in compliance with the Surplus Lands Act.  

Thereafter, the Flanders Foundation filed a petition for a writ of mandate challenging the city’s actions. The superior court held that the city failed to comply with CEQA by not analyzing the potential environmental impacts of selling or leasing the Mansion in compliance with the Surplus Lands Act, and in failing to respond fully to comments. In all other respects, the court found that the city complied with CEQA. Both the city and the Flanders Foundation appealed the decision.

The Court of Appeal’s Decision

The Flanders Foundation first argued that the city did not sufficiently examine the potential environmental impacts associated with the application of the Surplus Land Act. It specifically argued that the Final EIR was inadequate because it did not consider the potential environmental impacts from the use of the mansion for affordable housing if sold under the Surplus Land Act.  

The Surplus Land Act requires that when a local agency wishes to dispose of land it no longer requires, the local agency must offer to sell or lease the property to certain entities for affordable housing or park purposes before the property can be sold to a private party. (Gov. Code, § 54220 et seq.) The act explicitly states that property must be offered for affordable housing. (Gov. Code, § 54222.)

The Final EIR recognized that the sale of the property would be subject the Surplus Lands Act and stated that any mitigation or other easements would be attached to the property regardless of whether it was sold to a government agency or private party. The court agreed with the city’s analysis and held that CEQA-required mitigation conditions and conservation easements would be attached to the land. The Surplus Land Act contains no provision that explicitly prohibits a disposing agency from selling surplus property that is subject to mitigation conditions and conservation easements. Such conditions and easements created to comply with the CEQA were non-negotiable as to surplus-land purchasers because they were required by statute. Government Code section 54226 provides that Surplus Land Act provisions shall not be applied when they conflict with any statutory law. Further, while the Surplus Lands Act required the city to offer the property to other public agencies before selling it to the private party, it was not “reasonably foreseeable” that a public entity would decide to spend millions of dollars to buy and restore the mansion and accept the burden of the extensive mitigation measures and conservation easements for the purpose of using the property for affordable housing. Therefore, the court held that the city was not required to consider the potential environmental impacts from the potential use of the mansion for affordable housing because that use was not a “foreseeable use.”

The court next considered the petitioner’s argument that the city lacked the requisite substantial evidence that the environmentally superior alternatives were economically infeasible. The court held that the city’s evidence was sufficient and the city appropriately rejected the alternatives that it determined to be economically infeasible. The court noted that a legislative body may reject such alternatives if it properly finds them infeasible for any of the statutorily specified reasons, including economic infeasibility. The test for economic feasibility of alternatives “is not whether [the project proponent] can afford the proposed alternative, but whether the marginal costs of the alternative as compared to the cost of the proposed project are so great that a reasonably prudent property owner would not proceed with the [alternative].” (Uphold Our Heritage v. Town of Woodside (2007) 147 Cal.App.4th 587, 600.) According to the court, that standard was met by the city because the record included a financial report prepared for the project that supported the city’s finding that the marginal costs of the lease alternatives so greatly exceeded the cost of the project that no reasonable property owner would proceed with either of the lease alternatives and a reasonable property owner would not choose to forgo the significant financial benefit from the sale of the property in favor of the no project alternative, which would result in retaining ownership of a property that required regular investment of maintenance costs, but could not be used. The court also held that the feasibility study did not need to be included in the Final EIR. 

Lastly, the petitioner argued the Final EIR had failed to adequately respond to a comment suggesting that the city consider, as an alternative, selling the residence with a smaller parcel of land than the 1.25-acre parcel that the city proposed to sell. The city had responded that the alternative of reducing the parcel size would do nothing more than what was already done by virtue of the conservation easement. The city argued that the conservation easement was sufficient mitigation, so it was not necessary to address the matter in the Final EIR. In its view, it was completely reasonable for the city to have determined that a further reduction of the lot size was not viable and would have essentially left the mansion without any land, making it unmarketable.

The court held that the city’s argument was irrelevant. The city was still required to respond to the comment in the Final EIR because the comment raised a significant environmental issue. When a comment raises a significant environmental issue, the lead agency must address the comment “in detail giving reasons why” the comment was “not accepted. There must be good faith, reasoned analysis in response. Conclusory statements unsupported by factual information will not suffice.” (CEQA Guidelines, § 15088, subd. (c).) Since the proposed project would have an unmitigated significant environmental impact by eliminating parkland, the comment’s suggestion reasonably questioned whether that impact could be reduced by reducing the size of the parcel. Therefore, the court held that the city’s failure to provide any response to the comment in the Final EIR made the Final EIR invalid.