California Supreme Court Creates New Two-Part Test for CEQA Categorical Exemptions In its March 2, 2015, ruling in Berkeley Hillside Preservation v. City of Berkeley, the California Supreme Court created a new two-part test for the “unusual circumstances” exception to California Environmental Quality Act (CEQA) exemptions as well as applicable standards of review.

The two-part test will apply in general to all CEQA categorical exemptions as follows:

Part 1: The agency must first determine whether an “unusual circumstance” exists. A court will use the “substantial evidence” standard to review the agency’s decision.

Part 2: If an unusual circumstance is found to exist under Part 1, then the agency must determine if there is reasonable potential for the circumstance to cause a significant environmental impact. A court will use the “fair argument” standard to review the agency’s determination.

If the final answer is “yes” for both parts, the categorical exemption does not apply.

In Berkeley Hillside, the City of Berkeley approved the construction of a large private residence and 10-car garage on a steep hillside lot, exempting the project from CEQA under a categorical exemption for small projects and in-fill development. The approval was challenged by a neighborhood group that argued the project’s characteristics qualified as an “unusual circumstance” that called for environmental review under CEQA.

A trial court upheld the city’s exemption determination. The First District Court reversed that decision, holding that the unusual circumstances exception applied. The state’s high court overturned the First District, ruling that it impermissibly read “due to unusual circumstances” out of the exception. Instead, the court adopted the new two-part test and remanded the case to the lower courts to apply the test.

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