Menlo Park could face at least $6.65 million in state-mandated fines if it loses a lawsuit over a proposed 665-home development at the former Sunset Magazine headquarters, a case that could test how strongly California’s housing laws limit local governments’ ability to block projects. San Francisco-based N17 Development filed suit in San Mateo County Superior Court, asking a judge to require the city to approve its Willow Park proposal at 80 Willow Road. The company says state housing laws entitle the project to streamlined review and exemptions from some local rules, including height limits. The 6.7-acre proposal calls for 665 apartments or condominiums, about 100 of them priced below market rate, as well as 332,000 square feet of office space, 17,000 square feet of retail and a 130-room hotel. The tallest buildings would reach between 301 and 458 feet, according to the city. The site sits near Middlefield Road and San Francisquito Creek. N17 proposed the project in late 2023 under California’s Builder’s Remedy, a provision allowing certain housing projects to bypass much of local discretionary review when a jurisdiction lacks state certification of its long-term housing plan. The lawsuit argues the development qualifies for approval under that provision and other state housing laws. It also seeks repayment of about $300,000 in legal fees the city required the developer to pay during its review. The potential fines stem from AB 712, which took effect in January. Under the law, a city that loses a court fight over a housing application after receiving a state warning notice can face a mandatory fine of $10,000 per proposed home. Applied to Willow Park’s 665 homes, that would amount to at least $6.65 million. The project’s scale also leaves open the possibility of additional penalties under other provisions. California Attorney General Rob Bonta’s office warned Menlo Park in July that the city had mishandled the application and violated state housing laws. The city rejected that interpretation in an Oct. 1 letter, arguing that the project should undergo the standard environmental review because of its size, effects on infrastructure and location beside an environmentally sensitive creek. City leaders also argue that the development does not qualify for the state housing protections because it includes a hotel. In its letter, the city questioned whether the proposal would meaningfully address the housing shortage, saying most of the homes would be affordable only to the region’s wealthiest residents. N17 founder Oisín Heneghan said the company had brought the case after years of what he described as city efforts to delay or deny the project. The lawsuit says Menlo Park changed its reasoning during the review and ignored warnings from state housing officials and the attorney general. The dispute carries particular financial weight for a city of about 32,000 residents with an annual budget of roughly $90 million. UC Davis law professor Chris Elmendorf said a loss after the attorney general’s warning could show other California cities the fiscal risks of resisting housing applications under the state’s newer laws. Menlo Park has made progress toward its state housing targets, but the results vary by income level. From 2015 to 2023, it built or approved 2,349 homes, meeting its goals in every income category except moderate-income housing. For the current 2023–31 cycle, the state assigned the city a goal of nearly 3,000 homes. By the end of 2025, Menlo Park had reached about 40% of that overall target, but less than 30% of its goals for lower-income homes and less than 20% for very low-income homes. The Willow Park fight reflects a broader shift in California, where lawmakers have increasingly used state rules to press cities to approve more housing amid a long-running affordability crisis. The lawsuit will test how those rules apply when a project combines a large number of homes with substantial office, retail and hotel space, and when local officials cite environmental and infrastructure concerns.