Commercial Real Estate in Los Gatos: Downtown C-2, the LM Service District and Hillside Limits

By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.

Commercial property in Los Gatos centers on the downtown around North Santa Cruz Avenue and Main Street, with neighborhood and highway commercial on Los Gatos Boulevard, offices scattered through town, a small light-industrial and service area, and the North 40 area near Highway 85. The town protects its pedestrian downtown with some of the tightest ground-floor and size rules in the county. Confirm the zone and any overlay for each parcel with the Town of Los Gatos Community Development Department before relying on this page.

Who controls the parcel

Los Gatos is an incorporated town, and Chapter 29 of the Town Code is its zoning ordinance, first adopted as Ordinance 1316 on June 7, 1976. Conditional uses for every zone are listed in a single table in Section 29.20.185, so a use that looks permitted in a zone chapter may still need a use permit. Unincorporated County land lies in the hills above town and in pockets along its edges, where County zoning applies; see our Santa Clara County commercial guide.

Los Gatos zoning for commercial, office and industrial use

Zone	Intended uses	Notes
C-2 Central Business District	Pedestrian downtown retail, services, entertainment and offices	45 ft; 0.60 FAR; ground-floor offices generally barred
C-1 Neighborhood Commercial	Neighborhood shopping and services	Standards not reviewed
CH Restricted Highway Commercial	Highway-oriented commercial	Standards not reviewed
O Office	Professional and administrative offices	Standards not reviewed
LM Commercial-Industrial	Small-scale light industry, repair and services for residents	35 ft; 50% coverage; no new offices
North 40 Specific Plan area	Mixed residential and commercial plan area near Highway 85	Zoned under its own specific plan; confirm current rules with the Town

Downtown Los Gatos: the C-2 rules

The C-2 chapter says its purpose is to keep the central business district viable and mainly pedestrian-oriented, with retail, service, entertainment and administrative uses serving a large trading area.

Permitted uses. Retail, personal services, limited manufacturing where most sales are made on site to the end customer, wholesaling without warehousing and specialty food retail without alcohol.
Formula retail. Chain stores are permitted only up to 10,000 square feet; larger formats go through the use permit table.
Ground-floor offices. Offices are generally not allowed on the ground floor facing streets, alleys or public parking lots. The code lists exceptions in specific locations, including Lyndon Avenue, Wood Road properties and parts of Victory Lane, Los Gatos-Saratoga Road and West Main Street.
Grandfathered offices. Ground-floor offices in place by June 17, 1991 are conforming, but that status ends if the office use stops for 180 consecutive days. A buyer of a downtown building with an office tenant should check the occupancy history closely.
Intensity. Height is 45 feet and floor area ratio is capped at 0.60 for new buildings and expansions, although a building destroyed involuntarily can be rebuilt to its prior floor area.
Edges. Street yards are 10 feet, reducible with findings. Next to residential zones, setbacks grow to 15 and 20 feet plus a foot for each foot over 20 feet of height, with a 6-foot masonry wall.
Housing. Single-family and two-family homes are allowed only together with another permitted use, not as standalone development.
Not allowed. Manufacturing, warehousing and laundry or dry-cleaning plants.

The use list was last amended by Ordinance 2342 in 2023.

The LM district and service businesses

LM is the town’s home for contractors and service trades: plumbing, electrical and heating contractors, equipment repair, laundries and dry cleaning plants, janitorial services, towing, wholesaling, warehousing, group classes and retail, again with formula retail up to 10,000 square feet.

No office creep. Offices approved on or before July 1, 1982 can continue, but no change of use to office is allowed, and professional, medical and general business offices are listed as improper. That protects service space from conversion.
Firearms retail. Needs a use permit and cannot be within 250 feet of schools, day care, youth businesses, government buildings, places of worship, parks or trails.
Standards. 8,000 square foot minimum lots, 35-foot height and 50% coverage. Front setbacks are 15 feet, or 25 feet facing a residential zone, with a masonry wall where the lot abuts homes.

Hillsides, lodging and the North 40

Hillside land. The town’s HR zone ties density to slope through formulas in Section 29.40.250, with minimum lots of 40,000 square feet and four density ranges from HR-1 to HR-20. It is a residential zone, so business use in the hills is limited to what the use table and home occupation rules allow.

Short-term rentals. Under Article XIV of Chapter 14, adopted by Ordinance 2279 in 2019, residential short-term rentals need an annual license, are capped townwide at 5% of the housing stock and are limited to a host’s primary residence. They are prohibited in apartment complexes, so hotels and inns carry the downtown visitor market and pay transient occupancy tax.

North 40. The North 40 is governed by its own specific plan and a zoning map amendment, Ordinance 2242, and has been developed in phases. We did not review the plan’s current land use and density rules, so confirm them with the Town.

Transfer tax, business tax and property tax

The Town’s real property transfer tax, Article IV of Chapter 25, is 27.5 cents per $500 of consideration above $100 and is administered by the County Recorder. The County Ordinance Code Div. A30, Ch. III sets the County tax at $0.55 per $500 and, in §A30-40, credits a conforming city tax set at half that rate, so the city’s 27.5 cents is shared within the County’s $0.55 rather than added; confirm the total on the escrow estimate. A sale generally triggers Proposition 13 reassessment. Businesses need a Town business license under Chapter 14; we did not verify the license schedule.

Due diligence that matters in Los Gatos

Start with our commercial due diligence checklist, then add:

Check the Section 29.20.185 table for any use permit your tenant needs.
Downtown, confirm whether a ground-floor office is in an exception area or grandfathered, and whether it has been vacant 180 days.
Measure existing floor area against the 0.60 C-2 FAR before planning an addition.
For chain tenants, check the 10,000 square foot formula retail threshold.
In LM, do not underwrite a conversion to office.
Next to residential zones, budget for the larger setbacks and masonry wall.

Questions people ask

Can I lease downtown Los Gatos ground-floor space to an office?

Generally no. C-2 bars ground-floor offices on streets, alleys and public lots outside listed exception areas; offices in place by June 17, 1991 are grandfathered until vacant 180 days.

What is the FAR limit downtown?

0.60 for new buildings and expansions in C-2, with a 45-foot height limit.

Are chain stores allowed in Los Gatos?

Formula retail up to 10,000 square feet is permitted in C-2 and LM; larger stores need review under the use permit table.

Can an LM building be converted to offices?

No. LM does not allow a change of use to office.

Where can a contractor’s yard go?

LM is designed for contracting, repair and service businesses, with 35-foot height and 50% coverage.

Does Los Gatos have a transfer tax?

Yes, 27.5 cents per $500 under Chapter 25, administered by the County Recorder. Confirm the total with escrow.

Does Diamond handle commercial property in Los Gatos?

Contact Matthew Martinez to discuss buying, selling or leasing commercial property in Los Gatos.

Sources & notes

Note: We did not review the C-1, CH or O zones, the Section 29.20.185 conditional use table, the North 40 Specific Plan text, the Hillside Development Standards and Guidelines or business license rates. Ordinance 2242’s subject is taken from the Town’s document archive title. Street names for downtown are general descriptions.

This page is general information, not legal or tax advice. Last reviewed October 2026 by Matthew Martinez.

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