The U.S. Supreme Court recently issued a ruling in a long-running land use case holding that “extortionate demands” by the local government entity constituted illegal interference with a property owner/developer’s right to just compensation for a reduction in a property interest. In Koontz v. St. Johns River Management District, the demands included the choice to pay a fee or decrease the scope of the project, prompting many developers to question the legality of existing land use and environmental regulations.

The Court was clear, however, that such burdens would be permissible where there is a clear relationship – a “nexus” – between the demand and the impact of the development, thus maintaining the integrity of common approaches to land use entitlements. Nonetheless, local jurisdictions and permitting agencies may reevaluate their approaches to such demands in anticipation of increasing challenges by developers.

The case arose when the plaintiff, the landowner and developer, sought permits to develop a portion of his Florida property in a state-designated wetlands area. To mitigate the environmental effects, the plaintiff proposed deeding a large conservation easement to the local water management district. The water management district rejected his proposal and required him to do either of the following:

• Reduce the size of his development by two-thirds and give that additional land to increase the size of the conservation easement to the water management district
• Provide a fee in lieu cash payment to the district to provide off-site wetland mitigation

The plaintiff found the district's conditions excessive and sued under a state law permitting him to seek damages. The trial court ruled in his favor, holding that the district's demands did not meet the standards of nexus and rough proportionality between the government's demand and the effects of the proposed land use. In its analysis, the court relied on the seminal cases in these matters, Nollan v. California Coastal Commission and Dolan v. City of Tigard. The Florida Supreme Court reversed, and the plaintiff appealed.

The U.S. Supreme Court rejected the Florida Supreme Court’s decision. First, it held that the Nollan-Dolan standard applies whether the government grants a permit with an unconstitutional condition or rejects a permit because the landowner refuses to accept such a condition (essentially establishing an unconstitutional condition precedent to the permit). Second, the Supreme Court held that monetary demands, just like the physical taking of a piece of property, must have a nexus with and be “roughly proportional” to the impact of the project.

The decision has the potential to expand a landowner's ability to challenge local land use regulations and fees, although it is not clear whether this expansion will yield a significant number of successful challenges. Notably, the Supreme Court expressly declined to discuss the merits of the plaintiff’s claim.

Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented. The dissenters disagreed with the majority that monetary demands are identical to a taking of real property and asserted that expanding the applicability of the Nollan-Dolan standard is likely to result in substantial litigation that would undercut local efforts to regulate land use.