The Koontz Decision: Limits Conditions a Government can Impose on Developers

by Allen Matkins
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The extent to which governmental authorities may condition land use permits on exactions and concessions from land use permit applicants has received extraordinary attention from the United States Supreme Court in recent years. Recently, the Court handed down another decision applying the U.S. Constitution’s Fifth Amendment to constrain the power of the government to impose such conditions. In Koontz v. St. Johns River Water Management District, (Docket No. 11-1447) 570 U.S. __ (June 25, 2013), the Court, in a 5-4 decision, held that See more +
The extent to which governmental authorities may condition land use permits on exactions and concessions from land use permit applicants has received extraordinary attention from the United States Supreme Court in recent years. Recently, the Court handed down another decision applying the U.S. Constitution’s Fifth Amendment to constrain the power of the government to impose such conditions. In Koontz v. St. Johns River Water Management District, (Docket No. 11-1447) 570 U.S. __ (June 25, 2013), the Court, in a 5-4 decision, held that the government's demand for property from a land-use permit applicant must have an “essential nexus” to and “rough proportionality” with the proposed project’s impacts even when it denies the permit and even when its demand is for money. Until now, it was not clear that these standards, established by the Court in the landmark cases Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994), applied when a permit application is denied, or when the condition of approval did not entail a dedication of or restriction on the use of a real property right. These rules are founded on the "unconstitutional conditions" doctrine, which holds that the government cannot condition benefits on the recipient forfeiting a constitutional right. This doctrine has special application in the area of land use regulation, protecting the Fifth Amendment right to “just compensation” for property taken by the government when the owner applies for land-use permits.

Implications

This holding will have wide-ranging impacts on the conditions the government may impose when exercising its power to regulate land use. This is especially true in California which has long made a distinction between demands for land dedication versus a demand for impact fees or other similar monetary exactions. Following the California Supreme Court's decision in Ehrlich v. Culver City (1996) 12 Cal. 4th 854 and reiterated in San Remo Hotel v. City and County of San Francisco (2002) 27 Cal. 4th 643, it has been the law in California that a legal challenge to the imposition, on a development project, of a legislatively enacted impact fee for general application was subject to the very deferential "reasonable relationship" standard rather than the "heightened scrutiny" of "essential nexus" and "rough proportionality" established by Nollan and Dolan.

The decision in Koontz now places in question the continued applicability of both Ehrlich and San Remo. As a result, there will be much closer scrutiny given to the application of government imposed impact fees and in lieu fees, and more challenges to such fee programs. In addition, this ruling could put into question the legality of California's AB 1600 development impact fee process, which uses a "reasonable relationship" standard. It could also call into question the recent California Appellate court decision in CBIA v. City of San Jose (June 6, 2013), Ct. of App. 6th Dist. (H038563), applying the "reasonable relationship" standard to an inclusionary housing ordinance, and could serve as the basis of an appeal to the California Supreme Court.

Background

Coy Koontz owned 14.9 acres of undeveloped Florida land, and sought permits to develop 3.7 of those acres. To mitigate the environmental effects of the proposed development and obtain a needed permit, Koontz offered to deed to respondent District a conservation easement on the remaining 11 acres. The District rejected the proposal as inadequate, and proposed two alternatives: (1) reduce the project to 1 acre and deed a conservation easement to the District on the remainder; or (2) build the 3.7 acre project, deed a conservation easement on the remainder, and hire contractors to make improvements on District-owned land several miles away. Believing the District's demands to be excessive, Koontz filed suit, arguing he was entitled to monetary damages.

Uncertain Future

As noted above, the implications of this decision are particularly significant in California because of the distinction the California courts have long made between real property versus monetary exactions and because of the use of the "reasonable relationship" standard by the courts in reviewing challenges to legislatively adopted monetary exaction programs and by the state in its AB 1600 impact fee legislation. This decision puts both of these into question and will likely lead to many more challenges to the significant impact fee programs that have been and will continue to be adopted in California. It may well be, that in adopting or defending these programs, the implementing government entities will have to try and develop much more concrete support for these programs in order to meet the heightened scrutiny of the "essential nexus" and "rough proportionality" requirements. See less -

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