Summary

The U.S. Supreme Court last week unanimously held that the Takings Clause of the Constitution prevents legislatures, as well as administrative agencies, from imposing unconstitutional conditions on land-use permits. The Supreme Court’s April 12 ruling reverses a California Court of Appeal decision holding that legislatively imposed impact fees are exempt from the unconstitutional-conditions doctrine adopted in prior Supreme Court cases. The recent ruling in Sheetz settles a division among state and federal courts about whether a “legislative” exemption exists.

The Upshot

• An exaction is a condition imposed by the government upon a property owner or developer to pay money or give a property interest to the government agency before the agency approves a permit.
• Under prior Supreme Court decisions, exactions imposed as a condition of a land-use permit required an “essential nexus” to the affected real estate development and “rough proportionality” to the impact of the development on the community.
• As reported in our prior Alert on the case, the Court granted certiorari amid a split among state and federal courts about a legislative exemption to those requirements.
• Under last week’s decision, regardless of whether the impact fee results from legislation or an administrative decision, the fee may only be upheld if it has an essential nexus to the affected real estate development and is roughly proportional to the impact of the property owner’s development on the community.

The Bottom Line

The Supreme Court’s decision gives property owners, including developers, the ability to challenge an exaction as an unconstitutional taking regardless of whether the fee is the product of legislation or regulation.

On April 12, 2024, in George Sheetz v. County of El Dorado, No. 22-1074, the Supreme Court unanimously reversed the decision of the Court of Appeal of California. The Court held that permit exaction fees must be analyzed in accordance with the unconstitutional-conditions doctrine regardless of whether the fee is a product of the legislature or an administrative agency. The Court’s ruling settled a division among state and federal courts about whether there is a “legislative” exemption.

Mr. Sheetz applied for a building permit to develop a modest single-family home. A condition of that permit required the owner to pay a $23,420 impact mitigation fee, enacted by the County, for road construction and improvements. Mr. Sheetz paid the fee under protest and then sued. The trial court denied relief. Mr. Sheetz appealed to the California Court of Appeal, which affirmed the trial court ruling. The California Supreme Court subsequently denied review.

The Court of Appeal relied on an exception the California courts had developed based on prior Supreme Court cases. In Nollan v. California Coastal Commission, 483 U.S. 825 (1987), the Supreme Court determined that an exaction of a property interest had to have an “essential nexus” to the proposed project. In Dolan v. City of Tigard, 512 U.S. 374 (1994), the Supreme Court recognized that the exaction of property must be “roughly proportional” to the impact of the proposed project. Then in Koontz v. St. Johns River Water Management District, 570 U.S. 595 (2013), the Supreme Court clarified that compensable takings for land use permits can include money and not just real property.

The California courts established an exception to the Nollan/Dolan review for exactions created by legislation, as opposed to those that are ad hoc. Thus, in California, a generally applicable exaction created by legislation was not subject to the nexus and rough proportionality tests.

Reversing this decision in Sheetz, the Supreme Court held that there is no legislative exemption to the unconstitutional-conditions doctrine. The Court proceeded to vacate the judgment of the California Court of Appeal and remanded the case for further proceedings.

Following the Sheetz decision, developers and other property owners who require land use permits should consider whether the imposition of permit conditions and fees rises to an unconstitutional taking—an analysis that should not be restricted by the source of the condition or fee.