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The Doctrine of Unconstitutional Conditions Redux

At a time where infill development appears to be the only area seeing growth in an otherwise flat building environment, the Oregon Court of Appeals issued an important reminder last month to local governments when approving these minor land divisions and development. The doctrine of unconstitutional conditions is triggered when local governments require a person to give up the right to receive just compensation in exchange for a discretionary benefit, conferred in the form of a permit, where the benefit has little or no relationship to the property that must be conveyed. This analysis, more popularly referenced as Nollan/Dolan, two US Supreme Court decisions establishing the relevant tests, requires that there is a nexus between the exaction and the public policies sought to be advanced and, assuming a nexus, that the burden imposed be roughly proportional to the impacts caused by the development. Although this connection is with large-lot subdivisions or commercial projects is often obvious in that they place a discernible demand on public infrastructure, that nexus gets far more tenuous with small developments, as was the case in Brown v. City of Medford.

The plaintiff, Mr. Brown, applied to the City of Medford to partition his parcel into two lots, a northern lot and a southern lot, where both lots would take access on Finley Lane to the north. Directly south of the subject property, the City had approved the West McAndrews Subdivision with a condition that the developer dedicate and improve a half-width street, Brady Way, on its northern boundary directly adjacent to the southern boundary of the subject parcel. Although no access from the two new parcels would occur on Brady Way, the planning commission imposed a condition requiring that the applicant dedicate 19 feet of public right-of-way along the south side of the property to accommodate Brady Way. The condition was justified by citing to benefits such as improving transportation connectivity and enhancing safety in the form of emergency response times. On appeal, the city council affirmed the tentative plat with the condition. Plaintiff sought review by the circuit court claiming a taking under Article I, section 18, of the Oregon Constitution and the Fifth Amendment of the US Constitution. By granting two motions for summary judgment, the trial court found in favor of the plaintiff and awarding damages in the amount of $15,000.

On appeal, the city argued that the plaintiff’s claims were not “ripe” because the landowner had not suffered an injury at the time he went to circuit court because the plaintiff had not yet dedicated the land. The court summarily rejected this claim focusing on a state statute that expressly allows parties to “accept a condition of approval *** and file a challenge to the condition” under ORS 197.796(1). Rather, the court found that a determination of ripeness requires inquiry as to whether the local government has reached a sufficiently final decision for review. Since the city council’s approval of the tentative partition plan was the final decision required a dedicated easement, it was ripe for review and actual dedication was not required in order to establish an injury.

The city went on to contend that there was a nexus between the condition requiring the dedication and the city’s policies sought to be advanced. Here, the court clarified that the nexus question cannot be answered by merely finding some connection between the condition and the public policies sought to be advanced. Rather, the issue as the court describes it is “whether the exactions substantially advanced the same interests that land-use authorities asserted would allow them to deny the permit altogether.” The court noted that rather than identify code provisions that would have allowed for denial of the project but for the street dedication condition, the city points to general safety and connectivity objectives that bear no relationship to this particular development proposal. Nothing in the record suggested that plaintiff’s proposed partition would have any direct or indirect effect on Brady Way and nothing in the record to suggest what basis the city could assert in denying the plaintiff’s partition had the condition not been imposed. As such, the court found no essential nexus and affirmed the trial court’s decision on that point.

Finally, drawing on the ripeness contentions, the city argued that the trial court erred in determining that just compensation due should be valued at the time the final plat was recorded rather than at the date that the condition was imposed as part of the tentative plat approval. Again, citing to ORS 197.796(2), the court recounted that any action for damages is to be based on the date the injury occurred or in this case, on the date that the unconstitutional exaction was imposed.

This case serves as an important reminder that obtaining needed public infrastructure on the backs of development is only constitutionally permissible when the improvement is necessary to satisfy the applicable criteria in order to issue the permit. The mere fact that transportation connections are planned for in adopted transportation plans or where half-street dedications have been secured is insufficient. Seeking to enhance more general connectivity, infrastructure or safety objectives is inadequate and requires compensation.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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