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The US Supreme Court Expands Its Take on the Takings Clause

by Edward J. Sullivan and Carrie A. Richter

In a 5 to 4 decision last month, the United States Supreme Court ruled that a local government must make “rough proportionality” findings whether it approves or denies a development in those cases in which conditions of approval (including those involving payment of money) are discussed.  In that case, Koontz v. St. Johns River Water Management District, the Supreme Court dealt with a development permit denial because the applicant, Roy Koontz Sr., refused to either dedicate additional property or pay to improve a wetland elsewhere to offset the loss of wetlands resulting from this development.

Known as the “Nollan/Dolan limitations on unconstitutional conditions,” a local government may not condition the approval of a land use permit on the owner’s relinquishment of a portion of his property unless there is a nexus (connection) and rough proportionality between the government’s demand and the effects of the proposed land use.  Justice Alito, writing for the majority, found that these limitations apply whether the local government approves or denies the permit.  In other words, denials that state potential conditions concerning what would be necessary to gain approval must be framed as roughly proportional under the Takings Clause of the Fifth Amendment.

In addressing application of the doctrine on obligations to pay money, the majority distinguished previous holdings such as Eastern Enterprises v. Apfel, where a former mining company was required to pay for the medical benefits of retired miners, by finding the Fifth Amendment applied if there were a direct link between the government’s demand and a specific piece of real property.  According to the majority, allowing a pay-in-lieu option to a real property exaction cannot be a surrogate for avoiding rough proportionality.  How far the monetary exaction limitation reaches is difficult to say.  The majority says that it “does not affect the ability of governments to impose property taxes, user fees and similar laws…that may impose financial burdens on property owners” but goes on to state that this decision does not distinguish between “taxes from takings.”  Although systems development charges may fall within the ambit of a “user fee” exception, they are the result of a particular demand on property.  Thus finding the limits of this case is likely something that only lawyers will love.

Writing for the dissent, Justice Kagan, agreed with the application of Nollan/Dolan to permit conditions, even if they are not accepted and the permit is then denied.  Kagan cautioned that applying this test to a demand to pay money “bristles with conceptual difficulties.  And practical ones too:  How to separate order to pay money from…well, orders to pay money, so that the locality knows what is can (and cannot) do.”  According to the dissent, this lack of direction “casts a cloud” on local government action.  “If every suggestion could become the subject of a lawsuit under Nollan/Dolan, the lawyer can give one recommendation: Deny the permits, without giving Koontz any advice – even if he asks for guidance.”

Some, like Professor Echeverria, in writing for the New York Times (read article here), agreed with the dissent, claiming that this decision will cast such a pall that it will discourage discussions between developers and governments regarding appropriate permit conditions and will deprive the public of needed community benefits that come from the imposition of development fees including wetland mitigation efforts, road and utility upgrades, or park improvements. Although the situation is likely not that dire, California has required rough proportionality findings for conditions that require the payment of money for years and the same was true in Oregon when the Oregon Supreme Court noted the former limit on the Takings Clause to real property in West Linn Corporate Park v. City of West Linn.  Certainly Oregon’s tradition of requiring written findings in the case of both land use permit approvals and denials will provide one vehicle to help achieve this result.

What is more likely true is that this decision is going to make the whole process of obtaining a development permit less certain.  Local government planners will be wary of speculating in advance about calculating the improvement or fees that will apply through pre-application conferences and the like until the applicant has incurred the costs associated with conducting detailed transportation or infrastructure demand plans necessary to evaluate impacts.  Developers should expect that providing adequate findings will take longer.  In a time when governments seem to be falling over themselves to simplify the system and expedite development, the property rights advocates might conclude that this decision is little more than a pyrrhic victory.

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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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