Courts Continue To Raise the Bar for Equitable Estoppel Claims

​Stop me if you’ve heard this one before.  A public agency issues a permit authorizing a particular use, but later refuses to recognize the validity of the permit and the authorized use.  

Recently, this issue has been a common one in San Francisco concerning building permits issued for office use.  The property owner applies for a building permit declaring that the existing and proposed use at the property is office, and the City’s Department of Building Inspection approves the permit.  The property owner then operates an office use, sometimes for decades.  Later, when the property owner seeks to show that office uses were approved by the City, the City does not recognize the validity of the permit as to the office use. 

Many property owners are tempted to try to enforce the validity of an approved permit pursuant to the legal doctrine known as equitable estoppel.  In short, under the equitable estoppel doctrine, a city may be barred, or “estopped,” from failing to recognize the validity of the permit where the property owner has relied on the issuance of the permit to the property owner’s detriment.  Over the years, however, California courts have become more and more restrictive in their application of equitable estoppel against the government, to the point now where it is rarely, if ever, applied.  A recent decision by the California Second District Court of Appeal has made the application of equitable estoppel against the government even more difficult.  (Schafer v. City of Los Angeles, No. B253935 (2nd App. Dist., May 20, 2015).  

In the Schafer case, a property owner operated its property in Los Angeles as a parking lot for over fifty years.  During this period, the City repeatedly recognized the parking lot as an existing use, largely through the issuance of permits noting the use as “parking lot.”  No certificate of occupancy was issued at any time, however, and at one point the zoning was amended to remove parking lots as a permitted use.  Ultimately, two residents of the nearby neighborhood challenged the use of the lots for parking.

The Zoning Administrator found that the parking lot was not allowed and was not a legal nonconforming use because no certificate of occupancy was issued.  The Planning Commission reversed this decision, concluding that the Zoning Administrator was equitably estopped from failing to recognize the parking lot use due to the City’s recognition of the use over the years.  The neighbors filed suit.

Both the Trial Court and the Court of Appeal disagreed with the Planning Commission.  The Court of Appeal found that even though the elements of equitable estoppel were met, the adverse effect on public interest outweighed any injustice to the property owner caused by failing to uphold the estoppel claims.  The Court concluded that particularly in the land use context, the public’s interest in maintaining the character of an area through established zoning plans and processes is dispositive.

The lesson for property owners is dispositive as well:  Be wary of relying on implied representations made by public agencies in the issuance of a permit.

City of Oakland Sued Over Public Art Fee

Like the equitable estoppel case, this one may sound familiar.  A City experiences strong real estate development growth.  The City imposes exactions on development to address public needs and interests.  The Developers claim exactions go too far, and sue city.  

In this case, the city is Oakland and the exaction is a public art fee.  In February 2015 Oakland adopted the new ordinance which requires developers either to install public art at the site of new projects or pay a fee equal to 1/2 percent of the value of residential projects or 1 percent of the value of commercial projects.  This public art requirement is similar to the public art requirements in San Francisco and other California cities.

In response, the Building Industry Association of the Bay Area (BIA) and Pacific Legal Foundation (PLF) have filed a lawsuit claiming the ordinance violates the U.S. Constitution.  The plaintiffs argue that the public art requirement violates the Fifth Amendment’s prohibition against “uncompensated takings” because funding art has no connection to the effects of the development, and that it violates the First Amendment by requiring developers to pay for art that is created by artists endorsed by the City.

The BIA/PLF lawsuit appears also to be a strategic first move.  Oakland is in the process of studying more impact fees for developers amid a growing wave of new project proposals.  This raises concerns among developers that the City may go too far in its imposition of impact fees.  We will continue to track this lawsuit and the City’s impact fee process.