Last week, the United States Supreme Court issued a ruling cautioning local governmental agencies from exerting too much leverage on developers to demand concessions during the entitlement process—particularly in the form of monetary payments. (Koontz v. St. Johns River Water Management District, 570 U.S. ____ (2013) (slip op).) The ruling permits a project sponsor to challenge a city or local agency’s project approval conditions even if permits or entitlement documents are never issued, and even if the conditions are only the payment of impact or off-site mitigation fees. The ruling should serve as a caution to city agencies that impact fees must be reasonably related to a project, both in the context of single-project concessions and district or city-wide impact and mitigation fees.
In relevant part, the Supreme Court concluded that (1) a “taking”—a government’s deprivation of an individual’s property right—can occur when a permit or entitlement application is denied; and (2) development impact and off-site mitigation fees must be related to the harm arising from the development, and the fee amount must be roughly proportionate to the amount of harm the project causes.
The facts of the case are relatively straightforward. A landowner of 15 acres in Florida sought to develop approximately 3.5 acres of his land, and offered to foreclose any future development on the remainder of his property through a conservation easement. A Florida wetlands agency with permitting power (the “Agency”) issued two counter-offers: (1) reduce the size of his project to one acre and dedicate the remaining 14 acres to conservation, or (2) make a one-time mitigation payment to the agency, which would be used to enhance approximately 50 acres of off-site environmental projects. The landowner did not accept either offer, and instead sued the Agency, claiming an unconstitutional taking. The Agency defended itself on the ground that there was no taking, because it did not issue a permit or approve any project, and because its second counter-offer was for cash and not restrictions on land.
The Supreme Court rejected these defenses. Whether a permit had been issued was irrelevant: “extortionate demands” may be a taking, even if the project is never approved, and even if the demand was for monetary payments and not a restriction on land use. In essence, the Supreme Court concluded that a government should not have free reign to limit landowners’ use of their land by imposing what are essentially unrelated or excessive monetary exactions for the right to develop before issuing any discretionary approvals or building permits.
After the opinion was released, certain city planning and environmental groups cautioned that the Supreme Court may have irreparably weakened local agencies’ power to impose mitigation conditions. It remains to be seen if this is the case. The Supreme Court did not decide that the Agency actually demanded too much from the landowner. It also emphasized that reasonable government regulation—both through restrictions on land use and impact fees—are constitutional. Nevertheless, some commentators predict the practical result of the ruling will be that the burden to prove the reasonableness of impact and mitigation measures will shift from property owners attacking the measures to city governments defending them.
Mitigation and impact fees should continue to be an important means for cities to offset environmental and other consequences of development, so long as the fees are related to identifiable and legitimate harms, and are proportional to the amount of harm the project causes. What this ruling appears to do is caution city governments that they may not demand too much from a developer or require mitigation entirely unrelated to the project. It also permits developers and landowners to immediately challenge in court what they believe to be “extortionate” demands after a building permit or entitlement application is denied. It remains to be seen if the ruling will lead to increased litigation between developers and city agencies, particularly in locations where cities conduct extensive “nexus” studies to ensure the impact and mitigation fees they put in place are reasonable in amount and adequately related to the development.
The full Supreme Court opinion can be found at http://www.supremecourt.gov/opinions/12pdf/11-1447_4e46.pdf
Mark Loper in our office contributed significantly to this update.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
