An Unaccepted Monetary Exaction Can Be An Unconstitutional Taking
The Supreme Court of the United States, in a recent decision that will have far reaching effects on local regulation of land use, held that the Nollan/Dolan doctrine also applies when the government denies a land use permit based upon an unmet demand for a monetary contribution. The Supreme Court’s decision in Koontz v. St. Johns River Water Management District, Slip Opinion No. 11-1447 (2013), reversed a decision of the Florida Supreme Court that the heightened scrutiny of Nollan/Dolan did not apply to permit denials and monetary extractions.
Previously, in its decisions in Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994), the Supreme Court held that it would be unconstitutional taking of private property if a municipal government conditioned the approval of a land use permit on the owner’s relinquishment to the municipality of a portion of his or her property, unless there was both an “essential nexus,” and “rough proportionality.” In Nollan, the Supreme Court established that there must be an “essential nexus”, between the harm envisioned that the permit would cause and the exaction demanded in return. Even if a nexus was found to exist, the Supreme Court stated, in Dolan, that the required degree of connection between the exactions and the projected impact of the proposed development is a degree of “rough proportionality.” Rough proportionality requires the municipality to make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development. Essentially, rough proportionality requires the permitting authority to show that what it is doing is actually designed to alleviate the condition caused by the proposed use of that property.
The unconstitutional conditions doctrine articulated by the Supreme Court in Koontz precludes a local government or agency from coercing an applicant into giving up property rights protected by the United States Constitution. Nollan and Dolan involved a special application of the unconstitutional conditions doctrine, which involves every person’s Fifth Amendment right to receive just compensation for any property taken by government, to takings that occur in the context of an owner’s request for a land use permit. In Nollan, the governmental agency found that a proposed beachfront home would block the view of the ocean from the highway. But instead of conditioning the building permit on the preservation of the view, the agency sought a public easement across the private beach. In Dolan, the governmental agency found that a building expansion would exacerbate flooding. But, instead of seeking stormwater control measures, the agency conditioned the permit on a landowner deeding over property for a pedestrian/bicycle right-of-way. Supreme Court, in Nollan and Dolan, held that government cannot use an application for a permit to pressure a landowner into giving up property for purpose unrelated to the adverse impacts envisioned, i.e., land for which the Fifth Amendment would otherwise require just compensation.
The Koontz case involved the late Coy Koontz, Sr.’s application to the St. Johns River Water Management District (“District”) for a permit which would allow development of 3.7 acres of his property. To build, Mr. Koontz needed a permit that complied with two separate Florida statutes that protect water resources, including wetlands. As required by one of the statutes, to mitigate the environmental effects of his proposal, Koontz offered to foreclose any possible future development of an 11.2-acre southern section of his land by deeding to the District a conservation easement on that portion of the property. The District, however, found the 11-acre conservation easement inadequate mitigation for the 3.7 acres development, and informed Koontz that it would approve construction only if he agreed to one of two concessions: (1) a reduction of the size of the development to 1 acre and the deeding of the remaining 13.9 acres to the District, or (2) an agreement to pay for contractors to make improvements to District-owned land several miles away. Koontz stopped negotiating, and the District denied the permit.
Koontz subsequently filed suit in Florida state court under a Florida statute that allows owners to recover monetary damages if a state agency’s action is “an unreasonable exercise of the state’s police power constituting a taking without just compensation." The Florida Circuit Court ruled in Koontz’s favor, reasoning the District’s demands lacked both a nexus and rough proportionality to the environmental impact of the proposed 3.7 acres development, and therefore, the exactions demanded by the District were unlawful under the Supreme Court’s decisions in Nollan and Dolan.
On appeal, the Florida District Court affirmed, but the Florida Supreme Court reversed, distinguishing Nollan and Dolan on two grounds. First, the Florida Supreme Court found that the “nexus,” and “rough proportionality” tests established by Nollan and Dolan did not apply because “the District did not approve petitioner’s application on the condition that he accede to the District’s demands, but rather denied Koontz’s application because he refused to make concessions.” Second, the Florida Supreme Court distinguished a demand for an interest in real property as was the case in Nollan and Dolan from a demand for money for the payment of contractors. Recognizing that the Florida Supreme Court’s decision rested on a question of federal constitutional law, the Supreme Court of the United States granted certiorari.
In overturning the Florida Supreme Court’s decision, first, the Supreme Court unanimously held that the heightened scrutiny of Nollan and Dolan applies regardless of whether the government grants a land-use permit subject to a condition or whether it denies a permit because the landowner refuses to accept a condition. The Court reasoned to hold otherwise would allow governments to circumvent the Nollan and Dolan doctrine by phrasing all permit requirements as conditions precedent to the granting of a permit.
Second, the Supreme Court held that the District’s demand for offsetting payments in the context of the granting of a land use permits because, otherwise, governments could use so-called ‘in lieu of’ fees to indirectly extract land from the applicant. In so doing, the Supreme Court found that in lieu of fees are functionally equivalent to land use exactions. On this second holding, however, the Court was split 5-4.
Significantly, the Court expressed no view on the merits of Mr. Koontz’s claim that the District’s actions failed to comply with the Nollan/Dolan doctrine. Rather, the case was remanded to the Florida courts for a determination as to whether the suggestions made by the District were sufficiently distinct to constitute demands, whether those demands meet the heightened scrutiny of nexus and rough proportionally required under Nollan and Dolan, and whether Mr. Koontz suffered any damages for which there is a state remedy.
The ruling has significant implications for the process by which local governments and agencies evaluate land use applications as well as for the rights of landowners. Regulators’ demands for land or other concessions, including monetary extractions, must have a nexus to the impact of the proposed action, must be roughly proportional to that impact, and cannot be used to deny an application if the landowner refuses to accept an unjustified demand. Additionally, governments and agencies involved in land use are now exposed to a higher level of scrutiny and would be wise to exercise increased caution in negotiations with applicants and developers. In light of Koontz, they will have to more carefully evaluate any suggestions or recommendations regarding potential project concessions before deciding whether to present them to an applicant.
If you require further information regarding the information presented in this Legal Alert and its impact on you or your organization, please contact Thomas F. Walsh, Chair of the Land Use Practice Area, at (585) 295-4414 or firstname.lastname@example.org, or Matthew T. Kerwin, at (315) 425-2820 or email@example.com.