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Supreme Court issues pro-developer land-use ruling

November 18, 2013

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Developers applying for land-use permits often feel frustrated, even victimized, when government agencies make demands for money or property as conditions of permit approval. The U.S. Supreme Court, however, has made it easier for developers to challenge such demands in court.

Developer’s plans thwarted

In the case of Koontz v. St. Johns River Water Management District, a developer owned an undeveloped 14.9-acre tract of land in Florida. He sought permits from the St. Johns River Water Management District to develop 3.7 acres of the property. Florida state law requires permit applicants who want to build on wetlands to offset the resulting environmental damage.

The developer offered to mitigate the environmental damage from his development by giving the district a conservation easement on the remainder of the property of about 11 acres. The district rejected his proposal and informed the developer that it would approve construction only if he 1) reduced the size of his development to one acre and gave the district a conservation easement for the remaining 13.9 acres, or 2) hired contractors to make improvements to district-owned wetlands several miles away.

Believing the district’s demands to be excessive, the developer brought suit under a Florida law that provides money damages for agency action that’s an “unreasonable exercise of the state’s police power constituting a taking without just compensation.” The state trial court found the district’s actions unlawful, and the court of appeals affirmed, but the state supreme court reversed. The case then made its way to the U.S. Supreme Court, which issued two important holdings for developers.

Fifth Amendment comes into play

Earlier Supreme Court cases established that the government can’t condition the approval of a land-use permit on the owner’s relinquishment of a portion of his property unless there’s both a nexus (or connection) and a rough proportionality between the government’s demand and the effects of the proposed land use. These requirements, the Court explained, protect the Fifth Amendment right to just compensation for property the government takes when owners apply for land-use permits.

In Koontz, the Court made it clear that the government’s demand for property from a permit applicant must satisfy these requirements even when the government denies the permit. According to the Court, setting aside the requirements when the government denies the permit and the applicant refuses to turn over property would allow the government to evade them by phrasing its property demands as conditions that must be met for permit approval.

The Court said it made no difference that no property was actually taken in this case. Extortionate demands for property in the land-use permit context violate the Takings Clause of the U.S. Constitution not only because they take property, but also because they impermissibly burden the right not to have property taken without just compensation.

The Court also found it irrelevant that the district might have been able to deny the developer’s application outright without giving the option of securing the permit by improving public lands. And the district’s offer to approve a smaller project didn’t eliminate the need for the district to satisfy the nexus and proportionality requirements with the conditions it imposed on approval of the project the developer actually proposed.

Requirements apply to demands for money

The Supreme Court also ruled that the government’s demand must satisfy the requirements even when the demand is for money, not real property. It pointed out that the demand for money burdened the ownership of a specific parcel of land.

This direct link between the demand and a specific parcel of real property implicated the central concern of the requirements — the risk that the government may deploy its substantial power and discretion in land-use permitting to pursue governmental ends that lack a nexus and rough proportionality to the effects of the proposed property use.

Welcome development for real estate developers

Koontz broadens your right to challenge local land-use concessions that seem unreasonable or excessive. A local zoning board must establish both nexus and proportionality between its demands and the anticipated effects of your project — even if it denies your permit. Many developers hope this ruling will make governments more reluctant to condition land-use permits on demands for land or money because they’ll fear constitutional challenges.

Sidebar: The opposing view

Koontz (see main article) was a 5-4 decision. While the dissenting justices agreed that the nexus and proportionality requirements apply when the government denies a permit until an owner meets a condition, they didn’t agree that the requirements apply when the government conditions a permit on the payment or expenditure of money. They found that such a condition doesn’t constitute a taking, which would require just compensation.

Moreover, the dissent said, the majority approach risks “significant practical harm” because it extends the Takings Clause into “the very heart” of local land-use regulation and service delivery. Cities and towns impose many kinds of permitting fees to, for example, mitigate a development’s impact or cover the costs of delivering services such as sewage to the development.

The dissent opined that subjecting these fees to the requirements would reduce governments’ ability to take routine actions to enhance their communities. But the majority dismissed this concern, noting that some of the most populous states have applied the requirements to monetary payments for years.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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