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Overview

Governmental agencies often take action during permit approvals processes or land use deliberations that restrict a landowner's property rights. When taken too far, these government exactions constitute a governmental taking.

In June 2013, the U.S. Supreme Court issued an opinion in the case of Koontz v. St. Johns River Water Management District that could have far reaching implications for the ability of local governments and agencies to obtain permit conditions requiring land dedication or restrictions or that require monetary payments in order to obtain a permit when they issue permits and approvals. This Quick Counsel discusses the concept behind regulatory takings relating to permit conditions, summarizes two key prior cases on regulatory takings and permit conditions and discusses how they were expanded by Koontz.

Regulatory Takings Overview

The Fifth Amendment to the U.S. Constitution prohibits governmental takings of property without compensation. The physical taking of property for public uses, such as road building, are readily identifiable as takings for which compensation is required. It is more problematic to determine if a taking has occurred when a governmental agency takes an action that somehow denies or restricts a property owner particular uses of its property. The question the Courts have had to answer is when does a legitimate exercise of police powers cross the line and become an unconstitutional taking? Courts have found four general types of regulatory takings:

  • Actual physical invasion. In the case of Loretto v. Teleprompter Manhattan CATV Corp., an apartment building owner was required by local law to allow a cable company to install equipment on his building. The Court found that if an owner could show that a law allowed another party to physically occupy a landowner's property, then a taking occurred.
  • Complete denial of economically beneficial use. The Supreme Court found that a governmental action that denies the owner of all economically viable use of the land through a permit denial or other governmental restriction is a taking.
  • Penn Central Test. In Penn Central Transportation Co. v. New York City, the Supreme Court used a three factor test to determine that New York's refusal to allow an expansion of Penn Station for historic resource reasons did not constitute a taking. The Court looked at:
    • the economic impact of the regulation on the landowner the degree to which the regulation interferes with the owner's reasonable investment backed expectations; and the character of the government's action, i.e. what interests are they protecting? 
  • Governmental Exactions. The Supreme Court has developed a substantial nexus and rough proportionality test involving government required permit conditions. These tests were set forth in the Supreme Court cases of Nollan/Dolan and are discussed in more detail below.

Nollan/Dolan

Nollan

In Nollan v. California Coastal Commission, the U.S. Supreme Court ruled in favor of a landowner who was being required to grant a permanent beach front access easement as a condition to obtaining a permit to demolish an existing structure and replace it with a new structure. The Court agreed that the conditioning of the government permit on the granting of the easement could be constitutional if it substantially furthered governmental purposes. However, the Court held that, in this instance, the condition requiring the permanent public easement was not sufficiently related to the public purpose that the Coastal Commission was trying to protect - which was to protect the views of the ocean. The effects of the Nollan's rebuilding project would have no impact on the public access to the beach and the Nollan's objected to the permit condition designed to enhance public access at the Nollan's expense. The Coastal Commission issued the permit with the offending condition over the Nollan's objection.

After the permit decision was upheld in the California Supreme Court, the Nollan's took the matter to the U.S. Supreme Court which reversed the California decision. The Court, in a 5-4 decision, determined that there was not a significant nexus where the condition substituted for the prohibition utterly fails to further the end advanced as the justification for the prohibition [p. 848].

Dolan

Dolan v. City of Tigard involved a request by Mrs. Dolan to expand her store and pave her parking lot at the property she owned in the City of Tigard. The Planning Commission conditioned its approval of her application upon her dedicating land for a public greenway along a nearby creek and for a pedestrian/bicycle pathway. The stated purpose of these requirements were to minimize flooding (in the case of greenway dedication) and to alleviate traffic congestion (in the case of the pathway dedication). The Oregon State Supreme Court upheld the permit decision and Mrs. Dolan appealed to the Supreme Court, which reversed the decision upholding the permit. The Court referenced the concept of "unconstitutional conditions" whereby the government may not require a person to surrender constitutional rights in exchange for a discretionary benefit given by the government when the property sought has little relation to the benefit. In other words, as confirmed in Nollan, there must be a nexus between the condition and the benefit. Dolan answered the question left open by Nollan - what is the required degree of connection between the governmental exactions and the impacts of the related project?

The Supreme Court rejected several tests that had been used by various state courts, determining that a generalized statement of the connection between the required condition and the proposed impact was too lax, that "specific and uniquely attributable" was too specific and that the simple "reasonable relationship" test was confusingly similar to the Courts existing "rational relationship" test, which applies to the Equal Protection Clause of the Fourteenth Amendment. Instead, the Court created the "rough proportionality" standard. Under this standard no precise mathematical calculation is required, but an agency must make an "individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development."

Koontz

In Koontz v. St. John River Water Management District, the Supreme Court ruled in favor of a property owner who had sued the St. John River Water Management District (the "District") claiming that its actions in denying a permit were unconstitutional takings of his property.

Mr. Koontz applied for a permit from the District to impact wetlands located on his property. The District denied Koontz's permit after he would not agree to (i) either reduce his project size and grant a perpetual conservation easement over the remainder of property or; (ii) provide funds to support wetlands restoration work on nearby District owned wetlands site. Koontz challenged the denial under a Florida takings statute leading the Florida Supreme Court to rule that there was no taking because (i) there was a permit denial versus coerced permit acceptance with concessions, and (ii) the demand was for money rather than a demand for a property interest. The Supreme Court reversed holding that permit denials and monetary exactions were subject to the substantial nexus and rough proportionality of Nollan/Dolan.

Conclusion

The decision in Koontz expands the established jurisprudence from Nollan/Dolan to include both: (i) permit denials for failure to agree to a requested condition and (ii) monetary requests as reviewable under a takings analysis. Many local governments make requests for property and monetary payments as part of the permitting process. This can occur when companies apply for everything from building permits to wetlands permits. From cash proffers from homebuilders to wetlands mitigation payments and property restrictions placed on developers, what was complained of in Nollan, Dolan and Koontz is a common government practice. It is important to note that the Supreme Court did not address the underlying substance of the case (i.e. did a taking occur and what is the remedy). The Court expressly stated that these questions would have to be determined on remand to the Florida courts. Koontz did not make these actions unconstitutional per se, but it did make them reviewable. There are two important effects from this. First, it could cause governments to be very careful what they ask for (which in many cases will mean asking for less) and how they document the connection between the requirement and the impact it is alleviating. Second, it may cause local governments and agencies to more quickly deny permits without ever engaging in discussions about what conditions might have possibly been issued that would allow a permit to go forward.

Additional Resources

Region: United States
Interest Area: Government, Real Estate
The information in any resource collected in this virtual library should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or ACC. These resources are not intended as a definitive statement on the subject addressed. Rather, they are intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.
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