Unanimous Supreme Court Decision Means More Scrutiny for Development Fees

Washington, D.C. (April 16, 2024) – On April 12, 2024, the United States Supreme Court issued a unanimous decision in favor of a landowner who asserted that legislatively imposed land use and permit fees could be seen as violating the Takings Clause under the Fifth Amendment to the United States Constitution.

Justice Barrett delivered the decision in the case of Sheetz v. County of El Dorado, which settles a split in decisions interpreting the Supreme Court precedents in Nollan v. California Coastal Commission 483 U.S. 825 (1987) and Dolan v. City of Tigard 512 U.S. 374 (1994). The question before the Court was straightforward: Does the Takings Clause of the United States Constitution recognize a distinction between legislative and administrative conditions on land-use permits? The Supreme Court answered with a resounding “no.”

The case originated as a dispute over fees imposed in exchange for a building permit. Mr. Sheetz owns property in El Dorado County and sought permission to construct a manufactured home. To address ongoing traffic issues, El Dorado County included in its General Plan a requirement for developers to pay a traffic impact fee as a condition to building permit issuance. The amount of the fee is based on a rate schedule, which, in turn, mandated fees based on the type and location of the proposed development in the county. In the case of Mr. Sheetz, construction of a single manufactured home required payment of a traffic impact fee of $23,420. Mr. Sheetz paid the fee under protest and filed suit claiming that El Dorado County, through imposition of the traffic impact fee, violated the Takings Clause because the amount of the fee was not individually tailored to address the traffic congestion that would result from the construction of his single home.

The trial and appeals courts in California both found in favor of El Dorado County, relying on California Supreme Court precedent that had limited application of the Nollan/Dolan test* to land use fee and permit conditions imposed on an individual and discretionary basis. The California Supreme Court determined that fees imposed via legislative action on a broad class of property owners need not satisfy the limits of the Nollan/Dolan test.

The Supreme Court reversed years of California, and likely other state court, precedent by finding that the United States Constitution’s Takings Clause, applicable to the states via the Fourteenth Amendment, does not exempt legislatures from ordinary takings rules and does not call out legislative actions for preferential or special treatment. As stated: “A legislative exception to the Nollan/Dolan test ‘conflicts with the rest of [the Court’s] takings jurisprudence,’ which does not otherwise distinguish between legislation and other official acts.” Sheetz page 9, citing Knick v. Township of Scott, 588 U.S. 180, 185 (2019). The Sheetz decision finds no basis for giving property rights any less protection in the hands of the legislature as those same rights would receive in the hands of administrators.

However, the concurring opinions signal a note of caution to anyone thinking the Court is going farther than the four corners of the question presented. Justice Kavanaugh, joined in his opinion by Justices Jackson and Kagan, is careful to point out that the Court's decision does not address or prohibit the common practice of imposing permit conditions through formulas or schedules that set forth fees for a class of development as opposed to a single development: ". . .[T]he Court has not previously decided - and today specifically declines to decide - whether a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development."

Justice Sotomayor, joined in her opinion by Justice Jackson, raise the open issue of whether a permit condition would constitute a compensable taking if imposed outside of the permitting context: "The question presented in this case did not include that antecedent question; whether the traffic impact fee would be a compensable taking if imposed outside the permitting context and therefore could trigger Nollan/Dolan scrutiny."

In a separate concurring opinion, Justice Gorsuch also highlights the questions not asked or answered, albeit with a bit more substance. While raising the open question of whether the Nollan/Dolan test operates differently when the issue is an exaction or taking that affects a class of properties, Justice Gorsuch points out the elements of the Nollan/Dolan test do not change if the exaction involves a large class of properties, a single property or something in between the extremes. He summarizes his view by saying “[o]nce more, how the government acts may vary but the Constitution’s standard for assessing those actions does not.” In his conclusion, Justice Gorsuch writes that “nothing in Nollan, Dolan, or [the Sheetz] decision supports distinguishing between government actions against the many and the few any more than it supports distinguishing between legislative and administrative actions.”

So while the Supreme Court’s decision leaves open some questions, it unequivocally closes the door on the legislative exception to the Nollan/Dolan test. As with any reversal of precedent, the result and ramifications of this decision will likely prompt additional claims, cases and creative fee structuring. However, agencies, developers and landowners in general have a new opportunity and ability to scrutinize any general land use fees or exactions imposed by legislative mandate.

*The Nollan/Dollan test requires that any exactions have both an “essential nexus” to the land use interest of the government, and that exactions must have “rough proportionality” to the proposed development’s impacts on the government’s land use interests.

If you have any questions on this decision, contact the author of this alert. Visit our Real Estate & Land Use Practice page for more information on our capabilities in this area.

Author:

Kelly Alhadeff-Black, Partner and Co-Chair of Public Agency & Municipal Law Practice