Will the Supreme Court Finally Put an End Extortionate Permitting Practices?

Date: April 25, 2017

Thirty years ago this spring, in Nollan v. California Coastal Commission, the Supreme Court issued an important decision invalidating conditions imposed on a development permit. In that case, an ordinary landowner sought to replace an aging bungalow on his lot with a new home; however, he was told that in order to obtain the requisite permit he would have to agree to a condition allowing the public to traverse across his yard. In other words, the government was leveraging its permitting authority to force Mr. Nollan into a choice between exercising his protected property rights or giving-up property that the government could not take outright without paying compensation. But writing for a fractured Court, Justice Scalia explained that conditions imposed on building permits must tailored to address legitimate public concerns that might otherwise justify a permit denial. As he put it, if the condition is unrelated to the impact the project might have on the public, it must be viewed as “an out-and-out plan of extortion.”

But for years many lower courts have sought artificially cabin the Nollan decision. Until the Supreme Court’s 2013 decision in Koontz v. St. Johns River Water Management District, many jurisdictions held that Nollan only applied when the government conditions a permit approval on a requirement that a landowner must give-up an interest in real property. This enabled permitting authorities to effectively hold permit applicants hostage with demands that they must pay for unrelated public improvements, or must fund all sorts of pet projects.
But the good news is that we helped secure a win for small business in Koontz. Writing for a still divided Supreme Court, Justice Ailito affirmed that the Takings Clause applies equally to protect all forms of private property—whether real property or personal property. This means that government can no longer demand payment of money as a condition of a permit approval unless those funds are intended to cover costs the government may incur in mitigating the impact a project might have on the public.

For example, if construction of a new office building might result in added strain on traffic, the authorities might need to widen the adjoining street to add a turning lane. In turn, this might justify a condition requiring the owner to cover related expenses. But Koontz makes clear that the authorities cannot require an owner to pay an exorbitant sum in excess of what it might reasonably cost to address such concerns. And of course, this means that the authorities cannot require a landowner to pay for public works projects that are completely unrelated to his or her development plans.

However, while Koontz was an important win for small business landowners, the lower courts have yet to embrace its full implications. In fact, many jurisdictions have chosen to ignore the Koontz decision altogether in cases where extortionate conditions are imposed by an enacted ordinance or statute—on the view that Koontz should only apply where the permitting authority has acted on its own discretion. Yet as we argued in a recent brief to the U.S. Supreme Court, the Takings Clause protects landowners, regardless of which governmental entity has taken the lead in a scheme to take private property without compensation. Indeed, the Takings Clause applies with equal force to all coordinate branches of government—so it should not matter whether an extortionate condition is imposed by virtue of enacted legislation or not.

The case, 616 Croft Ave. LLC v. City of West Hollywood, arises out of California—which has proven one of the most intractable of all jurisdictions in head-strongly refusing to give effect to Nollan. This is yet another case where a California municipality has enacted an ordinance requiring developers to pay exorbitant sums to fund affordable housing project—regardless of whether the owner’s development plans may have any effect whatsoever on affordable housing. In fact, in this case the City initially praised the small business permit applicant for proposing to construct an apartment complex that it said would help alleviate housing concerns. Nonetheless, the City persisted in imposing its requirement that the business had to pay to fund unrelated affordable housing projects. Indeed, the City choose not to even attempt to demonstrate that the company’s proposed project might in some way contribute to housing affordability issues in the community, and even admitted that it was requiring the company to address problems that would exist independent of anything they might do with their land. The City’s sole defense is that it is enforcing a legislatively imposed exaction, which the California courts said was exempt from review under Nollan.

Accordingly, we are urging the Supreme Court to take this case to make clear—once and for all—that the Takings Clause prohibits extortionate permitting requirements whether imposed in an ad hoc decision by a zoning board, or not. This is the third time we’ve raised this issue within the last few years. We’ve also produced a law review article, published in the Georgetown International Environmental Law Review, addressing this issue in greater depth.

Related Content: Legal - Blog | Legal | Property Rights

Subscribe For Free News And Tips

Enter your email to get FREE small business insights. Learn more

Get to know NFIB

NFIB is America's leading small business association, promoting and protecting the right of our members to own, operate, and grow their business

Find out more about
NFIB Membership

Or call us today

1-800-634-2669

News

State Issues


Choose Your State

Foundations

YEF Foundation Research Center Legal Foundation

Member Benefits