U.S. Supreme Court Issues Significant Land Use Decision Benefiting Developers

In a 5-4 decision last month in Koontz v. St. Johns River Water Management District, the U.S. Supreme Court made a new contribution to constitutional land use law that could significantly impact the balance of power between developers and local governments.

In 1994, developer Koontz sought permits to develop his land in Florida, most of which was wetlands. The water management district offered to approve the necessary permit if Koontz would either (1) reduce the scale of his project and grant a conservation easement to the portion of the site not being developed, or (2) pay for off-site wetlands restoration. Koontz refused, and the district denied the permit. Koontz sued, alleging a taking of property without just compensation, but ultimately lost at the Florida Supreme Court.

The U.S. Supreme Court reversed. Existing constitutional law under the Nollan and Dolan cases established that conditions of approval on a development have to be reasonably related to, and roughly proportional to, the impact that the conditions are intended to mitigate. In an attempt to end run Nollan and Dolan, it had become common for local governments to informally demand exactions and, if the developer would not agree, just deny the project outright. The Supreme Court rejected this approach, finding a denial for refusal to accept conditions as functionally the same as approving a project with conditions, and held that Nollan and Dolan apply to the denial scenario just the same.

This holding, by itself, seems uncontroversial and attracted the support of all nine justices. The split occurred when the majority went further. The majority held that the demand by the water district that Koontz pay money to improve off-site wetlands was, constitutionally, no different than a demand that a developer convey property (i.e., the conservation easement) to the government as a condition of approval. The dissent felt this was a bridge too far, and put at risk other conditions of permits requiring payment of money, like application fees or taxes.

The case has been remanded to the Florida courts to determine if the water district’s demands meet the reasonable relationship and rough proportionality tests of Nollan and Dolan. If they do not, then it also remains to be seen how to compensate Koontz for the violation of his constitutional rights, given that he never actually paid any money nor did he give up any property. Regardless of how it ends, however, the Koontz case establishes a new test for monetary exactions that developers will undoubtedly try to use as leverage in permit negotiations with local governments.

For more information regarding this issue, please contact David Petersen at david.petersen@tonkon.com or at 503-802-2054, or another member of our Real Estate & Land Use Practice Group.

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