A Victory for Property Rights: U.S. Supreme Court Rules for Developers Seeking Permit Approvals

On June 25, 2013, the U.S. Supreme Court handed down arguably one of the most influential Takings Clause decisions since the Kelo v. City of New London¹ ruling in 2005. In a 5-4 decision in Koontz v. St. Johns River Water Management District,² the Court expanded the protections afforded by the Fourteenth Amendment against the taking of private property for public use without just compensation.

In Koontz, the Court extended the precedent of Nollan v. California Coastal Commission³ and Dolan v. City of Tigard⁴ to include denials of development permits, and to treat payment of money the same as required dedication of real property, where the property owner refused to satisfy overly burdensome conditions. In Nollan, the Court held that any condition placed on the approval of a permit must have a "logical nexus" to the development that is the subject of the requested permit. The Dolan opinion went further, to require that conditions be "roughly proportional" to the permitted activity. In Koontz, however, the Court was faced for the first time with whether denial of a permit could result in a governmental taking of property.

Background

In 1994, Coy Koontz requested permits from the St. Johns River Water Management District to dredge and fill 3.5 acres of wetlands on a portion of his 14.2-acre property. The district conditioned approval of the permit on Mr. Koontz's dedication of the remainder of his property for conservation, and the payment of approximately $150,000 for improvements to public lands miles away from his property. When the district denied the request for a permit because Mr. Koontz refused to pay for the improvements, Mr. Koontz filed an inverse condemnation action. The trial court ruled in his favor, holding that the permit denial effectuated a taking of the property, and awarded Mr. Koontz $376,154 in damages. After the decision was affirmed by the Fifth District Court of Appeal, however, the Florida Supreme Court reversed the ruling in November of 2011, refusing to extend the Nollan-Dolan exactions doctrine beyond narrow circumstances.

The Supreme Court's Ruling

The U.S. Supreme Court overruled the Florida high court's decision, holding that the "logical nexus" and "roughly proportional" standard applies even in the context of a permit denial, as well as when money is demanded instead of real property. Justice Samuel Alito, who authored the majority's opinion, said "[e]xtortionate demands for property in the land-use permitting context run afoul of the takings clause not because they take property, but because they impermissibly burden the right not to have property taken without just compensation." He went on to state that "[t]he principles that undergird our decisions in Nollan and Dolan do not change depending on whether the government approves the permit on the condition that the applicant turn over property or denies a permit because the applicant refuses to do so."

Writing for the four dissenters, Justice Elena Kagan agreed with the majority that "the Nollan-Dolan standard applies not only when the government approves a development permit conditioned on the owners conveyance of a property interest (i.e., imposes a condition subsequent), but also when the government denies a permit until the owner meets the condition (i.e., imposes a condition precedent)." Thus, the Court was unanimous on the key issue of extending Nollan-Dolan to permit denials. However, Justice Kagan disagreed with extending Nollan-Dolan "to cases in which the government conditions a permit . . . on the payment or expenditure of money."

Implications of the Ruling

The Court's decision in Koontz may curb agency discretion when setting conditions for development approvals, including monetary payments. Local development authorities will be forced to carefully consider the relationship between proposed projects and the burdens imposed on developers for approval. The most challenging obstacle for permitting agencies will be justifying the general impact fees or fees in lieu typically attached to permit approval. Failure to establish the requisite connection between these assessments and proposed development may lead to property owners filing suit seeking compensation.

There may be repercussions for property owners as well, however. Permitting authorities may require additional time to support how conditions comply with the Koontz rationale. This painstaking exercise may slow the approval process and create a backlog of permit requests by developers. Authorities may also be more reluctant to let developers attempt to address impacts through mitigation or monetary contributions, and may prefer to unconditionally deny development applications rather than work out conditions under which they could be approved. Time is of the essence with many development projects that are intended to satisfy current market demands. What appears to be relief from the clutches of permitting discretion may in turn delay approvals and threaten project viability.

In the end, the Koontz decision should lead to more balanced negotiations between owners wanting to develop their property and permitting agencies seeking to assure that the development satisfies appropriate permit conditions. When considering permit conditions, agencies will need to make sure there is no overreaching of the type addressed in Koontz, which should result in permit applications being treated in a more practical and common sense manner by agencies. Only time will tell.

Notes

¹ 545 U.S. 469 (2005).

² 2013 WL 3184628.

³ 483 U.S. 825 (1987).

⁴ 512 U.S. 374 (1994).