U.S. Supreme Court Rules in Favor of Calif. Property Owner in Takings Case

U.S. Supreme Court Rules in Favor of Calif. Property Owner in Takings Case

Court rules Takings Clause does not distinguish between legislative and administrative land use permit conditions.

By Ayiesha Beverly, General Counsel, National Apartment Association

On April 12, 2024, the Supreme Court of the United States (SCOTUS) issued a ruling in Sheetz vs. County of El Dorado, California, a land use takings case answering the question “whether a permit exaction is exempt from the unconstitutional conditions doctrine as applied in Nollan and Dolan simply because it is authorized by legislation.” In a unanimous decision authored by Justice Amy Coney Barrett, SCOTUS held the “Nollan/Dolan test applies to both legislative permit conditions, and that the Fifth Amendment’s Takings Clause does not distinguish between legislative and administrative land use permit conditions.”

California Resident Sues County of El Dorado Over Constitutionality of Traffic Impact Fee

George Sheetz is a California resident who applied to the County of El Dorado, California for a permit to build a “modest” manufactured home on his residential property. Obtaining the residential building permit required the payment of a $23,420 permit exaction fee. Enacted by the County, the “Traffic Impact Fee” program (formerly known as the Traffic Impact Mitigation Fee program) was imposed to “address increasing demand for public services spurred by new development.”  Sheetz contended the fee he was assessed was not based on the specific traffic impacts attributable to his project but was assessed according to a general rate schedule.

Sheetz paid the fee under protest and challenged the fee in state court, arguing that the fee constituted an unlawful exaction of money in violation of the Takings Clause of the Fifth Amendment. Sheetz also argued that Nollan vs. California Coastal Commission and Dolan vs. City of Tigard required the County to make an individualized determination that the fee imposed on him was necessary to offset traffic congestion attributable to his project.

The Nollan/Dolan Test

Through two cases heard 7 years apart, the Supreme Court established a two-prong test, modeled on the unconstitutional conditions doctrine, to address potential abuse of the permitting process (“...the bargain[ing] [between landowner and the government] takes on a different character when the government withholds or conditions a building permit for reasons unrelated to its land-use interests.)

In Nollan (1987), SCOTUS established that “permit conditions must have an “essential nexus” to the government’s land-use interest, ensuring that the government is acting for its stated purpose, not leveraging its permitted monopoly to take private property without paying for it.” In Dolan (1994), SCOTUS established that “permit conditions must have “‘rough proportionality’” to the development’s impact on the land-use interest... and the condition may not require a landowner to give up or pay more than is necessary to mitigate the harms resulting from the development.” Therefore, a government must show that permit exactions meet the two-prong test under Nollan and Dolan if it wants to impose conditions on a land use permit by requiring the property owner to give up property or pay a fee in exchange for a land use permit.

Lower Court Rulings in Sheetz

The trial court ruled against Sheetz, holding that the legislative permit exactions are not subject to the two-prong test of Nollan/Dolan. The California Court of Appeal affirmed the lower court’s ruling, holding that “[u]nder California law, only certain development fees are subject to the heightened scrutiny of the Nollan/Dolan test.”  The California Court of Appeal further explained the Nollan/Dolan test did not apply to Sheetz’s permit exaction fee because “[t]he fee is not an ‘ad hoc exaction’ [an administrative exaction] imposed on a property owner on an individual and discretionary basis,” but is rather “a development impact fee imposed pursuant to a legislatively authorized fee program that generally applies to all new development projects within the County.” The California Supreme Court denied Sheetz’s petition to review the California Court of Appeal’s ruling. Sheetz then petitioned to the Supreme Court of the United States.

In his petition to SCOTUS, Sheetz argued the high court should hear the case to resolve a split in state and federal courts regarding Nollan and Dolan’s applicability to legislative exactions. Sheetz also urged the high court to hear the case because the California Court of Appeal’s ruling was in “strong tension” with SCOTUS’ more recent rulings on Takings, such as the Court’s 2021 ruling in Cedar Point Nursery v. Hassid.

SCOTUS’ Decision Overrules California Law

In its decision reversing the California Court of Appeal’s ruling, the Supreme Court reminds us that the Fifth Amendment’s Taking Clause requires the government to provide just compensation to owners whose land it wishes to take, providing that: “nor shall private property be taken for public use, without just compensation”) and that the “Takings Clause’s right to just compensation coexists with the States’ police power to engage in land use planning.”

In holding that the Takings Clause does not distinguish between legislative and administrative land use permit conditions, the Court held that permit conditions must have an “essential nexus” to the government’s land use interest and “‘rough proportionality’” to the development’s impact on the land use interest – the application of the Nollan/Dolan test.

The Court states that [a] permit condition that requires a landowner to give up more than is necessary to mitigate harms resulting from new development has the same potential for abuse as a condition that is unrelated to that purpose. Noting the “test applies regardless of whether the condition requires the landowner to relinquish property or requires her to pay a ‘monetary exactio[n]’ instead of relinquishing the property.”

SCOTUS also addressed the California Court of Appeal’s decision not to scrutinize the traffic impact fee under the Nollan/Dolan test based on its view that the test did not apply to “legislatively prescribed monetary fees.” SCOTUS stated this was an error as “[n]othing in constitutional text, history, or precedent supports exempting legislatures from ordinary takings rules.” The high court also made a point to note that at oral argument, the County also agreed that permit conditions imposed by a legislature are not exempt from scrutiny under Nollan and Dolan, stating the County was “wise” to distance itself from the rule applied by the California Court of Appeal given the absence of support for such an exception in “constitutional text, history, or precedent.”

SCOTUS Does Not Address Validity of Traffic Impact Fee

Due to its “erroneous premise” that legislative permit conditions are not subject to the Nollan/Dolan test, the California Court of Appeal did not consider whether the traffic impact fee was valid. Therefore, in its decision, the high court did not address the validity of the traffic impact fee, including “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.”  SCOTUS remanded (sent back) the case to the California Court of Appeal to decide these outstanding questions.

It is important to note that SCOTUS’ ruling is very narrow and the concurring opinions by the other Justices make it clear that there are still many unresolved questions. For example, in his concurring opinion, Justice Kavanaugh, joined by Justices Jackson and Kagan, wrote: “Importantly, therefore, today's decision does not address or prohibit the common government practice of imposing permit conditions, such as impact fees, on new developments through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property. Moreover, as is apparent from the fact that today's decision expressly leaves the question open, no prior decision of this Court has addressed or prohibited that longstanding government practice. Both Nollan and Dolan considered permit conditions tailored to specific parcels of property.”

What’s Next?

“Conditions on building permits are not exempt from scrutiny under Nollan and Dolan just because a legislative body imposed them.” The ruling in this case highlights the need for legislative bodies, especially those in California, to review their building permit conditions to make sure those conditions meet the “essential nexus” and “rough proportionality” requirements of the Nollan/Dolan test. The ruling in Sheetz creates an opportunity for property owners and developers to bring challenges against legislative bodies for imposing such building permit conditions, such as the traffic impact fee program at issue in this case, that do not meet the standards under Nollan and Dolan.

This article has been reprinted with permission of the National apartment Association (NAA). NAA continues to educate policymakers on the effect building permit conditions and other barriers, such as impact fees, have on the nation's housing shortage. NAA will continue to monitor this case and will report on the decision of the California Court of Appeal on the outstanding questions. For more information, go to www.NAAHQ.org.