Property Owners Can Challenge Permit Conditions Despite Denied Permit

Author:  Attorney David Dobin

The U.S. Supreme Court recently issued an important land-use decision, holding that even when a permit is denied and a permit condition requires payment, the condition must satisfy the test set forth in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994). Under that test, there must be a “nexus” and “rough proportionality” between the permit condition and the effects of the proposed development to comply with the Takings Clause of the Fifth Amendment.

In Koontz v. St. Johns River Water Management District, 133 S. Ct. 2586 (2013), a local water-management district denied a permit after the landowner refused a condition requiring him to agree to reduce the size of his development (and increase the size of a conservation easement in favor of the district) or pay for improvements to other district-owned land. The landowner filed suit, claiming a violation of the Nollan/Dolan doctrine. The Florida Supreme Court ruled in favor of the district, holding that neither the denial of a permit nor a condition requiring the payment of money can form the basis of a claim under the Nollan/Dolan doctrine.

The Supreme Court reversed. The justices unanimously held that denial of a permit can give rise to a “taking” of property under the Fifth Amendment. However, on the question of whether a permit condition requiring the payment of money can violate the Nollan/Dolan doctrine, the Supreme Court was divided, 5–4. Writing for the majority, Justice Alito, joined by Chief Justice Roberts and Justices Scalia, Kennedy, and Thomas, concluded there must be a “nexus” and “rough proportionality” between land-use-permit conditions requiring the payment of money and the effects of a proposed development as required by Nollan/Dolan, if the payment condition burdens “ownership of a specific parcel of land” or there is “a direct link between the government’s demand and a specific parcel of real property.” Id. at 2599–2600. In dissent, Justice Kagan, joined by Justices Ginsberg, Breyer, and Sotomayor rejected this approach. The dissent reasoned that the protections of Nollan/Dolan only apply where a land-use condition would otherwise constitute a “taking” and “ordinary financial obligations” cannot constitute a “taking.” Id. at 2603–06 (Kagan, J., dissenting). The dissent also warned that the majority’s decision “threatens to subject a vast array of land-use regulations, applied daily in States and localities throughout the country, to heightened constitutional scrutiny” and “casts a cloud on every decision by every local government to require a person seeking a permit to pay or spend money.” Id. at 2604, 2608 (Kagan, J., dissenting).

While only time will tell whether the dissent’s dire predictions come to pass, land-use and municipal attorneys should read and understand this decision. In particular, attorneys advising developers and local land-use agencies or municipalities should be prepared to carefully scrutinize proposed conditions for permit approval to recognize those that run afoul of the rule established by this decision.

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