Legal Alerts

Supreme Court Announces Limits on Conditions Attached to Land Use Approvals

Lindquist Gets Real: Real Estate Tips from Lindquist & Vennum

On June 25, 2013, the United States Supreme Court issued an opinion in the case of Koontz v. St. Johns River Water Management District, 570 U.S. ___; 133 S.CT. 2586 (2013). The case represents a minor but important milestone concerning the protection of rights of property owners against certain types of regulatory action in connection with applications for permits to develop real property. Beyond its holding, however, it is unlikely Koontz will catalyze other expansions of property owner rights vis-à-vis governmental regulation.

To understand Koontz, it is necessary first to understand the significance of the Nollan and Dolan decisions.[1]In these decisions, the U.S. Supreme Court set forth a "nexus" and "rough proportionality" test for conditions imposed on land use permits. The often quoted language is: "a unit of government may not condition the approval of a land-use permit on the owner's relinquishment of a portion of his property unless there is a 'nexus' and 'rough proportionality' between the government's demand and the effects of the proposed land use."

The SCOTUS opinion in Koontz represents only one step in what has been an epic legal battle. In 1972 Coy Koontz, Sr. purchased a 14.9 acre parcel of land in Florida. The parcel was bisected by a drainage ditch and a power line and was classified as wetlands.

In 1994 (nearly 20 years ago!), Mr. Koontz applied for permits from a local Water Management District (the "District") to develop the 3.7 acres of property lying north of the ditch. As mitigation, Koontz offered to deed to the District a conservation easement over the remaining 11.2 acres. The District rejected his offer and informed him that it would approve construction only if he agreed to one of two conditions: (a) reducing the size of the proposed development to approximately 1 acre and granting of a conservation easement over the remaining 13.9 acres of the property, or (b) approving the 3.7 acre project but hiring contractors to improve District-owned land located several miles from the site.

The important point in Koontz is that these alternatives were given prior to approval/rejection of the application. In other words, these were not formal conditions attached to an application approval. These were informally communicated to Mr. Koontz, albeit in a manner that made it clear the application would likely be rejected if he did not accede to one of the alternatives.

The other important point in Koontz is that it took nearly 20 years of litigation to prove that the government was wrong. The case went up and down the Florida courts several times. The Florida District Court finally issues a decision in 2009 (15 years after the initial application for a permit) and the Florida Supreme Court reversed in 2011. The SCOTUS granted certiorari in 2012 and heard argument in early 2013. In the meantime, Mr. Koontz Sr. passed away in 2000. His son, Coy Koontz, Jr., continued the battle and still owns the land. It is unclear whether Mr. Koontz, Jr. will continue to have a viable claim for damages.

At its essence, the Koontz opinion clarifies the significance of the Nollan/Dolan decisions. The District had attempted to circumvent Nollan/Dolan by suggesting to Koontz, before rendering a decision on Koontz's application, that it would approve his application if he agreed to their conditions. The District's position was that, by suggesting theses conditions to Koontz before making a decision on his application (as opposed to approving the application subject to conditions), the restrictions of Nollan/Dolan were inapplicable.  

SCOTUS rejected this argument, stating: "the principles that undergird our decisions in Nollan and Dolan do not change depending on whether the government approves a permit on the condition that the applicant turn over property or denies a permit because the applicant refuses to do so."

If Koontz stands for anything, it is a clear statement, from our highest legal authority, that there are limits on what a municipality can require from a developer in approving a land use. Prior to Koontz, states were divided as to whether a demand for money (e.g. the District's demand for off-site wetland improvements) could give rise to a claim under Nollan/Dolan. The Koontz decision clarifies this issue, holding that "monetary exactions must satisfy the nexus and rough proportionality requirements of Nollan and Dolan." A contrary rule would create a loophole that governments could employ to evade the Nollan/Dolan limitations.

The Supreme Court specified that the "nexus" and "rough proportionality" standards were necessary to address two realities of the permitting process. The first is that land-use permit applicants are vulnerable to coercion and extortion from governmental bodies with broad discretion to approve or deny permit applications. The second is that many proposed land uses present potentially negative environmental consequences and costs that can and should be mitigated by the permit applicant.

The Supreme Court held that the Nollan/Dolan standards apply: (1) regardless of whether a governmental body denies a permit application because of the landowner's unwillingness to agree to requirements imposed as a condition of permit issuance or approves an application subject to conditions that then must be satisfied by the landowner to develop its property; and (2) when the government demands a payment of money as opposed to the historically more common demand that the landowner place a specific burden (e.g. an easement or public dedication) on property interests.

The Koontz decision is an important victory for property owners because of its clarification of the application of Nollan/Dolan. Although it is impossible to predict the full impact that Koontz will have on the land-use permitting process, at the very least the decision should give governmental bodies reason for pause before issuing decisions on land-use permits, and provide real estate developers with compelling legal authority to support claims of regulatory taking and to defend against government overreach during the all-important permit pre-application and discussion stage. Developers should be familiar with this case and include it within the vocabulary that they use in discussions with permitting authorities.

If Koontz teaches anything practical for developers, it is the importance of creating and preserving a clear record of communications with governmental agencies concerning land use applications. Lindquist has substantial experience working with its developer clients with respect to this strategy.

[1] Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994)

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