REAL ESTATE TIP – Part 2: Planning Board Demands: When Are They Unconstitutional?

Koontz v. St. John’s River Water Management District 133 S.Ct. 2586 (2013)

In our last real estate tip, we saw how the U.S. Supreme Court under the Nollan and Dolan cases test conditions of approval under the 5^th Amendment using the essential nexus and rough proportionality tests. In Koontz v. St. Johns River Water Management District 133 S.Ct. 2586 (2013), the court chose to apply those same tests to a water district’s demand for mitigation payments made in response to Mr. Koontz’s permit application, even though those demands were preconditions leading to the denial of an approval, rather than conditions attached to the granting of an approval. This seemingly small logical step in fact may be a game changer because until now, payments of money have not been seen as the taking of “private property” (the 5^th Amendment’s phrase) if they impose ordinary financial obligations. Justice Kagan, who disagreed with the majority of the Justices, said the Koontz decision, “threatens to subject a vast array of land-use regulations, applied daily in States and localities throughout the country, to heightened constitutional scrutiny.”

The Florida water management district refused to grant a permit to Koontz for the development of a 3.7 acre parcel unless Koontz either reduced the project to 1.0 acre and gave a conservation easement on 13.9 adjacent acres, or paid the water district money to replace culverts and fill in ditches on 50 acres of land owned by the district in another location. Koontz claimed these demands resulted in his property being taken without just compensation, a result prohibited by the 5^th Amendment. The Supreme Court agreed and sent Koontz back to the Florida courts to see if Florida’s state law would provide him with a monetary remedy.

A legal dilemma is presented by the fact that until the Koontz decision, a developer or planning board could assume that a permit-related requirement would not result in property being taken, unless that same requirement would result in property being taken outside the permitting process. Consider the following:

• If a town or agency demands an easement from a landowner, it would be an unconstitutional taking if the town did not pay for the easement
• If a town or agency demands an easement as a condition of approval (or a pre-condition after Koontz), it might result in property being taken if the amount of land or scope of the easement is not related to a public purpose to a reasonable degree (essential nexus and rough proportionality)
• If a town or agency demands money to revitalize a wetland that would not result in private property being taken under the 5^th Amendment. Private property arguably means a “specific interest in physical or intellectual property” or a “specific, separately identifiable sum of money,” quoting Justice Breyer in East­ern Enterprises v. Apfel, 524 U. S. 498.
• Now, because of Koontz, if this same payment is a condition of approval (or a pre-condition), it may result in private property being taken within the meaning of the 5^th Amendment

This debate is ongoing but for now, as a result of Koontz, developers may want to:

• Insist that a permitting board or agency not demand the payment of money simply to pursue government ends that do not have an essential nexus with, and rough proportionality to, the impact of the developer’s project
• Pursue constitutional challenges to such monetary demands with some expectation that the federal courts will create a monetary remedy if the state does not have a method for compensating developers who have been subject to these unconstitutional requests for payment

If you are involved in a permit application process either seeking or providing concessions or payments that could become conditions of approval, consult with legal counsel experienced in crafting appropriate conditions of, and pre-conditions to, approval.

Today’s real estate tip is brought to you by Rick Smith, a LEED Accredited Professional and member of Bernstein Shur’s Real Estate Practice Group and Green Building Team. Stay tuned for more useful tips for real estate professionals.

For more information, contact Rick at rsmith@bernsteinshur.com or 603 623-8700 ext. 8829 or 207 774-1200.