Permit Conditions and Impact Fees Subject of Recent U.S. Supreme Court Decision

The U.S. Supreme Court in April 2024 issued a unanimous decision in Sheetz v. County of El Dorado, California (144 S. Ct. 893), concluding that the "Takings Clause" in the Fifth Amendment of the U.S. Constitution applies to land use permit conditions imposed by both legislatures and government agencies. Prior to Sheetz, the Court had not applied the two-part constitutional test to legislatively imposed permit conditions.

Case Background and Court Decision

In Sheetz, as a condition of a building permit for his home, the property owner was required to pay a traffic impact fee of $23,420. The impact fee was required under the county's general plan, which was adopted by the county's board of supervisors and calculated according to a rate schedule that takes into account the type of development and its location. Sheetz paid the impact fee in protest, then challenged the constitutionality of the fee because there was no individualized determination that it related to the traffic impacts of his specific development.

In its decision, the Court reiterated the two-part constitutionality test for land use permit conditions, which may have applicability to public access easements and land dedications typically required in connection with development projects:

• First, permits must have an "essential nexus" to the government's land use interest. This is to help ensure that the government is acting to further its stated purpose and not leveraging its authority to exact private property without paying for it.
• Second, the permit conditions must have a "rough proportionality" to the development's impact on the land use interest. That is, the condition cannot require a property owner to do more than necessary to mitigate a project's impact.

The first prong of the test is based on the Court's decision in Nollan v. California Coastal Commission (107 S.Ct. 3141). In Nollan, the permit for the construction of a beachfront bungalow was subject to a public access easement where the stated public interest was a view of the ocean. The second prong of the test is based on Dolan v. City of Tigard (114 S.Ct. 2309). In that case, the city required a landowner to dedicate a portion of her property for the construction of a pedestrian/bicycle pathway in accordance with an adopted plan, where the city had not demonstrated that the trips generated by the development reasonably relate to the requirement for the dedication. The Sheetz decision also referenced Koontz v. St. John's River Water Mgmt. District (133 S.Ct. 2585). In that case, the Court held that monetary exactions (i.e., monetary fees required for the issuance of a permit) must also meet the Nollan/Dolan test, even if the permit is denied for failure to agree to the condition.

In addition to reiterating the constitutional framework for exactions imposed in connection with land use permits, the Sheetz case presents potential new challenges to impact fees regularly prescribed by local governments. For more information about the ruling's potential effect on your projects, please contact any member of Holland & Knight's Mid-Atlantic Land Use Team.

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