Supreme Court rules against authorities that 'extort' land owners seeking permits

The decision overturns a Florida Supreme Court ruling that would have given governments expanded power to force unreasonable exactions upon developers

By National Association of Home Builders August 26, 2013

In a major victory for property-rights advocates, the U.S. Supreme Court on June 25 issued an opinion that gives property owners a strong argument with which to fight certain concessions that are often required as a condition for approving a permit to develop a piece of land. The decision overturns a Florida Supreme Court ruling that would have given governments expanded power to force unreasonable exactions upon developers. The National Association of Home Builders' (NAHB) involvement helped make it happen.

The case was Koontz v. St. Johns River Water Management District, a landmark case with major implications for land developers nationwide.

Since the late 1980s, a permit condition was not considered constitutional unless it has a "nexus" to a governmental purpose, and it was "roughly proportional" to the impacts of the project. This is known as the Nollan/Dolan test, named after two Supreme Court cases. The test protects property owners from overzealous land-use permitting officials, but until now there were two outstanding questions about it:

1) Does it apply even if the permit is denied?

2) Does it apply if the government's condition is a payment of money?

The Court's Decision

In both instances, the Supreme Court answered in the affirmative. In the first scenario, if a property owner refuses to agree to outrageous conditions in åa permit and the government subsequently denies that permit, the government cannot later argue that because the permit was never granted, there was no constitutional violation. The Supreme Court also ruled that the Nollan/Dolan test applies equally whether the government demands the land owner give up real property or money as a condition of obtaining a permit. Tellingly, the court used a form of the word "extortion" five times to describe the manner in which governments demand property from developers before granting approvals.

This landmark decision effectively denies the government the ability to force unreasonable exactions upon developers in exchange for a permit approval, and it means that federal, state, and local regulators will need to exercise more caution to ensure that permitting demands—including monetary demands—are proportionate to the project at hand.

Leading the fight on behalf of property owners, NAHB headed a coalition of 16 prominent real estate and business organizations in filing an amicus brief that explained why it is neither necessary nor fair for governments to extort money from property owners who wish to use their land.

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