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United States Supreme Court Decides Landmark Property Development Case

Author: J. Allen Smith and Bradley E. McLain

Recently the United States Supreme Court released some historic opinions on the Voting Rights Act and the Defense of Marriage Act that have garnered a significant amount of press. However, another case released at that same time by the Supreme Court failed to receive similar media attention, but it has an equally significant impact on the use and development of property across this country. 

In the case of Koontz v. St. John’s River Water Management District, 2013 U.S. Lexis 4918, decided on June 25, 2013, the Supreme Court reaffirmed its previous decisions that the government cannot coerce property owners into giving up their property rights when they apply for land-use permits without just compensation as required under the Fifth Amendment to the U.S. Constitution.  Justice Alito, delivering the opinion of a divided 5-4 court, stated the court’s previous decisions “provide important protection against the misuse of the power of land-use regulation” by prohibiting a unit of government from conditioning the approval of a land-use permit on the owner’s relinquishment of property unless there is a “nexus” and “rough proportionality” between the government’s demand and the effects of the proposed land use. The Koontz opinion extends this protection to cases where a governmental unit threatens to deny or withhold a land-use permit if the property owner refuses to acquiesce to the government’s conditions, including monetary exactions.

In Koontz, a water management district conditioned approval of a development permit on a developer’s agreement to either donate 13.9 acres out of a 14.9 acre tract of land as a wildlife conservation easement or make improvements to other unrelated existing land held by the water district several miles away from the developer’s land.  The Supreme Court held that this was an unconstitutional condition pressuring the developer to voluntarily give up property for which the Fifth Amendment would otherwise require just compensation. The Court reversed the Florida Supreme Court and stated “extortionate demands of this sort frustrate the Fifth Amendment right to just compensation, and the unconstitutional conditions doctrine prohibits them.”

The Court further reasoned that “extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property, but because they impermissibly burden the right not to have property taken without just compensation.” Alito stated this “impermissible denial of a governmental benefit is a constitutionally cognizable injury.”  Accordingly, the Supreme Court found that the “unconstitutional conditions doctrine applies even when the government threatens to withhold a gratuitous benefit.” Moreover, the Supreme Court held that monetary exactions are likewise subject to scrutiny as unconstitutional conditions because “it makes no difference that no property was actually taken” if the condition impermissibly burdens the right not to have property taken without just compensation. 

An article in The New York Times reacted to this decision by stating, “lost amid the Supreme Court’s high-profile decisions on affirmative action, voting rights, and same-sex marriage, was another ruling that may turn out to have a profound impact on American society. A Legal Blow to Sustainable Development, June 26, 2013, The New York Times, by John D. Echererria. The article continued by stating, “The Court handed down a decision on Tuesday that, in the words of Justice Elena Kagan, will “work a revolution in land-use law.”

Further, the Times article claims the “Supreme Court’s Ruling is likely to do some serious real-world damage” adding that “the decision will very likely encourage local government officials to avoid any discussion with developers related to permit conditions that, in the end, may have led both sides to find common ground on building projects that are good for the community and environmentally sound. Rather than risk a lawsuit through an attempt at compromise many municipalities will simply reject the development applications outright – or worse, accept development plans they shouldn’t.” 

Hopefully, the New York Times reaction will not prove to be the “real-world” case, but instead this important Supreme Court decision will prove to reinforce the constitutional requirement that property rights must be recognized and compensated by governmental entities when they are regulating and exercising their fiduciary duty to oversee private landowner’s use of their property.