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On June 25, 2013, the United States Supreme Court decided Koontz v. St. Johns River Water Management District, No. 11-1447, an important land use decision that may give developers and private property owners a stronger position in the negotiation of permit conditions. Koontz now requires state and local governments to demonstrate that a special permit condition requiring a monetary payment have a clear relationship to or “nexus” with the proposed development and that the amount of the payment be in rough proportion to the effects of the proposed development.

Two prior Supreme Court cases, Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994), established that when the government attaches conditions to an approval of a land use permit requiring the dedication of real property, the condition must have a relationship with, and rough proportionality to, the impact of the proposed development. In Nollan, the Court found that a condition requiring a landowner to grant a public access easement over its property to the ocean as part of a building permit for a three-story beachfront home did not have any relationship to the impact on the legitimate public interest in having visual access to the ocean. In Dolan, the Court struck down a condition requiring the landowner to dedicate a portion of its private property as a greenway and bikepath because the dedication of a public right of way was not proportional to the development’s impact on a 100 year floodplain. With Koontz, this “nexus and rough proportionality” standard now extends beyond permit conditions requiring the dedication of real property to conditions requiring monetary payments.

Koontz involved a landowner’s challenge to the denial of two state permits required for developing wetlands in Florida. The petitioner owned a 14.9 acre tract of wetlands in the St. Johns River Water Management District (“District”) and proposed to develop the 3.7 acre northern portion of his property. To mitigate the environmental impact of the development, the petitioner offered the District an 11 acre conservation easement on the remainder of the property that would preclude any future development. In response, the District offered two alternative plans: (1) reduce the development to 1 acre and increase the conservation easement to cover the remainder of the property, or (2) proceed with the development and, in addition, fund offsite mitigation for approximately 50 acres of District-owned wetlands. When the landowner refused to concede to either proposal and suspended negotiation, the District denied the state permits.

Writing for a 5-4 majority, Justice Samuel Alito (joined by Chief Justice Roberts and Justices Kennedy, Scalia, and Thomas) reversed the Florida State Supreme Court’s ruling that the conditions did not violate the Takings Clause of the U.S. Constitution. Justice Alito first found that, even when a land use permit is denied, the proposed conditions must have a relationship and rough proportionality with the negative effects of the proposed land use. While the Court clarified that a landowner would not be entitled to just compensation under the Takings Clause for a permit denial, the Court left it to the states to decide whether a landowner would be entitled to a remedy for a permit denial based on a Nollan and Dolan violation. Turning next to the issue of monetary exactions, the Court reasoned that if a special permit condition “operate[s] upon an identified property interest by directing the owner of a particular piece of property to make a monetary payment,” then such a condition also must comply with Nollan and Dolan. By remanding the case to the Florida courts, the Supreme Court largely avoided the question of whether the proposed condition to fund off-site wetland mitigation efforts in Koontz would have constituted a taking.

In a strong dissent, Justice Elena Kagan (joined by Justices Breyer, Ginsburg, and Sotomayor) declared that the majority’s decision “threatens to subject a vast array of land-use regulations, applied daily in states and localities throughout the country, to heightened constitutional scrutiny.” Although Justice Kagan agreed that conditions placed on permit denials must also meet the Nollan and Dolan nexus and rough proportionality test, she would have affirmed the Florida Supreme Court because, while the allegedly unconstitutional conditions were discussed in negotiations between the landowner and the District, they were not actually imposed in the permit denial itself. Imposing additional constitutional checks in the usual “back-and-forth” negotiations between local governments and developers, Justice Kagan feared, would remove “necessary predictability” from the special permitting process and discourage collaboration between government officials and land developers.

Looking forward, Koontz may strengthen the position of owners and developers entering the permitting process with states and localities by requiring that permitting bodies meet the nexus and rough proportionality test for monetary conditions instead of benefitting from a lower judicial review standard of reasonableness and deference to actions of local officials absent arbitrary action. A landowner now may more readily consider litigation as a viable tool for challenging an unfavorable special permit condition rather than continue to negotiate with government officials. At the same time, many state and local governments already have adopted standards like Nollan and Dolan for regulating monetary payments in the special permit process, thereby giving Koontz minimal practical impact in those jurisdictions.

For state and local governments, Koontz offers little guidance on exactly what type of monetary conditions would fail to meet the Nollan and Dolan test since the Court remanded the case to the Florida courts. Similarly, state and local governments have no constitutional standard for determining when a monetary exaction amounts to a taking, whether the exaction might be characterized as a lawful tax, or whether the amount of money required will pass muster under the nexus and rough proportionality test. These open questions will need to be worked out in future litigation.

This advisory was prepared by Robert A. Fishman, chair of the Land Use, Permitting and Development practice group at Nutter McClennen & Fish LLP. He was assisted in drafting this advisory by Nutter summer associate David Libardoni. For more information, please contact Bob or your Nutter attorney at 617.439.2000.

This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.