Property Owners Take Note: U.S. Supreme Court Expands Takings Clause – Again

by J. Beverly, Attorney/Shareholder

Over the last 40 years, the U.S. Supreme Court has expanded the reach of the Takings Clause of the 5th Amendment. That clause very simply provides that private property cannot be taken for public use without just compensation. For many years, the clause was interpreted to only apply to actual physical takings of property. But the clause now applies to so-called “regulatory takings.” In these cases, a governmental entity either restricts an owner’s use of property to sap a property’s value or frustrate an owner’s investment backed expectations, or conditions development of a property on payment of fees or other exactions.

In short, this means property owners who believe that the application of state and local statutes, ordinances and regulations have impacted the value or use of their property, now have a path forward under the Takings Clause to receive due compensation for their loss. 

Sheetz v. County of El Dorado

The most recent case is Sheetz v. County of El Dorado. George Sheetz wanted to build a small, prefabricated home on land he owned in a rapidly developing area of El Dorado County, California. The County Board of Supervisors had enacted a General Plan to address issues arising from such a development. As part of that plan, the County required developers to pay a traffic impact fee as a condition of receiving a building permit. For Sheetz, the impact fee was $23,420.

Sheetz sued in state court claiming that conditioning the building permit on payment of the traffic impact fee was an unlawful taking because previous Supreme Court decisions in Nollan v. California Coastal Comm’n and Dolan v. City of Tigard required the County to make an individualized determination that the fee was necessary to offset the traffic impact of his development.

The Nollan/Dolan Test

The Nollan/Dolan test considers two factors. First, whether there is an “essential nexus” between the permit conditions and the government’s land-use interest. And second, whether there is a “rough proportionality” to the development’s impact on the government’s land-use interest.  Simply put, a development condition or fee that requires a landowner to give up more than is needed to mitigate potential harm can give rise to a takings claim.  

Sheetz lost in the trial court and on appeal, the California Court of Appeal affirmed holding that the Nollan/Dolan test only applied to permit conditions administratively imposed on an individual and discretionary basis and not to such conditions imposed on a broad class of landowners through legislation.

The primary issue addressed by the U.S. Supreme Court was whether the Nollan/Dolan test applies to legislative enactments such as the plan enacted by the El Dorado County Board. In an opinion authored by Justice Barrett, the Court concluded that the Nollan/Dolan test applies regardless of whether such a fee is assessed on an individualized basis or as part of a broader legislative enactment.  The Court looked to various historical precedents in which statutes invariably required the government to pay landowners whose land was taken pursuant to such legislation.  The Court found the same principles applied to regulatory takings. In sum, the Court found that there was “no basis for affording property rights less protection in the hands of legislators than administrators.  The Takings Clause applies equally to both.”

The Supreme Court did not actually decide whether the traffic impact fee resulted in a regulatory taking of Sheetz’s property. Rather, the Court remanded to the California Court of Appeals to apply the Nollan/Dolan factors and determine that issue.

In separate concurrences, Justices Gorsuch and Kavanaugh (joined by Justices Kagan and Jackson) addressed the issue of whether it matters if the legislative enactment is broad-based in affecting a “class of properties” or more narrowly addressed to a particular development. Justice Gorsuch concluded that nothing in the Sheetz decision or its predecessors supported any distinction between “government actions against the many and the few[.]”  Justice Kavanaugh, however, only wrote to underscore the point that the Court had not addressed the similar issue of whether a “a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development.”  There likely is an open question as to exactly how the Nollan/Dolan factors apply to these different types of legislation.  

The bottom line is that the Supreme Court is continuing to expand the reach of the Takings Clause.  Property owners who believe that the application of state and local statutes, ordinances and regulations have impacted the value or use of their property have a path forward under the Takings Clause to receive due compensation for their loss.  FBFK stands ready to evaluate and assist property owners in making such claims.