November 30, 1996 - From the November, 1996 issue

CA Supreme Court Rules on Developer-City Mitigation Fees

In the California Supreme Court's first major land use decision in almost two decades, Ehrlich v. Culver City, 50 Cal. Rptr.2d 242 (1996)the Court has overturned a $280,000 "tennis court" fee imposed against a condominium developer in Culver City. Applying the Nollan-Dolan "rational nexus" and "rough proportionality" tests to the imposition of development fees in California, the Court has established a new rule for testing the legality of such exactions. While both private property owners and public agencies have claimed victory in parts of the Ehrlich decision, what is clear is that new development fees will be reviewed under heightened legal scrutiny in the years to come. 

By Fred Gaines, Esq., a partner of the Sherman Oaks law firm of Reznik & Reznik and Chairman of the firm’s Land Use Department. Mr. Gaines represented the property owner in Ehrlich v. Culver City through the administrative process and at the trial court level.


Fred Gaines: “As long as people are demanding of certain public services, yet unwinding of higher taxes, government will look to development fees and exactions as a way to pay for desired outcomes.”

The Nollan-Dolan Tests 

The Nollan-Dolan Doctrine derives from two relatively recent United States Supreme Court cases which established the legal requirements for determining when conditions or exactions attached to land use permit approvals amount to an unconstitutional taking of private property. See "Nollan-Dolan 'Taking' Doctrine: Landmark Supreme Court Cases?".

In Nollan v. California Coastal Commission, 483 U.S. 825 (1987), the Court held that government regulators must establish the "rational nexus" between the purpose of the mitigating conditions imposed and the types of impacts caused by the proposed development. In Dolan v. City of Tigard, Oregon, 114 S.Ct. 2309 (1994), the Court added that in addition to establishing the required Nollan "nexus," the actual conditions imposed must be in "rough proportionality" to the specific impacts of the proposed development.

The Nollan-Dolan tests derive from these cases. The Ehrlich decision is the first application of the Nollan-Dolan Doctrine by the California Supreme Court.

The Ehrlich Decision

Mr. Ehrlich owned a tennis club that went out of business in 1988. In 1989, Mr. Ehrlich applied to the City for approval to build a 30-unit townhouse project at the site. After initially rejecting the project, the City Council approved the project conditioned upon the payment of $280,000 to the City. The City claimed that the money was needed to replace the loss of the completely private tennis courts which previously existed on the property. Mr. Ehrlich sued to overturn the fee.

The Los Angeles Superior Court granted Mr. Ehrlich's petition for writ of mandate and ordered that the City may not impose a $280,000 fee as a condition of approval of the townhouse project. The trial court held that the fee was "simply an effort to shift the costs of providing a public benefit to one no more responsible for the need than any other taxpayer." The court added that "The City could have condemned a portion of the petitioner's property for use as City tennis courts, but the City would then, of course, have to pay for the land. Here, instead of taking land for which it would have to pay, the City proposes to take not land but money. This is equally impermissible.”

The Court of Appeal reversed the trial court decision. The State Supreme Court has now reversed the appellate court, finding that the $280,000 fee was improper as the record did not provide sufficient evidence to support the amount or the fee imposed. The Supreme Court has ordered the City to reconsider and reduce the amount of the fee.

Overturning the Fee

In overturning Culver City's $280,000 tennis court fee, the Court found that the property owner's rights had in fact been violated by imposing a fee that did not meet the strict Nollan-Dolan tests. As the Supreme Court stated:

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"We conclude that the combined test of Nollan and Dolan applies to the monetary exaction imposed by Culver City in this case, we also conclude that the heightened standard of scrutiny is triggered by a relatively narrow class of land use cases—those exhibiting circumstances which increase the risk that the local permitting authority will seek to avoid the obligation to pay just compensation."

In returning the matter to the City to determine what correct fee, if any, may be imposed, the Court stated that:

"The determination of such a fee will, of course, require the city to make specific findings supported by substantial evidence—that is, the City must make some effort to quantify its findings supporting any fee, beyond conclusory statements, although no precise mathematical calculation is required either by the takings clause or the Act [referring to the California Mitigation Fee Act, Gov. Code §§66000 et seg.]."

Blurring Private v. Public 

The trial court clearly ruled that a private landowner's activities cannot amount to a public benefit for which compensation to the City must be paid when the activity is terminated. The Supreme Court's decision seems to indicate that the fact that Mr. Ehrlich's defunct tennis court was private did not negate the City's ability to demand payment for its closure. 

One of the Supreme Court's dissenting opinions supported the trial court's position arguing the City could not single out Mr. Ehrlich's land and limit it to recreational uses because that would be a taking. The opinion added that the City could not charge Mr. Ehrlich for removing such an unconstitutional limitation on the use of his property. 

Guidance Or Confusion 

Unfortunately, despite the 20-year gap between land use decisions, the Supreme Court has provided muddled guidance at best as to the future of development fees in California. While the Ehrlich decision clearly upholds the State's statutory process for protesting development fees, the decision provides little guidance as to the appropriate subjects and amounts of that may be charged. While government regulators claim victory in the Court's seeming approval of the now-common­place imposition of development fees as part of the permit approval process, private property owners point with hope to the Court's rejection of the fee charged in this instance. 

As long as people are demanding of certain public services, yet are against higher taxes, government will look to development fees and exactions as a way to pay for desired outcomes. Whether such a course is sound policy both legally and economically is the subject of great debate. As that debate goes on, we should all heed the warning of the United States Supreme Court, Penna. Coal. Co. v. Mahon, 260 U.S. 393 (1922) given some 75 years ago: "We are in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for change.”

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