The California Supreme Court has drawn a deeper line in the sand by (a) refusing to expand the Mitigation Fee Act to cover “land use restrictions” in permit conditions of approval that are unrelated to the project’s construction, and (b) requiring applicants to litigate their objections to final judgment before accepting the benefits of the permit. Though the case involved a Coastal Commission permit, it has broader implications discussed below.

The Decision

In a unanimous decision, the California Supreme Court held in Barbara Lynch et al. v. California Coastal Commission that a permit applicant forfeits its right to challenge project conditions that are “land use restrictions” by accepting the permit’s benefits (e.g., by going ahead with construction of the permitted project) before obtaining a final judicial determination on the applicant’s objections. The State Mitigation Fee Act still allows developers to judicially challenge fees and other exactions (i.e., conditions that divest the developer of money or a possessory interest in land, such as an easement) while development proceeds, but the court declined to extend that right to any other type of project condition. The court’s decision puts the onus on developers to resolve their challenges to land use restrictions before accepting the benefits of the permit.

Practical Implications

Although the case related to a coastal development permit, the court’s decision has broader implications:

• Applicants faced with objectionable permit conditions other than fees and exactions must decide whether to delay their project to challenge unfavorable permit conditions, or acquiesce to the conditions and start construction.

• Applicants without the resources or appetite to litigate will be forced to accept unlawful permit conditions.

• Regulatory bodies that issue permits may be emboldened to impose questionable land use restrictions if they believe that the applicant’s cost to satisfy those conditions is insufficient to warrant project delay.

• The court stated that construction could proceed during a legal challenge to a land use restriction if the applicant and public agency that imposed the condition enter into an express agreement to that effect. It remains to be seen, however, whether public agencies will be willing to do so in most circumstances.

• Applicants should strive, to the extent possible, to negotiate all permit conditions before the relevant entitlement is issued.

Analysis

Plaintiffs, two homeowners in Encinitas, who received a coastal development permit to build a new seawall and repair a staircase connecting their blufftop homes to the beach below, challenged Coastal Commission permit conditions imposing a 20-year term on the permit and prohibiting the construction of the staircase. While the plaintiffs litigated their challenge to the permit conditions, they satisfied all other permit conditions, obtained the permit, and built the seawall. The court found that, by doing so, they forfeited their objections to the permit conditions.

The homeowners argued that, because the challenged conditions did not affect the project’s construction, they were able to maintain their challenge while constructing the seawall. The court disagreed. Under the Mitigation Fee Act (the “Act”), an applicant can – under protest – accept the benefits of a permit and concurrently challenge fees, dedications, reservations, or other exactions. But land use restrictions are not considered “other exactions” under the Act. The court refused to expand the meaning of “other exactions” to include land use restrictions, even when such restrictions can be separated from a project’s construction.

The court reasoned that “allowing applicants to challenge a permit’s restrictions after taking all of its benefits would change the dynamics of permit negotiations and would foster litigation.” It stated that requiring applicants to litigate objections to permit conditions before proceeding with a project notifies the issuing agency that its decision is being questioned and allows the government to mitigate potential damages, thereby preserving the delicate balancing of interests involved in land use decisions.

The court also rejected the homeowners’ plea that they were under duress to construct the new seawall due to safety concerns relating to the instability of the bluff following winter storms. Instead, the court found that the homeowners could have obtained an emergency permit to address any imminent safety concerns and to maintain the status quo while they litigated their objections to the permit conditions.

Where Do We Go From Here?

The court emphasized that any expansion of the Act, in particular to include land use restrictions that can be separated from the construction of the project, must come from the State Legislature. As such, the development community’s only recourse is to seek relief in Sacramento.