The US Supreme Court has announced it will evaluate whether “impact fees” associated with permits can violate the Fifth Amendment to the US Constitution. At stake is the determination of when, how, and under what circumstances state and local governments can require fees or other conditions in exchange for land-use permit approvals.

The California Court of Appeals’ decision in Sheetz v. County of El Dorado, California evaluates whether land-use permit fees can be considered “regulatory takings” in violation of the Fifth Amendment even, when the fees are authorized by statute. Sheetz joins Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Dept. of Commerce (where the Court will decide whether to overrule or limit Chevron deference) as cases in the upcoming term where the Court may curtail the powers or authority of regulators. 

Legal Issue: Can Permit Fees be Regulatory Takings?

The Fifth Amendment prohibits the government from taking private property without just compensation. Courts have long held that “taking” can include excessive limitations or conditions imposed on land-use permits. Under the Nollan/Dolan test, named after a pair of Court decisions in the 80s and 90s, a condition placed on a land-use permit is only valid if there is (1) a significant nexus between the activity being regulated and the condition being imposed, and (2) the condition is “roughly proportional” to the impact of the regulated activity.

In its 2013 decision in Koontz v. St. Johns River Water Mgmt. Dist., the Court held that the Nollan/Dolan test applied not only to conditions imposed on property interests, but also to monetary exactions such as impact fees associated with permits. In the decade since, lower courts have been divided on whether these tests apply to only to discretionary fees or to all fees, including those set by statute. 

Sheetz Factual Background

In 2016, George Sheetz wanted to build a home on land he owned in El Dorado County, California. The county had previously enacted a “traffic impact mitigation” fee program, which, in order to offset the impact of increased traffic caused by new development, conditioned the approval of any building permit on the payment of a pre-determined fee based on the location and type of the building project. The program was authorized by a state statute that allowed building permit fees as long as there is a “reasonable relationship” between the public use of funds and the project the fee is imposed on. Funds collected by the fee program were used to finance road construction within the county.

Sheetz paid the fee but then sued the county to recover the funds, arguing in part that under the Nollan/Dolan test, the $23,420 fee was disproportionate to any actual impact his project would have on local traffic. The California courts held that Nollan/Dollan did not apply because the fee was authorized by statute and non-discretionary. Sheetz, noting that other state and federal courts had reached the opposite conclusion, then petitioned the Supreme Court to review the issue.

Takeaways

Land-use cases impacting real estate development show up with regularity on the Court’s docket. While Sheetz primarily addresses building permit fees, the decision could open the door to broader challenges to new regulations on constitutional “takings” grounds. Courts have historically been extremely hesitant to apply the takings clause to regulations, but a Supreme Court ruling applying heightened scrutiny to a broad class of regulatory fees and conditions may signal a sea change.

On a broader level, Sheetz could continue the current Court’s trend of reimagining the legal landscape upon which administrative regulations are built. Over the past two years (see our summaries here and here), the Court has limited the deference given to agency decisions and overturned longstanding regulatory precedent. In addition to Sheetz, in the upcoming term, the Court has agreed to review whether to overturn the Chevron doctrine entirely in Loper Bright Enterprises v. Raimondo and Relentless v. Dept. of Commerce. For further discussion on Loper Bright, see here.