On June 25, 2013, the United States Supreme Court issued a decision that is highly favorable to property owners faced with costly mitigation or other off-site requirements imposed as conditions in land use permits.  In Koontz v. St. John’s River Water Management District, the Court expanded the applicability of the so-called “Nollan/Dolan” standards, which govern the constitutionality of conditions imposed on the issuance of land use permits, declaring that these standards also apply when the government denies a land use permit and when the government demands a payment of money, rather than just placing a specific burden on property interests.

In the earlier Nollan and Dolan decisions, the Supreme Court held that the government may not condition the approval of a land use permit on the owner’s relinquishment of a portion of his property unless there is a “nexus” and “rough proportionality” between the government’s demand and the effects of the proposed land use.  Until now the Supreme Court had not opined on whether those rules apply when the applicant has been told in advance what the conditions will be, the applicant then refuses to accept them, and the agency thereafter denies the permit, or when the agency requires a monetary payment.

Mr. Koontz was seeking to develop part of his Florida wetlands property.  Florida law requires permit applications wishing to build on wetlands to offset the resulting environmental damage, and Koontz offered to mitigate the environmental effects of his development proposal by placing a conservation easement on nearly three-quarters of his property.  The local permitting agency rejected Koontz’s proposal and informed him that it would approve construction only if he (1) reduced the size of his development and placed a conservation easement on the resulting larger remainder of his property, or (2) made a payment of money that would be used to protect wetlands miles away.  Koontz sued claiming the agency’s action amounted to a taking of property without just compensation.  The Florida Supreme Court decided against the property owner, holding that Nollan/Dolan does not apply when a permit is denied, and does not cover cash payments.  The United States Supreme Court reversed on both questions in a 5-4 decision.

As the dissenting opinion warns, this decision is likely to lead to more regulatory takings challenges by property owners.  In New Jersey, historically the courts have been hostile to regulatory takings claims by private property owners and have narrowly applied earlier United States Supreme Court decisions favoring private property rights.