CALIFORNIA SUPREME COURT EXPANDS PROTECTION FOR HOMEBUILDERS

More Coming?

On October 17, 2013, the California Supreme Court handed down a decision which clarifies the protection of homebuilders and developers with respect to governmental exactions.  In Sterling Park, LP v. City of Palo Alto, the Court found that the statute of limitations with respect to conditions imposed on a Tentative Subdivision Map could be asserted long after the running of the typical 90 day statute of limitations described in the Subdivision Map Act.  The Court held that the more expansive statute of limitations of the Fee Mitigation Act applies if the unlawful condition (in this case the requirement that the developer provide a number of below market affordable housing units) could be satisfied only after the actual construction of the development project.  Significantly, the Court found that non-monetary exactions such as inclusionary zoning requirements were "exactions" subject to the Fee Mitigation Act, the California Legislature's statutory scheme implementing the landmark U.S. Supreme Court cases of Nollan v. CCC and Dolan v. City of Tigard.  The U.S. Supreme Court held in the Nollan decision that development exactions are subject to heightened scrutiny, and must bear an "essential nexus" to a legitimate governmental purpose, and under its Dolan decision, the burden of each development condition must be "roughly proportionate" to the impact of such development on the public interest.  An interesting side note in Sterling Park is that the developer had expressly agreed in writing to accept the illegal condition but was nonetheless permitted to attack such condition years later.

Earlier this year the U.S. Supreme Court reaffirmed the basic holdings of Nollan and Dolan in its decision of Koontz v. St. Johns River et al., and made it clear that "unconstitutional conditions" can be found in a project "denial" and with respect to monetary exactions.  California courts have failed to follow the seemingly clear mandate of the U.S. Supreme Court with respect to the protections of the Fifth Amendment and have stated that the strict protections of property owners under the Nollan and Dolan cases, do not apply to exactions imposed by general legislation (i.e., by ordinance).  In California legislative exactions are subject to a much more deferential standard of review in that they are lawful if they bear a reasonable relationship to any legitimate governmental purpose, with the burden being on the property owner to overturn such actions (Ehrlich v. City of Culver City).  Now, after the U.S. Supreme Court has upheld Nollan and Dolan and expanded its holdings in Koontz, the California Supreme Court has accepted BIA v. City of San Jose for review, a case where the Sixth District Court of Appeal utilized the old Ehrlich rule applying the much less stringent standard of review to an inclusionary zoning ordinance.  The Petition for Review for BIA was granted just weeks before the California Supreme Court released its decision in Sterling Park.  Is the California Supreme Court poised to overturn its decision in Ehrlich and find that an exaction is an exaction whether imposed by ordinance or ad hoc administrative condition, and whether by a monetary fee or an economic redistribution?  The Court's ruling in BIA will tell us whether this issue will advance into clarity, with an exaction being deemed an exaction, however imposed, subject to the protections of Nollan and Dolan, or will retreat into the byzantine legal sophistries of past California decisions that make it extremely difficult for a property owner to determine the legal limits of a local jurisdiction's exaction authority.  Stay tuned.

Gregory N. Weiler has over 30 years experience in transactional real estate and land use, 24 years as a Partner in the Irvine law firm of Palmieri Tyler.  Mr. Weiler can be reached at (949) 851-7238 or gweiler@ptwww.com.

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