Don’t Let This Happen to You: Why You Need a Real Estate Lawyer in Los Angeles

In the recent United States Supreme Court ruling in Sheetz v. County of El Dorado, California, the court addressed the issue of whether the payment of a traffic impact fee by property owner George Sheetz, as a condition to receiving a residential building permit, was a violation of the Fifth Amendment’s takings clause. 

Specifically, petitioner George Sheetz was required by the County of El Dorado to pay a $23,420 traffic impact fee in order to obtain a residential building permit. The fee was part of a “general plan” enacted by the county’s Board of Supervisors to address increasing demand for public services spurred by new development.

The fee amount wasn’t based on the costs of traffic impacts specifically attributable to Sheetz’s particular project, but rather was assessed according to a rate schedule that took into account the type of development and its location within the county. Sheetz paid the fee under protest and obtained the permit. He later sought relief in state court, claiming that conditioning the building permit on the payment of a traffic impact fee constituted an unlawful “exaction” of money in violation of the takings clause, which states that the government shall not take private property for public use without compensation.

The United States Supreme Court agreed with Sheetz and held that because such demand for payment as a condition for issuance of the residential building permit lacked a sufficient connection to a legitimate governmental land-use interest, such a condition amounted to “an out-and-out plan of extortion” and therefore is a violation of the Fifth Amendment’s takings clause.

In order to determine whether such a governmental requirement is constitutional, the United States Supreme Court has established a two-part test. 

First, permit conditions must have an “essential nexus” to the government’s land-use interest. The nexus requirement ensures that the government is acting to further its stated purpose, not leveraging its permitting monopoly to exact private property (i.e., traffic impact fees) without paying for it. Second, permit conditions must have “rough proportionality” to the development’s impact on the land-use interest. In Sheetz’s situation, the costs of traffic impacts specifically attributable to Sheetz’s particular project were never established.

The takeaway therefore is that the Fifth Amendment is violated when land-use regulations don’t substantially advance legitimate state interests or deny an owner economically viable use of his land.

This test applies regardless of whether the condition requires the landowner to relinquish property or requires them to pay a “monetary exactio[n]” instead of relinquishing the property. 

It’s important to note that different rules will apply to state laws that merely restrict how land is used. A use restriction that is “reasonably necessary to the effectuation of a substantial government purpose” isn’t a taking unless it saps too much of the property’s value or frustrates the owner’s investment-backed expectations.

The court has described permit conditions of this nature as “a hallmark of responsible land-use policy,” and the government is entitled to put the landowner to the choice of accepting the bargain or abandoning the proposed development. However, as with Sheetz, the bargain between government and property owner takes on a different character when the government withholds or conditions a building permit for reasons unrelated to its land-use interests.