The Supreme Court Just Handed Real Estate Developers a Huge Win



The Supreme Court handed down a decision Tuesday morning that’s gotten considerably less attention than this term’s blockbuster battles over same-sex marriage and voting rights. But Koontz v. St. Johns River Water Management District will likely prove a historic property-rights ruling, with far-reaching implications for the leverage local land-use agencies may use to extract concessions from property owners and developers for the common and environmental good.

The question lurking behind the case – how much and what can the public ask for when a private property owner’s actions cause wider harm or societal burdens? – has the potential for much broader impact than the technical details of one Florida man’s property dispute would suggest. And the 5-4 ruling surprised court-watchers who felt the government made a convincing case at oral arguments in January. In a majority opinion written by Justice Samuel Alito, the court sided with the property owner.

“It’s a very important decision that seriously undermines the authority of local communities across the country,” says John Echeverria, a legal scholar at the University of Vermont Law School who has written extensively on “takings” law. The two factions of the Supreme Court, on the other hand, disagree over whether this ruling will “work a revolution in land-use law.”

The case revolves around a 14.9-acre property – primarily wetlands – east of Orlando purchased by Coy Koontz, Sr., in 1972. In the 1990s, he sought a permit from the local water management district to develop 3.7 acres of the land, dredging and filling it in to construct a building, a parking lot, and a retention pond. Under Florida law designed to protect the state’s dwindling wetlands, anyone who wants to dredge or fill wetlands must get a special permit. And the land-use agencies that issue those permits can require property owners to offset any environmental damage to get one.

In this case, Koontz offered to permanently conserve the rest of his land from development in exchange for the permit to develop the 3.7 acres. The St. Johns River Water Management District argued that his offer was insufficient. The agency proposed instead that he develop only one acre and conserve the rest, or that he pay for contractors who would make improvements to other government-owned wetlands within the same watershed but several miles away. Koontz turned down both options and sued instead. In the 11 years this case has been winding through the legal system, Koontz died. The property owner is now his son, Coy Koontz, Jr.

The legal issue at play here comes from the Fifth Amendment – the Just Compensation Clause that states “…nor shall private property be taken for public use, without just compensation.” There is a long and complicated legal history sketching out what constitutes a government “taking” of private property, and when public agencies must compensate property owners for that taking. In Koontz, the central question was whether or not the St. Johns River Water Management District violated Koontz’ property rights by denying him a permit when he wouldn’t agree to the District’s conditions to develop his land.

As the District argued, nothing was ever actually “taken” from Koontz. The federal government, the American Planning Association, the National Governors Association, and awetlands protection group all lined up on the side of the Water Management District. On the other side, supporting Koontz, were the National Association of Home Builders, several civil liberties and property-rights advocacy groups, and conservative legal foundations.

The court wound up siding with the latter group with this logic, which comes from the syllabus attached to Alito’s full decision:

It makes no difference that no property was actually taken in this case. Extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation.

This thinking appears to expand the definition of what constitutes a government “taking,” potentially subjecting a whole range of land-use tools that have nothing to do with the physical taking of property to that constitutional standard for the first time. As  SCOTUS blog summarized, “The decision has the potential to significantly expand property-owners’ ability to challenge local land use regulations and fees.”

So what kinds of common policy levers might now be at risk?

“A requirement that a developer pay into a mitigation bank if they’re destroying wetlands,” Echeverria suggests. “A requirement that a developer contribute funds to pay for a sewer expansion. A requirement that a developer pay to support expansion of a school system required by development – all those kinds of requirements.”

Now, all of those sorts of exactions may be subject to a pair of legal tests established by earlier takings Supreme Court cases. Together, the “nexus limitation” and “proportionality test” require that a government can’t demand some concession from a property owner that is either unrelated to the harm caused, or disproportionate to it. Previously, that test has applied to land-use agencies demanding property, or property easements, in exchange for a development permit. Now the definition includes asking for money, too.

As Justice Elena Kagan wrote in the dissent, the ruling “runs roughshod” over court precedent that local governments may impose ordinary financial obligations without triggering the protections of the Takings Clause. “I would not embark,” she wrote, “on so unwise an adventure.”

UPDATE: The American Planning Association released a statement calling the Koontz decision an “unnecessary blow to state and local governments” and one that creates a “terrible precedent allowing landowners to determine what they feel are sufficient mitigation efforts.” In the below comment, APA CEO W. Paul Farmer suggests that the new legal precedent will go so far as to “instill fear” in land-use agencies:

The Court’s decision today has jeopardized local governments’ ability to ensure that the costs of new development are fairly born by its developers and users. The decision will instill fear in local agencies to even begin mitigation discussions with landowners and discourages them from seeking ways to allow development to actually proceed. The four dissenting justices suggest one course of action: ‘Deny the permits.’ The majority decision leaves no one certain of which discussions – or required payments – may be subject to heightened scrutiny.



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