California Eminent Domain Report

Last year, my partner Ben Rubin reported on the California Supreme Court's decision in California Building Industry Association v. City of San Jose, which analyzed an inclusionary housing ordinance and held that such ordinances do not qualify as "exactions" and, consequently, are reviewed under a deferential standard that looked at whether the ordinance was "reasonably related" to the city’s interest in promoting the health, safety, and welfare of the community.

Last month, we saw the first published decision following last year's Supreme Court pronouncement.  In in 616 Croft Ave., LLC v. City of West Hollywood, the Court of Appeal looked at another affordable housing ordinance.  There, the court again held that the ordinance did not qualify as an "exaction" and therefore was not subject to scrutiny under the typical Nollan / Dolan analysis, which examines whether (1) a "nexus" exists between the exaction and the impact a proposed development will have on public infrastructure, and (2) whether the extend of the exaction is "roughly proportional" to the impact the proposed development will have.

In Croft, as in the City of San Jose case last year, the Court felt no need to delve into Nollan/Dolan jurisprudence, because an affordable housing ordinance is not an "exaction."  How can this be, when in Croft, the owner was forced to pay an affordable housing in lieu fee (i.e., a fee paid in lieu of actually reserving a certain portion of the units being built as affordable housing) of more than $500,000 in order to build 11 condominiums?  Sounds a lot like an exaction.

But the housing in lieu fee differs from an exaction in one crucial respect.  Exactions are, by their very nature, fees imposed to offset the impact a proposed development will have on the community.  Affordable housing programs are entirely different.  The city in Croft, for example, is not claiming that the owner's 11 condominiums will generate $500,000 worth of affordable housing needs.  Instead, the affordable housing program is designed to combat a state-wide concern that has little to do with the specific development the owner planned for its property.   As the Court explained:

the purpose of the in-lieu housing fee here is not to defray the cost of increased demand on public services resulting from Croft’s specific development project, but rather to combat the overall lack of affordable housing.

Thus, because the fee is not an "exaction," it is not analyzed under the Nollan/Dolan rubric.

There's more to the decision and to the owner's challenges, but the end result of all of it was that the court upheld the imposition of the in lieu fee.

From a larger perspective, the case raises issues that remain in flux around the country, and as one commentator convincingly argues, makes these issues ripe for additional U.S. Supreme Court guidance. For more on that angle, read Bryan Wenter's post,  Court Rejects Takings Challenge to City’s Imposition of $600,000 in Fees for 11-Unit Infill Project | Land Use Developments.