Page 28 - November 15-December 5, 2023 Law & Accounting Moye White’s real estate attorneys represent owners, developers, landlords, tenants, contractors, insurers, borrowers, lenders, and investors in all facets of real estate law, including nancing, leasing, construction, development, acquisition, investment, and disposition. OWNERS DEVELOPERS LANDLORDS TENANTS CONTRACTORS INSURERS BORROWERS LENDERS INVESTORS www | 303-292-2900 Jake Tiernan Vice-Chair, Real Estate Section 303-292-7925 Rebecca B. Givens Chair, Real Estate Section 303-292-7924 REAL ESTATE 3615 Delgany Street, Suite 1100, Denver, Colorado 80216-3997 BDO Denver 303 E. 17th Avenue, Suite 600 Denver, CO 80203 303-830-1120 Accountants and Advisors © 2021 BDO USA, LLP. All rights reserved. What’s Next? Business resilience is being tested daily. At BDO, our team of experienced professionals provides the knowledge and proactive guidance necessary to overcome the evolving challenges construction facing companies of every size. From ever-changing tax and reporting regulations, unstable surety and banking markets, to labor issues and unrelenting competition, we’re here to help the clients we serve, wherever they do business. R ecently, the U.S. Supreme Court granted a property owner’s petition for writ of certio- rari in Sheetz v. County of El Dora- do. Although the court declined to take up the same issue seven years ago, Sheetz presents the issue of whether “a building-permit exac- tion is exempt from the uncon- stitutional-conditions doctrine … because it is authorized by legisla- tion.” The court will decide this question during its current term. The court’s decision in this case could have far-reaching impacts on a wide swath of service fees local government impose through- out Colorado. The facts of Sheetz are simple. The plaintiff, George Sheetz, sought a building permit from El Dorado County, California, to “build a [1,854-square-foot] manu- factured house on his property.” The county required Sheetz to pay, as a condition of approving his buildingpermit,a“monetaryexac- tion of $23,420” under the county’s Traffic Impact Mitigation Fee Pro- gram legislation. The TIM fee is imposed based on a legislatively set schedule. The fee imposed on a specific project is based on its geographic location and type of construction (such as single-fam- ily, multifamily, residential, office, and so on), rather than based on the project’s “nature or extent of … actual impacts on existing roads or on the need to construct new ones in the county.” In fact, the county per- formed no study to make an individual- ized determi- nation of the traffic impacts that may be caused by Sheetz’s new home. The California trial and inter- mediate appellate courts took no qualm with this exaction and held that it is exempt from the uncon- stitutional-conditions doctrine simply because the exaction was enshrined by county legislation. The California Supreme Court declined to hear the case. The reader may be familiar with the court’s exposition of the uncon- stitutional-conditions doctrine as it relates to land-use and takings issues in its Nollan and Dolan precedents. Under those decisions, governments may condition land- use approvals on either monetary payments or property dedications for public use only if the govern- ment proves an “essential nexus” and “rough proportionality” exist between the project’s impacts and exaction demanded. If the govern- ment fails to make this showing, the court has concluded govern- ments engage “an out-and-out plan of extortion.” Since the Nollan and Dolan decisions, state and federal courts have split on the issue facing the court in Sheetz. Notably, Arizona and Colorado, as well as Mary- land, Oregon and Washington, have followed California’s lead in finding that land-use exactions are exempt from Nollan and Dolan if enshrined in legislation. On the other hand, Florida, Texas, Illinois, Ohio, and North Carolina take the contrary view. Perhaps vexingly to Califor- nia residents, the U.S. Court of Appeals for the 9th Circuit recent- ly disagreed with California state courts finding that Oakland, Cali- fornia’s legislatively enacted exac- tion was an unconstitutional con- dition under Nollan and Dolan. Other federal courts, such as the U.S. District Court for the North- ern District of California and U.S. District Court for the Southern District of Florida, have agreed with the 9th Circuit. On the other hand, the U.S. Court of Appeals for the 10th Circuit, U.S. District Court for the Middle District of Tennessee, and U.S. District Court for the District of Kansas federal courts have held that legislatively imposed land-use exactions are exempt from the unconstitutional- conditions doctrine. By agreeing to hear Sheetz, the Supreme Court is poised to resolve this conflict and the out- come will have important ramifi- cations regardless of the side the court takes. Particularly relevant to governments and landowners in Colorado, if the court in Sheetz decides to subject legislatively imposed exactions to Nollan/ Dolan scrutiny, such a decision would likely implicitly overrule longstanding Colorado Supreme Court precedent holding that ser- vice fees imposed by local gov- ernments are not unconstitutional conditions. Over 20 years ago, the Colorado Supreme Court determined in Krupp v. Breckenridge Sanitation District that generally applicable, legislatively established service fees are not subject to Nollan/ Dolan scrutiny. These sorts of ser- vice fees, particularly in Colorado, come in the form of a one-time payment to a local government, such as a special district, munici- pality, or county, for the purpose of defraying costs of a particular gov- ernment service or infrastructure expansion. The Krupp court deter- mined that because service fees are not imposed through a “specific, discretionary adjudicative deter- mination” concerning one land- owner and one parcel of land, but instead imposed generally as matter of legislation that permits no discretion, service fees are not unconstitutional conditions. If the Supreme Court finds that the generally applicable and legislatively imposed TIM fee in Sheetz is an unconstitutional con- dition, such a decision would tee up challenges to all types of fees in Colorado, such as service fees, impact fees and system devel- opment fees. Particularly, if the Sheetz court finds in favor of the landowner, all such fees would be subject to Nollan-Dolan scrutiny, requiring the local government to make “some sort of individual- ized determination” for all fees imposed on land-use applicants. Such an individualized determi- nation would require local gov- ernments to analyze the impacts of each particular application and determine a fee that bears “rough proportionality” to those impacts. If the local government fails to do so, then the fee imposed would likely be deemed an unconstitu- tional condition. On the other hand, if the court rules against Sheetz and finds the TIM fee not to be an unconstitu- tional condition, then such a hold- ing would effectively insulate leg- islatively imposed monetary exac- tions from constitutional review. Given the potential for significant impact, especially in Colorado, where impact and service fees are ubiquitous, landowners and local governments alike should pay close attention to the outcome of Sheetz. s U.S. Supreme Court: Constitutionality of land-use exaction Jacob Hollars Partner, Spencer Fane