Colorado-Real-Estate-Journal_389417

Page 30 - March 6-19, 2024 www.crej.com Law & Accounting It is with great pleasure that we announce Jeremy K. Rothstein as our newest Shareholder. With a strong background in all aspects of commercial real estate and dedication to his clients, Jeremy has played a key role in the rm’s success over the past decade. Jeremy’s move to Shareholder re ects the rm’s continued growth and emphasizes our commitment to providing clients with industry leading legal services. Our clients rely on our experienced team of lawyers to guide them through all of their legal needs, from signi cant business decisions to the most complex global deals and litigation. Our breadth and depth of practice enable us to handle the most complex matters and solve our clients’ problems seamlessly. 1700 Lincoln Street, Suite 2100 Denver, Colorado 80203 303-298-1122 SennLaw.com spencerfane.com © 2020 Spencer Fane LLP | The choice of a lawyer is an important decision and should not be based solely on advertisements. Spencer Fane LLP 1700 Lincoln Street, Suite 2000 | Denver, CO 80203 Phone: 303.839.3800 | Fax: 303.839.3838 Where your business leaders work with our business leaders The Real Estate attorneys at Spencer Fane are experienced in helping real estate owners and developers purchase, sell, exchange, develop, build and nance properties through both private and public funds. Jamie Cotter Nicole Detweiler Russ Dykstra Wendy Harring Jacob Hollars James Jacobson Ken Kramer Jim Kurtz-Phelan Charlie Leder Larry Martinez Lisa Mayers Gil McNeish Michael Miller Robin Nolan David O’Leary Sarah Sicotte Adam Veltri Kelly Vos John Watson O btaining government per- mits is a part of any devel- opment project – and so too are the fees paid to get them. These fees are typically penciled into the project’s budget as the cost of doing business. But when fees are excessive, can they be challenged as unconstitutional? Recent case law suggests yes. Both the U.S. Constitution and Colorado’s state constitution pro- hibit the government from taking private property without paying just compensation. The Supreme Court of the United States has identified various ways in which property can be taken: Owners can receive compensation when the government has physically entered or acquired their prop- erty, when government regula- tion has caused their property to lose virtually all of its value, or when the government imposes excessive conditions on land use permits. It is this final mechanism that provides a basis for challeng- ing permit fees. In a pair of decades-old cases, Nollan v. California Coastal Com- mission (https://supreme. justia.com/cases/federal/ us/483/825/) and Dolan v. City of Tigard (https://supreme. justia.com/cases/federal/ us/512/374/), landowners chal- lenged condi- tions that local governments placed on the permits they requested. In Nollan , the government requested the l a n d o w n e r provide an easement for public beach access as a condi- tion for approval of a rebuilding permit. In Dolan , the government requested the landowner dedicate a greenway on a portion of her property. In those cases, the U.S. Supreme Court sided with the property owners because while “the government may choose whether and how a permit appli- cant is required to mitigate the impacts of a proposed develop- ment, [ ] it may not leverage its legitimate interest in mitigation to pursue governmental ends that lack an essential nexus and rough proportionality to those impacts.” (https://supreme.justia.com/ cases/federal/us/570/595/) In other words, government enti- ties could not attach unreasonable conditions to permits. In 2013, the Supreme Court extended this doctrine to mon- etary demands like the fees that municipalities charge for land use permits. It held that these fees must likewise exhibit a “nexus” and “rough proportion- ality” to the project being permit- ted. In reaching this conclusion, the Supreme Court recognized “two realities of the permitting process.” First, developers and owwners are “especially vulner- able” to government demands because the value of a project far outweighs the costs of the gov- ernment’s request. Second, proj- ects impose costs on the public that permit and impact fees can offset. So, not all fees or requests are inherently improper. Provid- ed the municipality’s fees have that “essential nexus” and “rough proportionality” to the project’s impact, they will be upheld. But what happens if the fees are excessive or appear completely unrelated to a project’s public impact? A recent Colorado case provides some insight. In GRCO LLC v. Granby Ranch Metropolitan District , a landowner had to pay a $125,100 “capital facilities fee” to receive building permits for 20 lots. The fee was intended to defray the costs of building the community’s infrastructure and was to be retained in a separate account. However, when the met- ropolitan district allegedly depos- ited the funds into its general fund, the landowner challenged the fee as an unconstitutional exaction, a claim the metro dis- trict moved to dismiss as legally baseless. A Colorado judge denied the motion and found the claim had legal merit, holding the landown- er properly alleged that the fee lacked a nexus or proportionality to the impact the development would have on the community because the fees were deposited into the district’s general fund. Based on this reasoning, permit or impact fees that are not teth- ered to a development’s actual impact on the community – or that simply go into a commu- nity’s general fund for any use – could be challenged as uncon- stitutional. This could arise in numerous circumstances. For instance, a permit fee that is calculated as a percentage of the development’s cost arguably lacks nexus and proportionality because it reflects the cost of the development, not the value of the development’s public impact. Likewise, large permit fees for small projects or those with minimal public impact could be challenged. For now, some caution is appro- priate. The Supreme Court has not thoroughly examined the contours of this takings doctrine and could hold that legislatively determined fees that apply to all landowners equally are con- stitutional. Although litigation is expensive and unpredictable, it’s worth having counsel review your next project, as many ques- tionable permit fees could be unconstitutional. s Ryan.Sugden@stinson.com When are expensive permit fees unconstitutional? Ryan Sugden Partner, Stinson LLP Owners can receive compensation when the government has physically entered or acquired their property, when government regulation has caused their property to lose virtually all of its value, or when the government imposes excessive conditions on land use permits.