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Courts Say Exactions Must Have a Nexus

Here’s the continuing message from the courts to public agencies demanding money or land from developers: There must be a strong connection between your exaction and the impacts of a project or else the exaction violates the Constitution. Established more than two decades ago by the United States Supreme Court, the principles of “nexus” and “rough proportionality” can no longer be considered “new.” Yet, public agencies continue to explore the limits of the courts’ tolerance for “too much” in the way of exactions. In 2014, two California decisions, one state and one federal, told public agencies that they had gone too far.

The federal case (Levin v. City and County of San Francisco) addressed San Francisco’s rent control ordinance. Under the ordinance, if a landlord wants to remove a rent-controlled unit from the rental market, the landlord must pay the displaced tenant the lump sum equivalent of twenty-four months of the difference between the tenant’s controlled rent and the prevailing market rate rent for a similar unit. Additionally, that amount is increased based upon how long the tenant had resided in the unit, with many tenants owed well over $100,000 under the ordinance.

The federal district court found that a landlord’s decision to remove a unit from the rental market did not create the disparity between the controlled rental rate and the market rental rate. First, market rates are the product of economic factors that have nothing to do with the landlord. Second, the disparity between controlled rates and market rates exists only because the City chose to impose rent control. As a result, there was no valid connection between the rental disparity and the landlord’s removal of the unit from the rental market. Therefore, the court found that the ordinance was a taking without just compensation under the Fifth Amendment.

Similarly, in Bowman v. California Coastal Commission, a California court of appeal addressed a San Luis Obispo County requirement for dedication of a shoreline easement as a condition to the County’s approving the renovation of a house and barn on the same 400-acre site, but a mile from that shoreline. A few years after that condition was imposed, a second County approval removed the earlier requirement to dedicate the shoreline easement. That removal was appealed to the Coastal Commission on the grounds that it deprived the public of a valid existing easement. The Commission concurred, finding that the easement was permanent and binding.

The court, however, found that the easement lacked the required nexus to the proposed construction a mile away and, therefore, “amounted to an unconstitutional taking.” Invoking principles of fairness, the court refused to uphold the easement condition even though the original property owner had accepted it as part of a coastal development permit. As for the landowner’s failure to initially challenge the imposition of the condition, the court said that holding that against the landowner “creates an unjust result and subverts the fair application of the California Coastal Act.”