In this second article we are going to review the case Ehrlich Versus the City of Culver City. This case considers the legality of a development impact fee imposed as a permit condition on a property owner in Culver City who wanted to convert a private tennis club into a high-density residential development.
1973: Ehrlich acquires a vacant 2.4 acre lot on Overland Avenue in Colver City and obtains city approval to develop the site as a private tennis club. The city amends its zoning and general plan to permit this land use.
1974: A report by city planning officials recommends approval of the development permit for the private tennis club because of the need for tennis facilities in the city.
1975 to 1991: Ehrlich operates a private tennis club on the 2.4 acre lot.
1981: Ehrlich makes an application to the city for a land use regulation change that will allow him to construct an office building on the 2.4 acre parcel. The city planning commission denies his application because of the need for a sports and tennis club in the city. The application is withdrawn.
1981 to 1988: Ehrlich continues to operate a private tennis club on the 2.4 acre lot.
1988: Ehrlich closes the tennis club. He applies to the city for a general plan amendment, zoning change, and specific plan amendment to allow for the construction of a 30 unit condo complex valued at $10,000,000.
1988: The city expresses an interest in acquiring the 2.4 acres for operation as a public sports facility.
1989: The city decides not to purchase the 2.4 parcel from Ehrlich because it lacks the funds to run a public sports facility at the site. The city council denies the application for land use regulation change on the parcel and denies him the ability to construct the condo complex project based on concerns over the loss of the recreational facility in the community.
1989: Ehrlich obtains a demolition permit, removes the buildings and tennis courts, and donates the tennis equipment (lights, lockers, nets) to the city.
1989: The city grants approval for the condo complex project, but requires Ehrlich to pay a fee of $280,000 as a condition of development. The fee is based on a study that indicates it will cost $280,000 to replace the tennis courts with a public sports facility at another location in the city.
2007: Ehrlich agrees to pay the fee under protest.
????: The trial court rules the $280,000 fee was illegal.
????: The appeals court rules the $280,000 fee was legal.
????: Ehrlich appeals to the California Supreme Court.
- Ehrlich operated the tennis sport facility at a financial loss for several years before closing it.
- The development fee was only imposed as a condition on the development of the 2.4 acre parcel owned by Ehrlich. Surrounding parcels of similar size did not have the same type of fee imposed.
- The tennis club replaced by the condo project was privately funded and operated.
Key Legal Issues
There are two (2) key legal issues in this case that interest us:
- Did the protest of payment of the development fee by Ehrlich meet the requirements of the California Mitigation Fee Act?
- Did the imposition of the $280,000 development fee by the city on the condo complex project meet the requirements for public taking of land required by the United States Constitution and the California Mitigation Fee Act? Did it need to meet these requirements?
Important Legal Background and Context
Before we consider the California Supreme Court’s decision in this case, we should review some legal background discussed by the court. The first is the Mitigation Fee Act. The second is the standard of review of property taking by the government as defined by the cases Nolan and Dolan. The court reviewed the imposition of the development fee in this case in light of the standards defined by both the California Mitigation Fee Act these two (2) cases.
The Mitigation Fee Act
The California Mitigation Fee Act was passed by the California Legislature after the land development community expressed concern about the tendency of local government agencies to impose development fees unrelated to the development taking place. The Act took effect on January 1, 1989. It accomplished two (2) main tasks. The first was to define a set of procedures for protesting fees and other charges imposed by a local government agency on a land development project. The second was to define a standard against which local government charges on a land development project would be measured. This standard requires a “reasonable relationship” between the use of a development fee and the amount of a development fee with the type of development on which the fee is imposed.
Nolan and Dolan Court Cases
In 1987 the US Supreme Court considered the Case of Nolan Versus the California Coastal Commission. In this decision the US Supreme Court determined that a government agency could demand an easement as a condition of a development permit without providing the land owner with monetary compensation. However, the government agency had to demonstrate that its demand for the easement met certain requirements defined in the decision. In 1994 the US Supreme Court further clarified these requirements in the case Dolan Versus the City of Tigard. In the Dolan case the US Supreme Court determined that the condition imposed by a local government agency on a development project had to be “roughly proportional” in both its type and extent to the impact of the proposed development on which it was imposed. Both of these cases further clarified the means by which the court would determine if the “takings” clause of the Fifth Amendment to the US Consitution had been violated by a government agency when imposing a condition on a development project.
In our current case, the California Supreme Court would determine if the City of Culver City had violated (1) the standards in the Mitigation Fee Act and (2) the takings clause of the Fifth Amendment in view of the Nolan and Dolan cases.
The Court’s Decision
The court first considers this question:
Did the protest of payment of the development fee by Ehrlich meet the requirements of the California Mitigation Fee Act?
The court determines that Ehrlich did comply with the requirements of the California Mitigation Fee Act in this case. Why is that?
- Ehrlich filed the required written protest to the development fee.
- Ehrlich paid the fee under protest.
The court then considers this question:
Did the imposition of the $280,000 development fee by the city on the condo complex project meet the requirements for public taking of land required by the United States Constitution and the California Mitigation Fee Act?
To answer this question, the court must examine the development fee in two (2) aspects. The first is the relationship between the fee imposed and the type of development. The second is the magnitude of the fee in relation to the impact of the development.
The court determines that the imposition of the $280,000 development fee did meet the requirements of the United States Constitution and the California Mitigation Act for the first element, but not for the second.
The court gives this reason for its determination that the $280,000 development fee met the reasonable relationship element of the takings requirements:
The rezoning of the subject parcel from recreational uses to other uses did have an impact on public access to recreation facilities, even though the club was privately owned and operated. In its decision the court said: “Although privately operated, plaintiff’s health club was a business establishment, accessible to the public on payment of a membership fee. The opportunity of Culver City residents to use such private recreational facilities created a public benefit by enlarging the availability of such facilities. Without such a facility, residents would have to travel farther, wait longer, and put up with other inconveniences and restricted choices in their recreational pursuits. Thus, the fact that a recreational facility is privately rather than publicly owned does not erase its value to the public.”
The court gives this reason for its determination that he $280,000 development fee failed to meet the reasonable magnitude element of the takings requirements:
- The city couldn’t claim the loss of the full value of the tennis facilities on the subject parcel. This is because the existing tennis club was a private club, not funded by the public. Any new tennis club that continued operation on the parcel would have also been a commercial business paid for by the private fees of its members.
- The city could be compensated for the loss of a parcel zoned for recreation, but not of the recreation facility itself. This cost could be calculated by determining the approximate administrative burden to rezone another similar parcel in the city to recreational use or the costs for the city to attract another private recreational development. The California Supreme Court determined in this case that this cost wouldn’t be the $280,000 the City sought (and obtained) from the developer.
After reading this case I had a couple of unanswered questions:
- If there was a need for additional recreational facilities in the city, why wasn’t this need addressed in a broader and more equitable way? For example: A general development fee or tax on all parcels to support recreational opportunities. Was this because of opposition from city citizens to this additional tax?
- How would the City calculate the allowed development fee based on the cost to rezone another parcel or to attract another private residential development? How would this cost have compared to the $280,000 development fee it originally chose to impose? Would that calculation stand up to the scrutiny of the court?
There are lessons in this case for both land development professionals, public agency staff, and citizens interested in expanding recreational opportunities in their community.
Extra caution is needed when imposing a development fee on a specific, individual project. The California Supreme Court indicated in this case that a development fee imposed on a specific project will be subject to additional scrutiny in the court. It is easier to justify a development fee imposed by a local agency in a broad manner, across multiple projects.
In this case the California Supreme Court takes a clear stand against what it identifies as “leveraging” by public agencies. This term is used to describe the enforcement of permit conditions against an individual project to achieve goals unrelated to the specific impacts of the individual project. When analyzing permit conditions imposed on your development project, consider if the permit condition is broadly imposed, or if your project is being singled out.
Although the California Supreme Court recognized in this case that there was a legitimate need to provide recreation opportunities in a community, it didn’t approve of forcing a single development project to fund these opportunties. This was true even in a case like this, when the development project involved the removal of a private recreation center. If additional parks, sports centers, or other recreational facilities are a legitimate need in your community, seek ways to fund additional recreational projects broadly, through widely applied fees, taxes, or other funding mechanisms. Avoid penalizing a single developer or development project to pay for a public recreation project if there isn’t a very clear relationship between the recreation project being funded and the direct impacts of the development project.