Protecting Commercial Real Estate from Government ‘Takings’

The Dilemma

When Coy Koontz, Sr., wanted to develop 3.7 of the 14.9 acres that he owned in Florida, he faced a dilemma.  The vacant property, located at a busy intersection of two major highways, fell within a Riparian Habitat Protection Zone that was overseen by the St. Johns River Water Management District.  Under Florida law, local governments may refuse to issue permits until developers provide assurances that they will conserve more property than they develop.

To obtain the necessary permits, Koontz voluntarily offered to place the remaining eleven acres of his property into a conservation easement.  Even though no rare animals existed in this "habitat protection zone," Koontz believed that preserving these eleven acres would sufficiently off-set any of the development's adverse environmental impacts.  In the end, however, Koontz's proposal to give away 75% of his property was not enough for the District.

Instead, the District provided several counter-proposals.  Among these was the suggestion that Koontz improve fifty acres of government-owned wetlands located miles away from his property.  Koontz's expert calculated that these improvements would cost between $90,000 and $150,000.

Faced with the dilemma of improving government property at his own expense or not getting the permits to develop his own property, Koontz chose a third option. 

He sued.

The Taking

After eighteen years of working its way up the judicial ladder, Koontz's case is currently pending before the Supreme Court. 

Koontz argues that under the Constitution it is unlawful to impose this type of financial requirement on him.  The "Takings Clause" of the 5th Amendment prohibits federal, state and local governments from "taking private property for public use, without just compensation."  Government "takings" occur both when the government physically acquires the right to the land and when a government's regulations are so burdensome that a property becomes worthless.

Despite the Takings Clause's "just compensation" guarantee, many readers may be surprised to learn that federal, state and local government agencies are permitted to take property without providing any compensation at all.  The Supreme Court has created a narrow exception to the Takings Clause when private property owners seek land-use permits.  Under this exception, a government agency may require a property owner to turnover a part of their land for public use before the government issues the permits to develop the remaining portion.

The government's requirement, however, must meet two legal tests.  First, there must be an "essential nexus" between the imposed requirement and a legitimate government objective.  Second, the requirement imposed by the government must be "roughly proportional" to the adverse environmental impact of the proposed development. 

These tests currently only apply to the taking of land.  Koontz argues that the tests should apply to the taking of money, services and labor, in addition to land.  For private property proponents, the concern is that local politicians and bureaucrats may abuse the exception by requiring developers to fund and improve "pet projects" in order to obtain government permits.

The Aftermath

Koontz' eighteen year legal saga will come to a close before the Supreme Court recesses in June.  After an engaging oral argument in January, it is unclear which way the Court will decide.  Whatever the outcome, there will be real-world implications for property developers.

If the Supreme Court sides with the District, property developers should be aware that government officials may impose monetary requirements, in the form of improving government land, as a condition to issuing permits.

If, on the other hand, the Supreme Court sides with Koontz, then property developers should make sure that any requirements imposed by permitting agencies bear an "essential nexus" and are "roughly proportional" to the proposed development's adverse environmental impacts.

As always, property developers should consult an attorney on what to expect from the government permitting process.  By doing so, individuals will hopefully avoid the same dilemma faced by Coy Koontz, Sr.  If you have questions or need legal advice regarding the government permitting process, please contact our office at 814-870-7600 or complete this form on our website.