In a decision filed December 4, 2018 and published December 20, 2018, the Sixth District Court of Appeal, in SummerHill Winchester LLC v. Campbell Union School District, __ Cal.App.5th __ (2018) (Case No. H043253), affirmed a trial court decision invalidating the Campbell Union School District’s fee on new residential development because the underlying fee study failed the leading test for ensuring school facilities fees are limited to the cost of increased services made necessary by the development.
On March 29, 2018, in 1901 First Street Owner, LLC v. Tustin Unified School District, __ Cal.App.5th __ (2018) (Case No. G054086), the Fourth District Court of Appeal addressed an important case of first impression regarding the question whether the square footage of interior space outside individual apartment units—i.e., interior common area—should be included in the calculation of Level 1 school impact fees. Interpreting the key provisions of the relevant school fee statutes, the Court of Appeal concluded that “assessable space” includes all interior common area.
The United States Supreme Court has had numerous opportunities in recent years to address an important and unsettled issue under the Takings Clause: whether heightened scrutiny under Nollan, Dolan, and Koontz applies in cases where an alleged taking arises from a legislatively imposed condition rather than an administrative one. The Court’s most recent denial of certiorari in such a case occurred on October 30, 2017, in 616 Croft Ave., LLC v. City of West Hollywood (Case No. 16-1137).
616 Croft Ave. concerned the City of West Hollywood’s imposition of a $540,000 “in-lieu” affordable housing fee, under the City’s inclusionary housing ordinance, in connection with the development of an 11-unit condominium project. The case addressed the California Supreme Court’s denial of a petition to review a Second District Court of Appeal decision that upheld the legality of the fee pursuant to the state Supreme Court’s decision in California Building Industry Association v. City of San Jose, 61 Cal. 4th 435 (2015).
Who is responsible for the housing crisis in San Francisco, and what can government do to solve it? As property values have climbed in San Francisco and surrounding areas, that problem has increasingly vexed elected officials and the courts. The First District of the Court of Appeal is the most recent to weigh in, with a decision invalidating a local pro-tenant ordinance. But first, some background.
The Ellis Act is a state statute that prohibits a city or county from “compelling the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease . . . .” (Gov. Code, § 7060, subd. (d)(a).) In short, the Ellis Act allows a landlord to withdraw a rental unit from the market. In 2014, San Francisco Supervisor David Campos sponsored an ordinance requiring landlords to pay a relocation benefit to tenants being displaced due to the landlord’s “repossession” of the rental unit under the Ellis Act. The payment required was 24 times the difference between the unit’s current rental rate and the “fair market value” of the unit, as calculated by a prescribed schedule. In theory, the displaced tenant was to be compensated for two years’ worth of the differential between what the tenant was paying and what the tenant would pay as fair market rent. Tenants were entitled to the payment regardless of needs or assets, and there was no requirement that the payment actually be spent on expenses of relocation.
Last September we wrote about 616 Croft Ave., LLC v. City of West Hollywood, an opinion from the Court of Appeal for the Second Appellate District upholding a nearly $555,000 in-lieu fee on an 11-unit residential infill project because the fee was “related to the cost of constructing affordable housing units within the City.” Among other things, we noted that the case “underscores the ongoing need for the United States Supreme Court to finally address whether the heightened scrutiny of the Nollan, Dolan, and Koontz Fifth Amendment takings cases applies to legislatively imposed permit conditions.”
On December 21, 2016, the California Supreme Court denied a petition to review 616 Croft Ave., LLC. A petition for writ of certiorari was filed on March 15, 2017 (Case No. 16-1137), giving SCOTUS its opportunity to consider the case.
The question of who should pay the cost of municipal services for new residential development is a vexing one. The answer is critically important to the developers and homebuilders who must finance and market their projects, the residents who will eventually foot the bills, and the communities seeking funds to ensure that new development pays for itself.
On October 13, 2016, the Court of Appeal for the First Appellate District addressed this issue in Building Industry Association of the Bay Area v. City of San Ramon, __ Cal.App.5th __ (2016) (Case No. A145575). The Court affirmed a trial court decision supporting the City of San Ramon’s formation of a community facilities district and a special tax levied on a 48-unit townhouse project under the Mello-Roos Community Facilities Act of 1982.
On September 23, 2016, the Court of Appeal for the Second Appellate District affirmed a trial court decision denying a petition for writ of mandate filed by a developer challenging various fees—totaling nearly $600,000—in connection with an 11-unit subdivision and condominium complex in West Hollywood. 616 Croft Ave., LLC v. City of West Hollywood, __ Cal.App.5th __ (2016) (Case No. BC498004).
The case is the first reported appellate decision to rely upon the broad holding of the California Supreme Court’s blockbuster 2015 affordable housing case, California Building Industry Assn. v. City of San Jose, and it boldly highlights the far reaching implications of that ruling. In my opinion, it also underscores the ongoing need for the United States Supreme Court to finally address whether the heightened scrutiny of the Nollan, Dolan, and Koontz Fifth Amendment takings cases applies to legislatively imposed permit conditions. We wrote about that issue earlier this year after the U.S. Supreme Court denied certiorari in the CBIA case, and we note that the Court will soon have another opportunity to grant certiorari on this important issue.
On May 26, 2016, the California Building Industry Association successful obtained a temporary restraining order from the Sacramento Superior Court preventing the State Allocation Board—and all others acting in concert with the SAB or under its direction—from implementing Level 3 school impact fees or sending notice to the Legislature that state funds for new school construction are not available. The TRO temporarily halted the ability of school districts statewide to impose Level 3 fees. We wrote about the California Building Industry Association v. State Allocation Board case on May 27, 2016.
The case proceeded to a preliminary injunction hearing on July 22, 2016, and exactly one month later the court denied the request and terminated the TRO.
The Mitigation Fee Act (Government Code § 66000 et seq.) provides the requirements for development impact fee programs. Most of the Act’s provisions were adopted in 1987 as AB 1600 and are sometimes referred to as “AB 1600 requirements.” In large part, the MFA codifies the requirements the U.S. Supreme Court established in its seminal decisions, Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 319 (1994). Those cases established the requirements that land use exactions must substantially advance the same government interest that would furnish a valid ground for denial of the permit and that such exactions must also be “roughly proportional” both in nature and extent to the impact of the proposed development.
The California Building Industry Association obtained a critical temporary restraining order against the State Allocation Board in connection with the Board’s 6-4 vote on May 25, 2016 finding, for the first time, that state funds for new school facility construction are not available. Upon making that finding, the Board is obligated to notify the Secretary of the Senate and the Chief Clerk of the Assembly and that notice must be published in the journal of each house. As soon as the notices are published, eligible school districts that already charge Level 2 fees may charge Level 3 school impact fees, which would immediately double the school fees in those districts.
CBIA filed suit the same day, seeking immediate injunctive and mandamus relief in the Sacramento Superior Court to prevent the SAB’s action from taking effect. California Building Industry Association v. State Allocation Board (Case No. 34-2016-80002356, May 25, 2016). The CBIA alleged, among other things, that Level 3 fees are not justified now because the SAB’s own records indicate that as of May 2016 the state has at least $150M available for new school facility construction.