The California Supreme Court issued an important decision on October 17, 2013 in favor of RBGG client Sterling Park L.P., a residential property developer. The decision in Sterling Park L.P. v. City of Palo Alto, corrects the lower court’s misinterpretation of a California statute that allows property development to move forward while the developer challenges special fees or other requirements that governments may impose as a condition of approving the development. The lower courts had incorrectly ruled that only certain kinds of fees and requirements could be challenged under the state’s Mitigation Fee Act.
“The practical result of the incorrect lower court rulings would have been to stall development projects during litigation,” said RBGG partner Ernie Galvan. “California cities always need more housing, and a mistaken legal doctrine that stalls construction during litigation would not be good for Californians. The Supreme Court made the necessary correction today to get California land development law back on the right track.” Galvan and co-counsel David Lanferman of Rutan & Tucker authored an article on the decision that was published in The Registry (Bay Area Real Estate) on November 11: Cal Supreme Court Clarifies BMR Law.
The article’s concluding paragraphs put the Sterling Park decision in context: “The opinion is the first Supreme Court decision holding that ‘inclusionary housing’ requirements such as the BMR housing and fees demanded by Palo Alto are a form of land use exaction.
Sterling Park is also the first Supreme Court decision to define and differentiate exactions, which ‘divest a builder of money or a possessory interest in property,’ from more common land use regulations. This distinction may also help determine the constitutional standards that must be satisfied in order to lawfully impose inclusionary housing fees and exactions as conditions of development approval.
In June, the United States Supreme Court held that all development exactions must be shown to be reasonably related to impacts caused by development and ‘roughly proportional’ to the costs of addressing the public impacts caused by the new development on which they are imposed (Koontz v. St. John’s River Water Management District).
That issue—whether or not inclusionary housing requirements must meet constitutional nexus standards—is already heading to the California Supreme Court in another case arising locally, California Building Industry Ass’n v. City of San Jose. In that case the trial court invalidated San Jose’s 2011 inclusionary housing ordinance because the city of San Jose admitted that it had not attempted to show that new housing development exacerbated its existing needs for more affordable housing. The Court of Appeal viewed the inclusionary ordinance as a land use regulation and reversed the trial court. In September 2013, the California Supreme Court decided to review the San Jose case.”