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SCOTUS Declines to Hear Challenge to San Jose's "Inclusionary Housing Ordinance"

As this Firm anticipated back in September, the Supreme Court recently declined to hear a challenge to the California Supreme Court's decision in California Building Industry Association v. City of San Jose, 61 Cal. 4th 435 (2015), cert. denied, 577 U.S. __ (2016). At issue in BIA's Petition for Writ of Certiorari was whether the city's "Inclusionary Housing Ordinance," which required that residential developments of at least twenty (20) homes sell at least fifteen percent (15%) of the homes at below-market prices (as determined by the City) to buyers with qualifying income levels, was an unconstitutional taking under the Fifth and Fourteenth Amendments of the U.S. Constitution.

The California Supreme Court, relying upon state case law interpreting the Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994) tests, and the dissenting opinion in Koontz v. St. Johns River Water Management, 133 S. Ct. 2586 (2013), determined that the affordable housing requirement of the City of San Jose's ordinance did not constitute an "exaction." California Building Industry Association, 61 Cal. 4th at 461. The Court explained that an exaction "require[s] a developer to give up a property interest for which the government would have been required to pay just compensation under the takings clause outside of the permit process." Id. In this case, the Court justified its holding by concluding that the city's ordinance did not require a developer to dedicate any portion of its property to the public or to pay any money to the public, instead only requiring that the developer sell a small percentage of its on-site for-sale units at an affordable housing price. Id. As a result, the California Supreme Court held that Nollan and Dolan only applied to conditions imposed as part of an ad hoc administrative proceeding - not conditions required by legislation, as was the case here.

Although the denial of certiorari is a disappointing conclusion to the litigation for BIA and other real estate developers facing similar restrictions, Justice Thomas included a concurrence in the denial that made several important acknowledgements. Namely, he noted that Nollan and Dolan would have governed the City's actions had it imposed those conditions via administrative action rather than by legislative measures. California Building Industry Association, 61 Cal. 4th 435 (2015), cert. denied, 577 U.S. __ (2016)(Thomas, J., concurring). He further opined that he "doubt[ed] that the existence of a taking should turn on the type of governmental entity responsible for the taking" and indicated that the uncertainty about which legal standards govern legislative ordinances is a compelling reason to resolve the "conflict at the earliest practicable opportunity." Id.

L. Sue Loftin is the Founder and Shareholder of The Loftin Firm. For questions relating to this blog or any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Loftin at (760) 814-9649. 

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