Real estate developers have long been required to dedicate land for public use. More recently they have been required to pay development impact fees to fund public infrastructure.(1) In June 1994, the United States Supreme Court decided the case of Dolan v. City of Tigard(2) which represents a shift in legal doctrine. It limits the ability of local governments to impose land dedication requirements on real estate development across the United States. This is an important case which will impact the feasibility of development and its profitability.
This article describes the facts and the Supreme Court's decision in the Dolan case and explains how this decision will impact real estate development. The Supreme Court in the Dolan case set out a new test called the rough proportionality test. It establishes a closer fit between the regulation and the problem it is designed to correct and requires government to give greater justification for the regulation. We will explain this new test and how this test may be applied in other development applications.
Impact On Real Estate Development Planning
The decision in The Dolan case establishes more legal and economic certainty for planning and implementing real estate development where the projected impact is either an incremental or complete change to existing public facilities (e.g., social services, schools, parks and natural resources). The decision creates some legal certainty because it requires municipalities to justify their conditional demands in the application process for development approval. The rough proportionality test affects the kinds of exactions that can be justified on findings of conditions or problems created by the development project. Also, in establishing economic certainty, the financial burdens imposed under exactions must be connected to the conditions that were created by the development and thus based on findings of site-specific or individualized determinations. The rough proportionality test affects the quality (land or fees) of exactions (the degree) that can be justified on findings of the level (nature and extent) of conditions and problems created by development project.
The Dolan case may also create some leverage for real estate developers in working with municipal governments to design projects that are economically sound and support local public interests. Still they cannot completely design and implement projects that lead to conditions and problems inconsistent with local public interests. The case leaves much uncertainty in the direction of doctrine and law which limits business regulation.
The Facts Of Dolan v. City of Tigard
Ms. Dolan owned a 9,700 square foot building which housed a retail electric and plumbing supply business on a 1.67 acre tract in downtown Tigard, Oregon. Ms. Dolan applied to the city for a building permit to expand the existing parking lot, to remove the existing building and to construct a new 17,600 square foot building for the electric and plumbing supply business. Under the city's comprehensive land use plan, a property owner was required to leave 15% of a parcel undeveloped for open space and landscaping requirements. Ms. Dolan's proposed commercial development is permitted under the local zoning ordinance of the CBD, but the ordinance allows the city to attach conditions through the use of an overlay zone.
The Fanno Creek Basin Floodplain
A portion of Ms. Dolan's property lies within the Fanno Creek 100-year floodplain. The city's master drainage plan recommends improvements to the Fanno Creek Basin to improve storm water runoff and reduce flooding. One recommendation of the drainage plan called for the floodplain to be preserved as a greenway. The city and landowners on the creek would share the cost of the improvements as each received benefits. The Fanno Creek 100-year floodplain is virtually unusable for commercial development. The city's comprehensive plan for the community made the floodplain a part of the city's greenway system and adopted other recommendations from the drainage plan. …