• Decision Overturning City's "Affordable Housing in Lieu Fee" Ordered Published by Court of Appeal
  • March 25, 2009 | Author: David P. Lanferman
  • Law Firm: Sheppard, Mullin, Richter & Hampton LLP - San Francisco Office
  • The Court of Appeal for the Fifth Appellate District certified its decision in Building Industry Association of Central California v. City of Patterson for publication on March 2, 2009. The court had previously issued an opinion on Jan. 30, 2009, holding that the City of Patterson’s “affordable housing in lieu fee” was invalid, because the amount of the fee was not shown to be reasonably related to costs of the City’s affordable housing program attributable to new development, as required by the terms of a statutory development agreement between the City and the developer. (See previous Affordable Housing in Lieu Fees blog article). The City had increased the fee to $20,946 from its previous rate of $734 per new residential building permit. The development agreement with the homebuilder permitted the City to impose increased fees if they were “reasonably justified,” and the City argued that this language permitted the increased fees. The Court of Appeal held that (1) the contractual limitation incorporated the legal standards generally applicable to development impact fees and exactions; (2) the fees in this case were therefore not free from a “meaningful means ends review”; and (3) the City had failed to show that its new fees met those standards.

    In ordering the decision to be published as citable precedent, the court also modified portions of its original opinion, to more clearly reflect the constitutional basis of its analysis. The authority of local governments to impose fees and exactions is subject to federal and state constitutional principles requiring that such land use regulations and development conditions must substantially advance a legitimate state interest. The court explained that these principles are enforced by using different levels of judicial scrutiny of the exactions, depending upon the circumstances, and that the level of constitutional scrutiny applied by the California Supreme Court in San Remo Hotel v. City & County of San Francisco (2002) should apply to “formulaic, legislatively mandated fees imposed as conditions to developing property” such as these housing in lieu fees. The Court of Appeal concluded that although this level of judicial scrutiny was less rigorous than the “heightened scrutiny” applied to discretionary or ad hoc exactions under the Nollan/Dolan/Ehrlich line of cases, such legislatively mandated fees or exactions were not free from “meaningful means-ends review.” Applying the San Remo standards, the Court of Appeal held that the increased housing fees were not “reasonably justified” unless there was evidence showing a reasonable relationship between the amount of the fees and “the deleterious public impact of the development.” The court searched the record, including the City’s proffered “Fee Justification Study,” and found “nothing” demonstrating that the increased housing fee “was reasonably related to the need for affordable housing associated with the project.”

    The Court of Appeal remanded the case to the trial court with instructions to invalidate the new $20,946 housing fee because it violated the terms of the development agreement between the homebuilder and the City, and to determine an appropriate remedy for the City’s breach of that agreement and establishment of a fee that failed to conform to applicable legal standards. Sheppard Mullin represented the prevailing appellants, BIACC and Taylor Morrison Homes.