In property law, an exaction is a condition for land use intended to offset the perceived negative impact that a development may have. In certain cases, an exaction may also constitute a taking, triggering the Fifth Amendment of the US Constitution which requires a landowner receive just compensation for the taking of the land. It doesn’t require a great deal of imagination to see that without a clear way to distinguish between exactions and takings, many landowners could be subjected to unjust takings. So the question is, “How does the law tell the difference?”

In two separate rulings, the Supreme Court of the United States placed limits upon the conditions that may be imposed on a proposed land use. In Nollan v. California Coastal Commission, the Nollans owned a beach front bungalow they wished to demolish and replace with a larger house. The California Coastal Commission (CCC) was concerned that the larger structure would obstruct the view of the beach, which was public. They conditioned the permitting of the project upon the Nollans granting of an easement to be used for a foot path to allow public access to the beach. The Nollans believed that this exaction constituted an unconstitutional taking, and filed a writ of mandamus asking the court to nullify the condition. The U.S. Supreme Court ruled that there must be a nexus (connection) between the condition and the original purpose for requiring the land use restriction, and finding none, they ruled for the landowner.

In Dolan v. City of Tigard, Dolan, an Oregon business owner, wished to expand her plumbing and electrical supply store. The City of Tigard decided to allow the permit on the condition that Dolan allocate a portion of her property for use as a pedestrian and bicycle pathway. The City believed the allocation was necessary to accommodate increased traffic as a result of the expansion. Dolan interpreted this condition as an unconstitutional taking and contested it in court. The Supreme Court held that the exaction met the nexus test established in Nollan v. California Coastal Commission, but that the City did not show how it was “roughly proportional” to the negative effects; that the exaction was sufficiently related in both nature and extent to the speculated impact.

These two cases, when taken together, establish the modern standard for determining the validity of an exaction, which is as follows, that government “may not condition the approval of a land-use permit on the owner’s relinquishment of a portion of his property unless there is a ‘nexus and ‘rough proportionality’ between the government’s demand and the effects of the proposed land use.” Koontz v. St. Johns River Water Management Dist. (describing Nollan/Dolan test). It is essential to note that this test deals specifically with administrative exactions, or in other words, exactions that result from the orders of government. It is unclear whether this test applies to exactions resulting from legislative actions.

So, thinking locally, what happens when a municipality imposes an exaction on a Texas landowner? What happens if you live in Houston, Dallas, Austin, or any other place in Texas? The Nollan/Dolan test has been successfully applied in Texas. In Town of Flower Mound, Texas v. Stafford Estates Limited Partnership, Stafford sought to develop its land into a residential subdivision. As a condition to approving the plat, the Town required Stafford to demolish the road abutting the land and replace it with a two-lane concrete road. Stafford fulfilled the exaction, but sued the Town, arguing that the plat approval condition was an unjust taking. The case found its way to the Texas Supreme Court, which, upon applying the Nollan/Dolan test, held that the exaction failed the test’s “nexus” requirement as the State did not sufficiently argue the exaction’s ability to advance a legitimate government interest. The exaction also failed the “rough proportionality” standard due to the road building stipulation’s inadequate relation to the construction’s proposed impact. The exaction, therefore, constituted an unjust taking, and the Texas Supreme Court affirmed the lower Court’s award of $425,426.00 for Stafford.

The issue of legislative exactions was raised most recently on February 29, 2016 when the Supreme Court of the United States denied certiorari in California Building Industry Association v. City of San Jose, California et al. The case involved California legislation and City ordinances that conditioned permits for residential developments upon the constructor’s reserving at least 15% of for-sale units for low-income individuals. Justice Thomas who concurred, noted that the case was unlikely to reach the exactions issue, but continued to express his concern over whether a legislatively imposed exaction is any more constitutional than an administrative one.