This morning the California Supreme Court released its unfavorable decision in California Building Industry Association v. City of San Jose. The issue in this case is whether a city can withhold a development permit for new housing unless the builder ‘donates’ some of the new homes at a price below the cost of building the homes. PLF argued that cities cannot do this because new housing does not create additional need for subsidized housing.
The Court addressed two important issues in deciding this case. First, the Court disagreed with PLF that the requirement to deliver homes at a price below the cost of building them is a transfer of property from the developer to the city. In doing so, the Court distinguished its recent decision in Sterling Park, LLP v. City of Palo Alto, which concluded that a substantially identical housing ‘donation’ requirement was a property transfer to the city.
Second, the Court disagreed with PLF’s argument that all such property demands by permit agencies must be reasonably related to a negative impact of the project. Under the federal precedents of Nollan v. California Coastal Commission and Koontz v. St. Johns River Water Management District, and California Supreme Court decision in San Remo Hotel v. City and County of San Francisco, governments may only demand property from a permit applicant when necessary to mitigate a problem caused by the applicant. Today’s decision undermines this important rule of law, by limiting San Remo Hotel‘s reasonable relationship requirement to only those cases where a city describes a development fee as a mitigation fee.