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In many cities throughout California, developers must either include a certain percentage of affordable housing in large, new developments, or pay an in lieu fee, which is used to fund affordable housing construction elsewhere. Under this scheme, if you want a new condo tower to go up in San Francisco, San Jose, or West Hollywood, you either offer a few units at a below market rate or pay for those units to be built somewhere else. Many, many developers chose in lieu fees.
And there's nothing wrong with that, an appeals court in California ruled recently. The Court of Appeal for the Second Appellate District, Division One, rejected a West Hollywood developer's argument that such fees were an unconstitutional taking. The court's ruling comes a year after the California Supreme Court upheld a similar inclusionary housing scheme in San Jose.
It's Not Cheap to Build in West Hollywood
Shelah and Jonathan Lehrer-Graiwer and 616 Croft Ave., LLC (we'll follow the court and call them Croft for short) sought to create an in-fill residential development in West Hollywood in the early 2000s. Croft obtained its necessary permits in 2005 and agreed to pay in lieu fees in lieu of including affordable housing in their 11-unit condo complex.
The economic downturn in 2007 put a halt to Croft's construction plans, however, and the developers repeatedly extended their building permits. When it came time to break ground in 2011, Croft was told it would owe over $540,000 in inclusionary housing offsets, nearly double what the fee was in 2005.
As Goes San Jose, So Too Goes West Hollywood
Croft sued, claiming multiple violations, including that the City of West Hollywood made an unconstitutional taking under the Fifth Amendment by demanding the relinquishment of property rights without a "clear nexus" and "rough proportionality" between the exaction and the land use, as forbidden by Nollan and Dolan. (The suit didn't slow them down, though. The court notes that the condo development was completed during litigation.)
The appellate court tossed out Croft's Nollan/Dolan claims as time barred. Under California law, facial constitutional claims against a zoning ordinance must be made within 90 days of the legislative body's decision. Here, that ordinance was adopted in 2001 and the fee schedule in June of 2011, well before Croft's Christmas-time 2011 lawsuit.
The court also rejected Croft's as-applied challenge. Croft had argued that the city must show that the in lieu fees were reasonable under the Mitigation Fee Act and state constitution. But that was not the case, the court ruled, explaining that the inclusionary housing ordinance was not an exaction under the act. The court relied on the California Supreme Court's recent San Jose decision, holding that such laws were not exactions and do not trigger Fifth Amendment takings protections.
The ruling is a good sign for affordable housing advocates, demonstrating that the San Jose ruling can reach beyond the Bay Area to protect inclusionary housing plans throughout the state. And it's another indicator that those opposed to affordable housing requirements will have a difficult time having defeating them in court.