What Are Exactions?
In real estate development, exactions are demands made by government upon developers or landowners as a condition for obtaining building permits or approvals for a development or improvement project.
The notion behind exactions is that improvement projects will cause an increased burden on the surrounding infrastructure, community or environment. Where government has traditionally picked up the tab, governments have increasingly required developers or landowners to directly contribute something to compensate for the increased burden or demand.
Exactions may take many forms. Improvements on or off the property may be required as a condition for approval. Examples include adding a street light to a nearby intersection, or adding streets, additional lanes to transportation routes or sidewalks to serve the improvement project.
Land or moneys may also be required as a condition for approval. Examples of fees include fees in lieu of dedication of property, linkage fees, development excise taxes, or impact fees.
Ad Hoc Or Legislative Exactions?
Exactions may be ad hoc, or legislative. Ad hoc exactions are exactions demanded by local government on the specific project and determined between the government and developer. Legislative exactions are enacted by laws and ordinances and are applied broadly.
What Are The Legal Criteria For Exactions?
Through case law, two criteria have been established when applying exactions. First, there must be an essential nexus between the improvement and the exaction. This fundamentally means there must be a cause and effect relationship or link between the improvement project and the burden the exaction is compensating for.
Secondly, there must be rough proportionality which means the exaction must be in proportion to the increased burden or demand caused by the improvement. A developer should not have to pay for increased capacity, infrastructure, or services for the community in which it has had no part or has no cause or influence on.
In the United States, exactions fall under the scrutiny of the Fifth Ammendment of the U.S. Constitution that restricts government's ability to take property without just compensation. Although authorized by state law, exactions must be in compliance with the standard set forth in the U.S. Constitution.
Additional court decisions have also determined how exactions may be applied. These decisions include Nolan v. California Coastal Commission, Dolan v. City of Tigard and Koontz v. Set Johns River Water Management District