Court Clarifies the Mitigation Fee Act, Expanding Relief under Its Protest Provisions

Sterling Park, L.P. v. City of Palo Alto

(2013) 57 Cal.4th 1193

The California Supreme Court has recently clarified language in the Mitigation Fee Act (Government Code § 66000, et. seq.), which allows developers to pay development “fees, dedications, reservations, or other exactions” under protest, while simultaneously proceeding with project development. The Court’s decision clarifies and broadens the definition of “other exactions”, overruling a 2011 decision that gave the term a narrow definition.

The case arose when the City of Palo Alto required the developer of a 96-unit condominium project to set aside 10 units for the City to purchase as below-market rate housing, as well as pay in-lieu of fees to a city fund. As the project was nearing completion, the developer filed an action protesting the imposition of the below-market rate requirements under the Mitigation Fee Act. The superior and appellate courts held that the Mitigation Fee Act did not apply because the requirement was not a fee, dedication, reservation, or other exaction, and thus developer’s action was untimely under the relevant statutory provisions. The lower courts based its decision on Trinity Park L.P. v. City of Sunnyvale, which interpreted the “other exactions” narrowly to mean other monetary exactions.

The Supreme Court rejected the narrow interpretation from Trinity Park, and held that the term “other exactions” under the Mitigation Fee Act “at least includes actions that divest the developer of money or a possessory interest in property, but it does not include land use restrictions.” The Court adopted this broader definition because it determined that the Legislature intended the Mitigation Fee Act to apply to “all protests to a development fee that challenge the sufficiency of its relationship to the effects attributable to a development project—regardless of the legal underpinnings of the protest.”

Accordingly, the Court held that compelling the developer to give the city an option to purchase units at below-market rates was an exaction under the Mitigation Fee Act, and that the statute of limitations in Mitigation Fee Act applied to the developer’s protest. Notably, the Court did not decide whether forcing the developer to sell the condominium units at below-market value was itself an exaction under the Mitigation Fee Act.

This decision is noteworthy because it allows developers greater latitude in challenging development mitigation under the Mitigation Fee Act’s protest procedures, by providing a broader definition of the term “other exactions” than had been used by some lower courts. The Court’s clarification ensures that developers may challenge lead agency requirements of both cash payments as well as the divesting of possessory interests in property under the Mitigation Fee Act’s protest provision.

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