Two recent U.S. Supreme Court rulings could have broad and as-yet untold ramifications for the commercial real estate industry.
The Sheetz decision creates new opportunities for Americans to challenge and change impact fees imposed on developments by legislative actions. The Loper decision sets the groundwork for court challenges to a full range of federal laws — from forest and wetland conservation measures to greenhouse gas initiatives to healthcare laws. The actual impact of these decisions, however, will take many years and court cases to resolve.
In the Loper decision released in late June, the court overturned the landmark, 1984 Supreme Court ruling in Chevron v. Natural Resources Defense Council. That decision established a core operating principle of the federal government, the Chevron doctrine, which stated that federal agencies can apply reasonable interpretations of statutes when Congress has not clearly addressed questions about how to interpret those laws. In Loper, six Supreme Court Justices removed that power from federal agencies and declared that judges, not bureaucrats, hold the authority to interpret ambiguous laws.
In a dissenting opinion, Justice Elena Kagan warned that the Chevron doctrine “has been applied to thousands of judicial decisions. “It has become the warp and woof of modern government, supporting regulatory efforts of all kinds,” including regulation of clean air and water, food and drug safety, and financial markets.
“The possible applications of this ruling are almost broader than I can conceive,” said Stuart Kaplow, a Sustainability and Green Real Estate Attorney.
The ruling effectively enables a challenge to any federal law that has been interpreted by an agency at the time a permit or other project entitlement is denied or subjected to a conditional approval.
Those agencies’ interpretations and expertise will still be considered in future court challenges, said Stacy Silber, Attorney at Lerch, Early and Brewer, Chtd. “But the weight that judges place on those interpretations and opinions will depend, in part, upon the thoroughness evident in the agency’s consideration of a statute.”
For the commercial real estate industry, the Loper decision could have a wide variety of impacts “because the real estate industry is so highly regulated and, in large measure, by regulations promulgated by executive branch bureaucrats,” Kaplow said. “It’s much more than non-tidal wetland regulations or forest conversation. It’s entire genres of environmental regulations, consumer protection regulations, healthcare regulations.”
The ruling could lead to court challenges of federal laws involving greenhouse gas emissions, building energy performance, stormwater management requirements, and more.
Although Loper specifically addresses federal laws, legal experts say the ruling could also raise questions about whether state and local laws could face similar challenges, including when federal programs – such as water programs – are delegated to the states.
“While the Supreme Court’s decision only applies to federal agency decisions, state court deference given to planning and zoning offices is very similar to the deference the federal courts gave to agencies before this decision so this creates some uncertainty,” Silber said. “As cases make their way through state courts, we will be watching to see if such courts will be persuaded by the arguments of the Supreme Court. It is expected that these issues will be playing out over the next decade.”
In a much more focused case, the Supreme Court unanimously decided for California homeowner George Sheetz in his challenge of the constitutionality of a $24,000 traffic impact fee that county officials required him to pay in order to build a home.
The case focused on the “takings clause” of the Fifth Amendment, which prohibits government from taking private property for public use without providing just compensation. The clause had always been applied to takings, including development impact fees, by the administrative branch of government. Courts, however, had differed on whether it applied to takings ordered by the legislative branch.
The Supreme Court concluded that nothing in the text of the Constitution indicates that the takings clause does not apply to fees imposed by legislatures. The court, however, did not rule on whether the impact fee imposed on Sheetz was reasonable. Instead, it remanded that aspect of the case back to the lower, California court for resolution.
“This is a very narrow decision, but I believe it is a very important decision,” Kaplow said. “It has been very difficult to successfully argue that something is a regulatory taking by the government. This expands the understanding of regulatory takings from simple permit conditions by agencies to legislation passed by local or state governments.”
“It opens the door for people to challenge legislative decisions, to challenge impact fees on new developments on whether they are set through reasonable formulas and schedules,” Silber said.
Courts across the country will likely be hearing cases spinning out of the Sheetz decision for years to come, she said.
“It is important for all businesses, including the real estate industry, to have trailblazers like Sheetz who went to the Supreme Court over a $24,000 fee when the dollar impact to many owners of real estate is far greater than that,” Kaplow said. “Maryland has many impact fees and permit conditions, so we are ripe for looking again at those issues.”
However, Kaplow cautioned that CRE professionals should not expect rapid changes in impact fees due to Sheetz. “The troubling thing you have to remember is they imposed the fee on him in 2016 and this case still has to go back to the state court for a finding.”