Municipalities often use exactions to require developers and property owners to provide needed public amenities. An "exaction" is defined as "conditioning approval of development on the dedication of property to public use."^[89] Exactions can also include conditioning a development approval (a permit, subdivision plat, etc.) upon the developer making some financial commitment, such as constructing a public street.^[90]

The analysis of whether a government exaction is constitutional has been set forth by the United States Supreme Court in a two-part test. First, the government must establish that an “essential nexus” exists between a legitimate government interest and the exaction.^[91] Second, if an exaction satisfies the essential nexus requirement, the government must demonstrate “rough proportionality” between the exaction and the impact caused by the development.^[92] This two-prong test is referred to as the Nollan/Dolan test.^[93]

Under the first part of the test for an essential nexus to exist, the government must show that the proposed development created the need for the condition—such that the government has a legitimate interest in demanding mitigation of the impacts of a proposed development.^[94] Under the second part of the test, the government must demonstrate the exaction is “roughly proportional” to the impact caused by the development.^[95] To do so, the government must make an “individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.” ^[96] Thus, the nature and amount of the exaction must roughly relate to the public burden caused by the development.^[97]

Applying this test, the Nollan Court found no "essential nexus" existed in the situation where a property owner's permit to build a bigger house on beach front property was conditioned on the requirement that the property owner dedicate an easement for public use across the beach portion of the property. While the government claimed the new house would interfere with the public's visual access to the beach from the street, it failed to show that allowing the public to walk across the beach portion of the Nollans’ property would reduce viewing obstacles from the street created by the new house.^[98]

In Dolan, the claimant sought a permit to expand the footprint of her store and pave a new parking lot next to it, but the city conditioned approval of the permit upon the dedication of a portion of Dolan's property for a pedestrian/bicycle path. While the Court found that there was a nexus between the bike path and reducing traffic congestion caused by the expansion, the city failed to establish that the bike path would offset the traffic demands generated by the proposed expansion.^[99]

Further, the United States Supreme Court has clarified that the Nollan/Dolan test also applies to monetary exactions, not just to exactions of land or legal rights in land.^[100]

Consistent with this case law, the Tennessee General Assembly adopted legislation in 2022 prohibiting required dedications of property or the payment of money "unless there is an essential nexus between the dedication...and a legitimate local governmental interest and the dedication....is roughly proportional both in nature and extent to the impact of the proposed use or development of the property." T.C.A. § 13-4-303.

Notes:

^[89] City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687 (1999).

^[90] Koontz v. St. Johns River Water Management Dist., 570 U.S. 595 (2013).

^[91] Koontz v. St. Johns River Water Management Dist., supra; Nollan v. California Coastal Comm'n, supra.

^[92] Koontz v. St. Johns River Water Management Dist., supra; Dolan v. City of Tigard, 512 U.S. 374 (1994).

^[93] Koontz v. St. Johns River Water Management Dist., supra.

^[94] Koontz v. St. Johns River Water Management Dist., supra; Nollan v. California Coastal Comm'n, supra.

^[95] Dolan v. City of Tigard, supra.

^[96] Dolan v. City of Tigard, supra.

^[97] Koontz v. St. Johns River Water Management Dist., supra.

^[98] Nollan v. California Coastal Comm'n, supra.

^[99] Dolan v. City of Tigard, supra.

^[100] Koontz v. St. Johns River Water Management Dist., supra.