If you have ever applied for a building permit or a development approval in California, you may have been told you must hand over land, build a public improvement, or pay a fee before your project can move forward. That kind of condition has a name. It is called an exaction, and there are real legal limits on what a city or county can demand.
This guide explains what an exaction is, the different forms it takes, and the constitutional rules that protect property owners and developers from demands that go too far. Our land use and real estate attorneys at Kassouni Law have spent years challenging government overreach in the permitting process, so we want you to understand your rights before you simply pay or agree.
What Is an Exaction?
An exaction is a condition that the government attaches to a development approval, requiring the developer to give something to the public in exchange for the permit. To define exaction in the simplest way: it is the price a local agency asks you to pay, in land, work, or money, to offset the impact your project is expected to have on the surrounding community.
The exaction meaning matters because not every condition is lawful. Government can ask for things that are fairly connected to your project’s effects. It cannot use the permit process to make you pay for problems your project did not cause, or to fund public benefits that have nothing to do with your development.
Common Types of Exactions in California
Exactions in California come in several forms, and a single project can face more than one at once:
- Land dedications. The agency requires you to give up part of your land for a public purpose, such as a road widening, a sidewalk, a trail, or open space.
- Public improvements. You are required to build something for public use, such as a turn lane, a drainage system, or utility connections.
- Impact fees. You pay a fee meant to cover the cost of public facilities your project will use, like traffic, parks, or schools.
- In-lieu fees. Instead of dedicating land or building affordable units on site, you pay a fee that the agency uses to provide those things elsewhere.
The Constitutional Limits: Nollan and Dolan
Two U.S. Supreme Court cases set the ground rules for exactions, and both started in the western United States. The first is Nollan v. California Coastal Commission, decided in 1987. It says an exaction must have an essential nexus, meaning a real connection, between the condition and the harm the project is supposed to cause. If the Coastal Commission wants a public access easement, that demand has to relate to a problem your project actually creates.
The second case is Dolan v. City of Tigard, decided in 1994. It adds the rough proportionality test. The condition has to be roughly proportional, in both nature and size, to your project’s impact. A city cannot take a large dedication to fix a small impact. Together, Nollan and Dolan are usually called the nexus and proportionality test, and they are the backbone of exaction law.
Koontz and Sheetz Expanded Your Protection
For years, agencies argued that these tests applied only to demands for land, or only to conditions made on a single permit. Two more decisions closed those gaps.
In Koontz v. St. Johns River Water Management District (2013), the Supreme Court held that the Nollan and Dolan tests also apply to demands for money, and that they apply even when the agency denies a permit because the owner refused to meet an unlawful condition.
Then came the big one for California. In Sheetz v. County of El Dorado, decided by a unanimous Supreme Court on April 12, 2024, the Court ruled that an exaction is not exempt from the nexus and proportionality tests just because a legislature imposed it through a general fee schedule. George Sheetz had been charged a traffic impact fee of more than twenty-three thousand dollars as a condition of building a modest home, and the lower California courts had said legislatively set fees got a pass. The Supreme Court disagreed and sent the case back. The takeaway is simple and powerful: the source of an exaction, whether it is an ad hoc demand or a fee in a county ordinance, does not put it beyond constitutional review.
The Mitigation Fee Act and Your Right to Protest
California also has a statute that controls development fees, the Mitigation Fee Act, found at Government Code Section 66000 and following. It requires an agency to show a reasonable relationship between a fee and the project it is charged to, to account for how the money is spent, and to follow notice procedures. Importantly, it gives you a way to pay a fee under protest and then challenge it, so you do not have to choose between losing your permit and giving up your rights. The deadlines under this statute are short, which is one reason to get advice quickly.
How to Respond to an Exaction You Think Is Unfair
If a city or county imposes a condition that seems disconnected from your project or out of proportion to its impact, you have options. The first step is usually to document the condition, pay any fee under protest where required, and preserve your objection in writing within the statutory window. From there, an experienced lawyer can press the agency to justify the nexus and proportionality, negotiate a better condition, or bring a challenge in court if needed.
For deeper background, Kassouni Law maintains a resource page on exactions. You can also read about our development law, permit, and constitutional property rights work, look over our results, and reach out for a case evaluation. The firm represents private owners and builders, not the government, and managing attorney Timothy Kassouni has been involved in property rights matters that set precedent across California.
Exactions are a normal part of getting a project approved, but unlawful ones are common too. Knowing the difference, and acting within the deadlines, can save you a great deal of money and protect your project.
Frequently Asked Questions
What is an exaction in real estate?
An exaction is a condition a city or county attaches to a development permit, requiring the owner to dedicate land, build a public improvement, or pay a fee to offset the project’s impact on the community. It is essentially the public cost the agency asks a developer to cover in exchange for approval.
What is the Nollan/Dolan test?
It is a two-part constitutional test for exactions. Nollan v. California Coastal Commission requires an essential nexus, a real connection between the condition and the project’s impact. Dolan v. City of Tigard requires rough proportionality, meaning the condition must be roughly proportional in nature and size to that impact.
Did the Sheetz decision change exaction law in California?
Yes. In Sheetz v. County of El Dorado (2024), the U.S. Supreme Court ruled unanimously that a development fee is not exempt from the Nollan and Dolan tests just because a legislature set it through a general fee schedule. Both ad hoc demands and legislatively imposed fees are now subject to constitutional review.
Can I challenge a development impact fee?
Often yes. Under the Mitigation Fee Act, an agency must show a reasonable relationship between a fee and the project’s impact, and you can usually pay the fee under protest and then challenge it. The deadlines are short, so it is wise to act quickly and get legal advice.
What is the Mitigation Fee Act?
The Mitigation Fee Act, found at Government Code Section 66000 and following, is the California statute that governs development fees. It requires a reasonable relationship between a fee and the development charged, sets accounting and notice rules, and gives owners a way to protest and challenge improper fees.
