Definition
An exaction is a condition a local government attaches to a development permit that requires the applicant to provide something of value to the public — typically a dedication of land, payment of a fee, or construction of public infrastructure — as a condition of receiving approval. Common examples include requiring a developer to dedicate parkland, build sidewalks, or pay into a traffic improvement fund.
Exactions are a core tool of development regulation, but they are also one of the most legally constrained. Both the United States Constitution and California's Mitigation Fee Act impose substantive limits on what agencies may require and how they must justify those requirements.
The Constitutional Framework: Nollan and Dolan
The U.S. Supreme Court established a two-part test for evaluating the constitutionality of exactions under the Takings Clause of the Fifth Amendment:
- Essential Nexus (Nollan v. California Coastal Commission, 1987): There must be an essential nexus — a genuine connection — between the condition being imposed and a legitimate government interest the project would otherwise harm. A condition that has no relationship to the project's actual impacts fails this threshold test.
- Rough Proportionality (Dolan v. City of Tigard, 1994): Even where a nexus exists, the condition must be roughly proportional to the projected impact of the development. The agency must make an individualized determination — not just cite a general benefit — that the exaction reflects what the project will actually cost the community.
In 2013, the Supreme Court clarified in Koontz v. St. Johns River Water Management District that the Nollan/Dolan test applies to monetary exactions (fee demands) as well as physical dedications. An agency cannot escape heightened scrutiny simply by demanding money instead of land.
California's Mitigation Fee Act
California imposes additional procedural and substantive requirements on development fees through the Mitigation Fee Act (Government Code §§ 66000–66025). Before adopting any fee, a city or county must:
- Identify the purpose of the fee
- Identify the public facilities or services the fee will fund
- Determine a reasonable relationship (nexus) between the fee amount, the type of development charged, and the cost of the public facilities necessitated by that development
- Make written findings supporting all of the above at the time the fee is adopted
Impact fees adopted without adequate nexus findings are subject to challenge and refund. The fee protest period — typically 90 days after payment — is strictly enforced.
Exactions vs. Inclusionary Housing Requirements
California courts have held that inclusionary housing requirements — conditions requiring a developer to price some units below market — are not exactions subject to Nollan/Dolan scrutiny. In California Building Industry Association v. City of San José (2015) 61 Cal.4th 435, the California Supreme Court ruled that such requirements are general land use regulations, not exactions, because they regulate how property is used rather than compelling a dedication of property to the public. They are reviewed under the more deferential rational basis standard.
Practical Guidance for Planning Staff
- Any new or revised fee must be supported by an updated nexus study before adoption.
- Conditions of approval that require physical dedications — pathway easements, open space, public art — should be reviewed by counsel for Nollan/Dolan compliance before being imposed.
- Fee protest rights must be disclosed to applicants in writing at the time of payment demand.
- Fees collected must be spent on the specific purpose identified in the nexus study — they cannot be redirected to general fund purposes.
Impact fee and exaction litigation is among the most technically specialized areas of municipal law. Legislaide helps planning departments and city attorneys identify conditions of approval that may not survive constitutional challenge — before they become refund claims or federal court cases.
Frequently Asked Questions
What is an exaction?
An exaction is a condition attached to a land use permit requiring the applicant to dedicate land, pay a fee, or build public improvements as a prerequisite to receiving approval. Common examples include requiring dedication of a park strip, construction of sidewalks, or payment into a traffic improvement fund.
What is the Nollan/Dolan constitutional test for exactions?
The U.S. Supreme Court's Nollan (1987) and Dolan (1994) decisions require a two-part test: (1) an essential nexus must exist between the exaction and a legitimate government interest the project creates; and (2) the exaction must be roughly proportional to the project's projected impact on that interest.
Does the Nollan/Dolan test apply to monetary fees?
Yes. The Supreme Court in Koontz v. St. Johns River Water Management District (2013) extended the Nollan/Dolan test to monetary exactions. A city cannot avoid constitutional scrutiny simply by demanding money instead of land — the nexus and proportionality requirements apply equally.
What does California's Mitigation Fee Act require for exactions?
Before adopting a fee, cities must: identify the fee's purpose, identify the facilities funded, document a reasonable nexus between the fee and the type of development charged, and make written findings at fee adoption. Fees without adequate findings are subject to legal challenge and court-ordered refunds.
Are inclusionary housing requirements exactions subject to Nollan/Dolan?
California courts have held they are not. In California Building Industry Association v. City of San José (2015), the state Supreme Court ruled inclusionary housing requirements are general land use regulations — not exactions — because they regulate how property is used rather than compelling dedication to the public. They receive rational basis review.
Published April 1, 2026 by Legal Team at Legislaide.