Definition
An in-lieu fee is a monetary payment made by a developer to a local government in place of ("in lieu of") a physical dedication of land, improvement, or provision of some other requirement. Rather than providing the required thing itself, the developer pays the agency an equivalent cash amount, and the agency uses the pooled funds to acquire or develop the public benefit on a community-wide basis.
The term "in-lieu" is used because the payment substitutes for the direct requirement. The fee doesn't eliminate the city's underlying need — it just shifts the responsibility for satisfying that need from the individual developer to the city, using the developer's money.
Common In-Lieu Fee Programs
- Affordable housing in-lieu fees: Instead of including affordable units on-site as required by an inclusionary housing ordinance, developers pay a fee per market-rate unit into a housing trust fund. The fund is used by the agency to subsidize affordable housing elsewhere in the city.
- Parkland dedication in-lieu fees (Quimby Act fees): Under the Quimby Act (Government Code § 66477), cities may require residential developers to dedicate parkland or pay in-lieu fees based on the number of dwelling units in the project.
- Public art in-lieu fees: Some cities require large commercial or residential projects to include public art or pay a percentage of project cost into a public art fund.
- Infrastructure in-lieu fees: Instead of constructing specific public improvements (turn lanes, sidewalk segments, utility connections), developers may pay fees for the agency to construct them as part of larger capital projects.
Legal Requirements for In-Lieu Fees
In-lieu fees are a form of development exaction and must comply with the Mitigation Fee Act (Government Code §§ 66000–66025) and the constitutional nexus and proportionality requirements of Nollan and Dolan. Before adopting an in-lieu fee schedule, a city must:
- Identify the purpose of the fee and the public facility or benefit it will fund
- Demonstrate a reasonable nexus between the fee and the type of development
- Demonstrate that the fee amount is proportional to the project's share of the identified need
- Hold a public hearing and make written findings
- Report annually on the fees collected and expended
In-lieu fees are a politically attractive tool — they appear to give developers flexibility while generating revenue for public needs. But they require strict compliance with the Mitigation Fee Act and constitutional exaction standards. A fee program adopted without adequate nexus findings is vulnerable to legal challenge and potential refund obligations. Legislaide helps cities review their in-lieu fee programs for legal sufficiency.
Frequently Asked Questions
What is an in-lieu fee?
An in-lieu fee is a monetary payment a developer makes to a local agency as an alternative to satisfying an obligation in kind — such as dedicating parkland, providing on-site affordable housing units, or constructing public improvements.
What types of in-lieu fees are common in California?
Common in-lieu fees include: parkland in-lieu fees under the Quimby Act (substituting for parkland dedication), affordable housing in-lieu fees under inclusionary programs (substituting for on-site affordable units), and art in-lieu fees (substituting for on-site public art). Each type has its own legal framework.
What legal requirements apply to in-lieu fees?
In-lieu fees are subject to California's Mitigation Fee Act (Government Code §§ 66000–66025), requiring: a documented nexus between the fee and the type of development charged, proportionality between the fee amount and the project's share of the identified need, written findings at fee adoption, and annual reporting.
How must in-lieu fee revenue be used?
Fees must be spent on the specific purpose identified in the nexus study and fee ordinance — they cannot be redirected to the general fund. Unspent fees must be refunded with interest after five years if a nexus to a specific capital project cannot be identified. Annual financial reporting is required.
Can developers always choose to pay an in-lieu fee instead of providing on-site improvements?
This depends on the program. Some programs give developers a choice; others require in-lieu payment for projects below a minimum size threshold where on-site provision is impractical. The specific options are set by local ordinance — each program has its own terms.
Published June 1, 2026 by Legal Team at Legislaide.