Court Holds that City Cannot Contract Away its Police Powers

On June 22, 2023, in Discovery Builders, Inc. v. City of Oakland, the California First District Court of Appeal held that the City of Oakland has the power to impose newly enacted impact fees on a developer despite a prior 2005 agreement between the city and the developer that outlined the specific fees that would apply to the project, and further stated that the fees set forth in the agreement satisfied “all of the Developer’s obligations for fees due to the City for the Project.”

The opinion of Justice Petrou concluded that “any provision in, or construction of, the parties’ agreement that prevents the City from imposing the impact fees on the instant development project constitutes an impermissible infringement of the City’s police power and is therefore invalid.”

The case involved a large residential project in Oakland, located on a former quarry site, which has been in development since the early 2000s. The initial developers planned to close the 128-acre quarry site, reclaim it, and develop the land into a residential neighborhood with over 400 residential units, a community center, a park, pedestrian trails, and other recreational areas.

In 2005, the developers entered into an agreement with Oakland to pay certain fees to cover the costs of its project oversight, which specifically identified the amount and schedule of fees due for the project. In 2016, the City of Oakland adopted ordinances that imposed new impact fees on development projects, intended to address the effects of development on affordable housing, transportation, and capital improvements.  Then, in 2019, a new developer of a portion of the project filed for new building permits and the city imposed a total of $432,000 in fees based on the 2016 ordinances.  The developer sued, arguing that the city was bound by the 2005 agreement, and the trial court sided with the developer, vacating the imposition of the fees.

The Court of Appeal reversed, noting that it is well established that the government may not contract away its right to exercise the police power in the future, and that “[a]ny agreement that contracts away these functions is invalid and unenforceable as contrary to public policy.”

It should be noted, however, that the developer did not challenge the trial court’s conclusion that they held no vested rights in their project and that was not at issue in the case. 

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