Optional SoHo/NoHo JLWQA Conversion Fee Is Not a Taking: No Compensable Property Interest and Koontz Limited to “In Lieu Of” Exactions

I. Introduction

In Matter of Coalition for Fairness in Soho & Noho, Inc. v City of New York (2026 NY Slip Op 00076), the New York Court of Appeals addressed a high-stakes constitutional challenge to New York City’s 2021 SoHo/NoHo rezoning. At the center of the dispute was a one-time, per-square-foot “Arts Fund” fee imposed as a precondition to obtaining a building permit to convert a unit designated as a “Joint Living-Work Quarters for Artists” (JLWQA) into unrestricted residential use (ZR § 143-13).

The petitioners—a neighborhood coalition and individual occupants/owners with lawful JLWQA occupancy (often through familial succession)—argued that the fee is an unconstitutional condition and an uncompensated taking under the Fifth Amendment. The City respondents defended the fee as outside the Takings Clause and outside the heightened scrutiny framework of Nollan v California Coastal Commn. and Dolan v City of Tigard.

The key legal issues were:

Threshold “predicate” question: Is there a compensable property interest implicated such that the fee could be a taking if imposed directly (i.e., outside the permitting context)?
Scope of exactions doctrine: Does the heightened scrutiny of Nollan/Dolan, as extended by Koontz v St. Johns River Water Mgt. Dist. and clarified by Sheetz v County of El Dorado, apply to this monetary permit condition?
Character of the fee: Is it a “monetary exaction” functionally equivalent to a compelled property transfer (or an “in lieu of” substitute for such a transfer), or merely a standalone charge tied to an optional change in legal status?

The Appellate Division had enjoined the fee, holding it unconstitutional under Nollan/Dolan. The Court of Appeals reversed, restoring the fee.

II. Summary of the Opinion

Judge Rivera, writing for the majority, held that the Arts Fund fee does not violate the Takings Clause because petitioners identified no compensable property interest within the meaning of Takings Clause doctrine “as the United States Supreme Court has interpreted it.” The Court emphasized:

The rezoning does not extinguish or diminish existing JLWQA rights; it creates an optional pathway to convert to a different, unrestricted interest.
The “opportunity” to convert is not itself property; the protected property is the existing restricted JLWQA unit and its associated “bundle of rights.”
The City acquires no interest in the unit upon conversion, and the fee is not demanded “in lieu of” the surrender of a property interest the City could otherwise take.
A “standalone monetary fee” does not implicate the Takings Clause merely because it is levied on property owners.

Accordingly, the Court did not proceed to apply the Nollan/Dolan “essential nexus” and “rough proportionality” tests. It reversed the injunction and granted judgment declaring the fee constitutional under the Takings Clause.

Concurring (Halligan, J.): Agreed the fee survives because it is not an exaction triggering Nollan/Dolan, but rejected the majority’s reliance on lack of entitlement/diminution as dispositive; the concurrence grounded the result primarily in a narrower reading of Koontz.

Dissenting (Garcia, J.): Would affirm the Appellate Division, reading Koontz to require Nollan/Dolan scrutiny for monetary exactions “linked” to a specific property interest in exchange for a land-use benefit, and would hold the fee fails nexus and proportionality.

III. Analysis

A. Precedents Cited

1. Framing principles of the Takings Clause

The majority anchored the Takings Clause’s purpose in U.S. Supreme Court statements that it protects against government efforts to shift public burdens unfairly or to obtain property without paying:

Armstrong v United States (364 US 40 [1960])—quoted via other authorities for the core fairness rationale (“some people alone to bear public burdens”).
Sheetz v County of El Dorado (601 US 267 [2024])—cited for the anti-extortion function of the exactions doctrine and for the proposition that both legislatures and agencies can impose unconstitutional permit conditions.
Eastern Enters. v Apfel (524 US 498 [1998])—used to describe classic takings categories and to discuss the line between monetary obligations and takings analysis.

2. Per se physical takings and the exactions framework

The Court placed Nollan/Dolan within the per se physical takings lineage:

Loretto v Teleprompter Manhattan CATV Corp. (458 US 419 [1982])—permanent physical occupation is a per se taking.
Nollan v California Coastal Commn. (483 US 825 [1987])—permit conditioned on a public easement; introduced the “essential nexus” requirement.
Dolan v City of Tigard (512 US 374 [1994])—permit conditioned on dedications; added “rough proportionality” and individualized determination.
Lingle v Chevron U.S.A. Inc. (544 US 528 [2005])—cited for the structure of the analysis: in Nollan and Dolan the Court first identified the premise that the government could not directly appropriate the demanded interest without compensation.

3. Monetary exactions and the meaning of Koontz

Koontz v St. Johns River Water Mgt. Dist. (570 US 595 [2013]) is the doctrinal fulcrum. The majority read Koontz as applying to monetary demands only when they are functionally equivalent to compelled transfers—particularly when money is demanded “in lieu of” a property dedication that would be a per se taking if imposed outright. The dissent read Koontz to sweep more broadly: monetary permit conditions tied to a specific property interest trigger heightened scrutiny even absent an “in lieu of” structure.

4. New York zoning deference cases (and why they did not control)

The Court reiterated the strong presumption of constitutionality for legislative zoning:

Church v Town of Islip (8 NY2d 254 [1960])
Lighthouse Shores, Inc. v Town of Islip (41 NY2d 7 [1976])
de St. Aubin v Flacke (68 NY2d 66 [1986])
Town of Huntington v Park Shore Country Day Camp of Dix Hills (47 NY2d 61 [1979])

But it held that heightened scrutiny can apply when an unconstitutional condition is alleged—making these cases background principles rather than decisive authority for the Takings Clause question presented.

5. Related statutory/land-use context cases

The Court’s historical narrative of loft legalization referenced:

Aurora Assoc. LLC v Locatelli (38 NY3d 112 [2022])—for the Loft Law’s purpose and legalization pathway under MDL article 7-C.
Penn Cent. Transp. Co. v City of New York (438 US 104 [1978])—identified as an alternative doctrinal route for “regulation goes too far” claims (though not applied here).
Twin Lakes Dev. Corp. v Town of Monroe (1 NY3d 98 [2003])—cited in describing takings principles and fairness rationales.

B. Legal Reasoning

1. The Court’s threshold move: identify the relevant “property interest”

The majority’s decisive step was definitional: it treated the protected property as the existing restricted JLWQA estate—a bundle of rights shaped by MDL §§ 275-278 and zoning. It rejected the notion that there is a constitutional property interest in the opportunity to convert that estate into unrestricted residential use.

This matters because the exactions doctrine polices government efforts to obtain property (or its functional equivalent) without paying, especially via permit leverage. In the majority’s view, the City did not leverage an entitlement the owner already had; it offered a new, optional route to a different legal interest, leaving the original interest intact.

2. Why the fee was not a taking “if imposed directly”

Borrowing the “antecedent question” highlighted in Sheetz v County of El Dorado (via Justice Sotomayor’s concurrence), the majority asked whether the fee would be a compensable taking outside the permitting context. It answered no for several connected reasons:

No seizure/appropriation of real property: There is no easement, dedication, occupation, or condemnation-like acquisition.
No diminution of the existing JLWQA interest: The owners keep what they already have; the City adds an option.
No “in lieu of” substitution: The fee is not a stand-in for a compelled transfer of a property interest.
No coercive extraction of the protected interest: Owners are not forced to surrender an existing stick in their bundle; they may simply remain JLWQA.

3. The majority’s narrowing construction of Koontz

The majority treated Koontz v St. Johns River Water Mgt. Dist. as a case about preventing easy evasion of Nollan/Dolan by demanding money instead of the property interest the government really wants (e.g., “pay us instead of giving an easement”). Thus, the majority read Koontz as primarily concerned with monetary demands that are:

made in lieu of a per se taking condition (easement/dedication), and
functionally equivalent to taking a property interest such as a lien or secured right to payment.

On this reading, treating every permit-related payment as a takings-triggering exaction would contradict Koontz’s assurance that it does not affect “property taxes, user fees, and similar laws and regulations” (570 US at 615). The majority also invoked administrability: absent a limiting principle, courts would be forced into pervasive line-drawing across routine permitting fees.

4. Internal fault line in the Court: property-interest theory vs. Koontz-theory

The concurrence underscores an important nuance: it agreed with the result but was “not persuaded” that lack of entitlement or lack of value diminution resolves the case. For the concurrence, the case turns almost entirely on how Koontz should be interpreted—highlighting that the majority opinion effectively offers two defenses:

a property-interest framing (conversion opportunity is not property; no taking), and
a doctrinal-scope framing (even if money can be exaction-like, Koontz is limited to “in lieu of” structures).

The dissent attacked both: it insisted the fee burdens the owner’s ability to obtain a land-use benefit tied to their parcel and that Koontz does not contain the majority’s “in lieu of” limitation.

C. Impact

1. New York land-use finance and “conversion pathways”

The immediate effect is to validate a common municipal strategy: creating optional compliance or conversion pathways that require payment to achieve a different, more valuable regulatory status—without automatically triggering takings scrutiny under Nollan/Dolan.

For New York City and other New York municipalities, the decision provides litigation-resistance for:

rezoning programs offering optional status upgrades (e.g., conversions, special permits, district-based bonuses),
one-time fees earmarked to public programs where the government does not take an interest in the land, and
regulatory “trade” structures that leave the original property interest intact.

2. Constraining the reach of exactions doctrine in New York courts

The Court of Appeals effectively signals that heightened scrutiny is not the default for every permit-linked payment. Instead, litigants must show a predicate taking: the fee must operate like (or substitute for) a compelled property transfer. This narrows the set of viable Takings Clause challenges to monetary conditions in New York—at least until further U.S. Supreme Court clarification.

3. Channeling future challenges into other constitutional/doctrinal lanes

The majority expressly pointed to alternative avenues: the Due Process Clause and Penn Cent. Transp. Co. v City of New York style regulatory takings. Practically, challengers to high dollar, earmarked permit fees may pivot toward:

substantive due process (arbitrariness/irrationality),
Penn Central balancing (economic impact, investment-backed expectations, character of government action), and
state-law/statutory constraints on municipal fee authority and earmarking.

4. A live federal question remains

The split between the majority and dissent mirrors a national debate after Koontz and Sheetz: whether monetary permit conditions—without an “in lieu of” design—trigger Nollan/Dolan. Because the Court of Appeals grounded its holding in U.S. Supreme Court interpretation, the opinion is positioned as a clear candidate for further federal review if a similar issue reaches the Supreme Court in a posture that squarely presents the “antecedent question.”

IV. Complex Concepts Simplified

Takings Clause: Government can take private property for public use only if it pays “just compensation.” Classic examples are eminent domain or permanent physical occupation.
Unconstitutional conditions (land-use exactions): Government cannot force you to give up a constitutional right (here, the right to compensation for a taking) as the price of getting a permit.
Nollan / Dolan test:
- Essential nexus: The condition must relate to a legitimate land-use impact of the project.
- Rough proportionality: The magnitude of the condition must be proportionate to that impact.
“Predicate” taking question: Before applying Nollan/Dolan, ask: would the condition be a compensable taking if imposed outright (not through the permit process)?
“In lieu of” fee: Money demanded instead of a land dedication (e.g., “pay cash instead of giving an easement”). The majority reads Koontz as targeting these substitutes to prevent evasion.
Bundle of rights: Property is not only land; it is a set of rights (to occupy, exclude, transfer, etc.). The Court treated JLWQA property as a distinct bundle defined by its artist-occupancy restriction.

V. Conclusion

Matter of Coalition for Fairness in Soho & Noho, Inc. v City of New York establishes a consequential New York rule at the intersection of zoning innovation and federal takings law: a one-time fee attached to an optional conversion from a restricted JLWQA unit to unrestricted residential use is not a taking where the owner retains the existing restricted property interest and the fee is not demanded “in lieu of” surrendering a compensable property interest.

Doctrinally, the Court of Appeals:

treated the conversion opportunity as non-property for Takings Clause purposes,
construed Koontz v St. Johns River Water Mgt. Dist. narrowly to avoid sweeping all permit fees into heightened scrutiny, and
signaled that challenges to large permit-related monetary demands may need to proceed under Penn Cent. Transp. Co. v City of New York or due process frameworks rather than Nollan/Dolan.

The opinion will likely shape how New York governments design rezoning programs and how litigants plead constitutional claims against permit-linked monetary conditions—while leaving a pointed doctrinal disagreement (captured by the dissent) that may ultimately require definitive resolution by the U.S. Supreme Court.