Here’s the latest in a case we’ve been following closely. (We won’t be commenting much, because it is one of ours.)
In The Coalition for Fairness in Soho and Noho, Inc. v. City of New York, No. 112 (Jan. 13, 2026), the New York Court of Appeals (dun-dun) held that
New York City wants to save space so artists can live there. If an owner wants to covert a SoHo or NoHo artist live/work space into plain old residential (because artists ain’t living in SoHo or NoHo), she better get ready to pay to the City’s Arts Fund a non-refundable fee of $100 per square foot as a precondition of even filing a building permit. When owners challenged this fee as unconstitutional under Nollan/Dolan/Koontz/Sheetz, the trial division said no.
But the Appellate Division held otherwise, concluding that the imposition of the fee lacked an essential nexus and was not roughly proportional to whatever impacts “certified artists” (who knew the government was in the business of “certifying” artists?) suffer when an owner converts.
The city sought review in New York’s highest court, which reversed. The court held that the property owners do not have a property right, and therefore this can’t be a taking. This isn’t an “exaction” subject to the N/DK/S requirements.
As we noted above, our shop briefed and argued the case in the Court of Appeals, so we won’t go into all the reasons the court got it wrong. But here’s a summary of the majority opinion:
We conclude that petitioners do not have a compensable property interest within the meaning of the Takings Clause, as the United States Supreme Court has interpreted it, and that the fee therefore does not constitute a taking. The Takings Clause protects property owners against exploitative governmental conduct that seeks to take property without paying for it (see Sheetz v County of El Dorado, 601 US 267, 275 [2024]; Armstrong v United States, 364 US 40, 49 [1960]). The newly granted opportunity to transform the essential nature of a restricted JLWQA unit into a different, unrestricted interest is not in itself a property interest. Rather, it is the restricted JLWQA unit itself, and the concomitant bundle of property rights resulting from the City’s designation as such, that constitutes the property that the government cannot take without just compensation. The creation of an optional pathway to convert to unrestricted residential use upon payment of the fee has not extinguished or diminished petitioners’ property rights in their JLWQA units. The City gains no interest in the units upon conversion, and even if petitioners held a constitutionally protected property interest in converting their property, the rezoning plan does not subject petitioners to any governmental coercion to transfer property that they would otherwise
retain.
Furthermore, a typical Takings Clause case involves the government’s physical
acquisition or use of private land without compensation, or its monetary exaction from a property owner in lieu of a transfer of their private property interest. By contrast, a standalone monetary fee such as the one in this case does not implicate the Takings Clause merely because it is levied upon a property owner.
Accordingly, the concerns animating the Supreme Court’s Takings Clause
jurisprudence are absent here.
Slip op. at 2-3.
One Judge concurred, noting that the property owners’ arguments (as noted in the dissent) “have some merit,” but because the Judge could not separate this from every other fee charged by government, joined the majority:
The outcome of this dispute instead turns on how we interpret Koontz v St. Johns
River Water Management District (570 US 595 [2013]). The dissent’s reading of Koontz as extending Nollan/Dolan scrutiny to any “monetary exaction demanded from a real property owner, linked to a specific, identifiable property interest, in exchange for a governmental benefit tied to their property” (dissenting op at 2) has some merit, and it may well eventually prevail.
Concurring op. at 2.
Judge Garcia dissented, and concluded that this is an exaction, and fails the nexus and proportionality standards (correctly, we naturally think), first emphasizing that “[t]he unconstitutional conditions doctrine is designed to “vindicate[] the Constitution’s enumerated rights by preventing the government from coercing people into giving them up” (Koontz v St Johns River Water Mgmt. Dist., 570 US 595, 604 [2013]).” Dissenting op. at 5.
Judge Garcia continued:
For the Nollan/Dolan test to apply, there must be a “predicate” taking—that is,
“the government could not have constitutionally ordered the person asserting the claim to do what it attempted to pressure that person into doing” (Koontz, 570 US at 612). It is irrelevant to that determination whether the government “would have been entirely within its rights in denying the permit for some other reason,” because “that greater authority does not imply a lesser power to condition permit approval on petitioner’s forfeiture of his constitutional rights” (id.at 608).
At this step, the majority’s analysis ends, declining to consider the Arts Fund fee
under the Nollan/Dolan test by concluding that there is no such predicate taking, despite the Arts Fund fee being a condition imposed on a property owner’s right to obtain a desired land-use permit. Why this is so is not entirely clear from the analysis, but two reasons are suggested: first, that the Arts Fund fee is exempt as a purely monetary exaction and not a physical taking or a fee imposed in lieu of a physical taking; and second, that the Arts Fund fee is somehow exempt because it is part of a zoning ordinance (majority op at 10, 17-18). The first reason is clearly foreclosed by Koontz; the second is refuted by the case law and, moreover, would have the unacceptable effect of removing from constitutional scrutiny any conditions imposed by means of zoning ordinances, including not only monetary exactions but demands for easements.
Dissenting op. at 5-6.
We think Judge Garcia has the better argument, and reads Koontz correctly.
Is this the end of the road? With the New York Court of Appeals splitting from other state courts on a narrowly-drawn issue, deciding the case squarely under federal law and Supreme Court precedents, with a strong, well-reasoned dissent, and with the concurring Judge noting that the dissent “has some merit, and it may well eventually prevail[,]” what do you think?
Stay tuned.
The Coalition for Fairness in Soho and Noho, Inc. v. City of New York, No. 112 (N.Y. Jan. 13, 2026)