Takings Law

In addition to the due process clause, the other main constitutional limitation on the power of the government is the "takings clause" of the Fifth Amendment to the US Constitution. Since 1987, this area has become a hot bed of litigation. To the extent that the United States Constitution is the derivative source of the basic protection of property rights, the interpretation of any infringement of those property rights naturally lies with the United States Supreme Court. Given the sheer volume of land use regulation (some commentators estimate that there are now 16,000 communities that have land use controls of some form) and the economic investment represented by the real property (prices equating to $100,000,000 an acre have been quoted for certain locations in Manhattan), it is noteworthy that the Supreme Court has not been more active until recently on the subject. The basic reasoning for this is that the cases the courts have decided, for instance Euclid v Ambler Realty and Nectow v. Cambridge, 277 U.S. 183 (1928), have established that zoning is a legislative function, and therefore the courts cannot substitute their judgment for that of the zoning authority.

Background

In between the easy examples of the nuisance cases as a valid exercise of police power, where certain uses are prohibited without compensation in order to protect adjacent landowners, and the exercise of eminent domain as clearly requiring compensation, there exists a vast gray area in which the determination of whether a regulation required compensation has been done on a case by case basis. At some point, a regulation must become a taking, and compensation is subsequently required. A few years before the Euclid case, Justice Holmes wrote in Pennsylvania v. Mahon, 260 U.S. 393 (1922), "While property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." There has been no hard and fast rule on where that line of compensation is drawn, except for an instance of physical invasion. The case of Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982), is frequently cited as offering at least the clear rule that a physical invasion of private property is a per se taking and will require compensation.

Otherwise, the review of regulatory takings cases has generally been a balancing of public and private interests. Certainly, the court has given us some guidance in the factors that are considered, such as the economic impact upon the property owner, any interference with "investment backed expectations", and the character of governmental action. See Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978). However, other than physical invasion as cited above, no one factor has usually been identified as determinative in any given case. The best articulation of the balancing test has been given in Agins v. Tiburon, 447 U.S. 255, 260 (1980), that a regulation does not constitute a taking when the regulation substantially advances a legitimate state interest, and the regulation does not deny the owner an economically viable use of the property. In 1987, the U.S. Supreme Court released several decisions which created quite a stir among land use planners and lawyers and a plethora of activity by the legal commentators. A few clear principles rise out of the balancing test described above, notably the idea that even a temporary denial if any economically viable use is a taking, and the idea of "nexus" between the regulation and the state interest served. Each of these cases will be reviewed in turn. The 1992 case of Lucas v. South Carolina Coastal Council, No. 91-453 (June 29, 1992) further extends the Court's reasoning in the 1987 cases.

Keystone Bituminous Coal Association v. De Benedictis
480 U.S. 470 (1987)

The subject of this case was a Pennsylvania statute that required certain amounts of coal to be left unmined to prevent subsidence of the surface above. This case was perceived to be very similar to the case of Pennsylvania Coal v. Mahon, 260 U.S. 393 (1922). However, the court distinguished the modern statute in that the public purpose was expressly stated in the later statute. There are two key holdings of the Keystone case. First, it is a valid exercise of police power to protect the public interest from activity akin to nuisance. There is no compensation required because the character of governmental action does not rise to the level requiring a taking. The rationale behind this is that no one has a right to harm others, so there is no "taking" when the state stops a nuisance-like activity.

The second and more significant holding of Keystone is the so called "total parcel" test. This rule looks at the entire parcel of a property owned by the property owner, not just that portion of an owner's property which is subject to a regulation. The economic viability is considered with respect to the entire parcel, not just that part regulated. The parallel is to a set back line on a building lot, which prohibits building within the set back, but still allows full use of the lot otherwise. Several things are important to note about the Keystone case. Chief Justice Rehnquist in his dissent did not distinguish this case from the earlier Pennsylvania Coal case, arguing that Keystone is not a nuisance case. Also, there is no physical invasion in the Keystone case; the regulation is not to put something into the property, but requires the property owner to leave the coal unmined. In summary, the property owner under the Keystone analysis will be eligible for compensation only if the regulation is held to be impermissible and if it is applicable to the owner's entire parcel of land.

First English Evangelical Lutheran Church
v.
County of Los Angeles
482 U.S. 304 (1987)

The First English case involved an interim ordinance prohibiting development on a flood plain owned by the plaintiff church. The church had developed a camp for handicapped children on the property, but a flood had destroyed the buildings in the flood plain. The county passed the ordinance after the flood, and the church filed the complaint that culminated with the Supreme Court decision. Significantly, in its analysis, the Supreme Court assumed a taking had occurred, although there was no proof of it in the record.

The basis of the compliant in First English was that California law did not allow compensation for a regulatory taking, it only provided for invalidation of the regulation. The Supreme Court held that mere invalidation of a regulation that has resulted in a taking is not a constitutionally sufficient remedy, at least where all use of the property is denied. The court determined that temporary takings which deny an owner all use of property are no different from permanent takings. Note that this case presents an absolute rule, not the prior balancing test. If all use is denied, it is a taking, no matter how temporary the regulation.

First English has several aspects which are troublesome for the land use planner. First, the case suggests that the legitimacy of the state interest may no longer preclude compensation for a regulatory taking as a result of a deprivation of the use of the land owner's property. An uncertain factor in First English is whether the land owner must prove only deprivation of use as a consequence of the regulation, or whether the land owner must also prove that the regulation itself is unconstitutionally excessive. It is important to recognize that in First English, there was no economically viable use of the property remaining. In light of the deprivation of use concept, refer to the Keystone case which applies the analysis to the entire parcel of property, not just that property which is regulated.

The concern of planners is that the decision of the court in First English emphasizes the proposition that only one of two factors in the balancing test is necessary to establish a temporary regulatory taking. Recall that the first factor of the testis that the regulation does not substantially advance legitimate state interests, and the second factor is that the regulation denies an owner economically viable use of land. It appears that the message of the First English court is that even a legitimate regulation will be a compensable taking, even if temporary, if it denies an economically viable use of land. We do not know the answer to this concern, since the church and First English was denied all use of this property, not just an economically viable use. The other serious concern in First English is the application of the takings rules to a temporary regulation. There had been discussion of this concept in prior cases, e.g., San Diego Gas & Electric Co. v. San Diego, 450 U.S. 621 (1981), but this is the first case to establish the rule. The nagging issue for planners is, what is "temporary"?

The opinion of the court did specifically except "normal delays" in obtaining permits, zoning changes, variances and similar governmental regulatory obstacles to land development. This still leaves open the question as to what are normal delays and how these might be different from a permanent taking.

The dissenters in First English tried to distinguish this case on two basis. First, they argued that this is a safety regulation, and the state can regulate health and safety. This argument relates back to the nuisance doctrine. Second, they argued for a need to distinguish regulatory takings from physical takings, and a requirement for some flexibility in the application of regulatory takings. It is obvious that temporary regulations are likely to be challenged on the basis of First English. If this is the case, then Justice Stevens' dissent will be prophetic in his comment that, "The Court's decision today will generate a great deal of litigation."

It is beyond the scope of this material to discuss the various measures of damages once a taking has been determined. The materials on eminent domain are indeed voluminous. It is worth mentioning remedies that courts have applied include a fair rental value for the property subject to the regulation; an interest rate factor applied to the difference between the fair market value of the property under the proper and improper regulations over the period in which the regulation was in effect; and actual damages suffered due to the deprivation of use.

Nollan v. California Coastal Commission
483 U.S. 825 (1987)

The Nollan court explored the first aspect of the two-prong test. The Nollan court invalidated a condition applied to issuance of a building permit issued by the California Coastal Commission because the condition included for the building permit did not substantially advance legitimate state interests. The Commission in Nollan had required the property owner to grant an easement for the State to connect public beaches to the north and the south of the subject property. While the Commission offered certain rationales concerning the effect of the new development, those rationales were not addressed by the grant of the easement. The Nollan court has established the buzz word for the '90s to which many land use law and planning techniques will be subject: there must be some "nexus" between the governmental requirements to which the property owner is being subjected and the public purpose which the government hopes to advance by such conditions.

Conditions are not invalidated wholesale, however. In elaborating its analysis, the Court agreed that a permit can be conditioned if the condition serves the same purpose as denial of the permit would serve and if the denial would not be a taking. After Nollan, a condition on the granting of a permit must be directly related to the detrimental aspect of the project itself. This requirement of the nexus between the project effects and the regulation or condition upon the project will have far reaching effects in our discussion of various land use planning techniques later in these materials.

Lucas v. South Carolina Coastal Commission
112 S.Ct. 2886 (1992)

In 1986 Lucas bought two lots on a barrier island near Charleston for $975,000. At the time neither state nor local law prohibited the construction of the homes he planned. In 1988 the South Carolina legislature passed a beachfront management act which essentially prohibited any permanent structures on Lucas' land. The state supreme court upheld the application of the law to Lucas on the basis of the legislative finding that new construction in the coastal zone threatened a valuable public resource. Essentially basing its analysis in nuisance doctrine, the state court found that the greater public good was served and no compensation was necessary.

Interestingly, the state law was amended in 1990, before the state supreme court decision was released, which allowed some flexibility in the application of the state law to Lucas. The state court could have then remanded the case for lack of ripeness, since Lucas had administrative remedies at that point. Since the state court jumped over the ripeness issue and addressed the merits of the case, so did the U.S. Supreme Court.

The U. S. Supreme Court determined that the legislative policy cannot be cloaked in nuisance doctrine if the prohibited use was not previously a nuisance. The law must do no more than what could have been achieved in the courts under the laws of public or private nuisance, so that what is now statutorily unlawful must have also been unlawful under nuisance doctrine.

The case is troubling in the limitation of nuisance doctrine. The message essentially is that there can be no further evolution of what constitutes a nuisance, at least by legislative action. Given the advances in technology and understanding of ecological principles, this limits the development of future law to deal with the extension of scientific knowledge of our environment. Lucas is otherwise a restatement of the Agins balancing test - the law did advance a substantial state interest, but it also denied an economically viable use of the land and was therefore a taking.

Dolan v. City of Tigard
114 S.Ct. 2309 (1994)

This very interesting case involves a challenge by the owner of a hardware store to a city requirement imposed upon the issuance of a building permit requiring the property owner to dedicate a portion of her property for flood control and a bikeway. While this case had been anxiously awaited by many attorneys involved in the land use planning process, the ultimate outcome, to many, was anti-climatic.

The existing hardware store was approximately 9,700 square feet in size located on a parcel of property of 1.67 acres. The owner sought to raze the existing building and sought to construct a new building which would have increased the size of the store to 17,600 square feet and would also have included a 39 space paved parking lot. The application was approved with two conditions: that the property owner dedicate open land for a green way adjoining the flood plain and that the property owner also dedicate an additional 15 foot strip of land adjacent to the flood plain as a pedestrian/bicycle pathway. The dedication encompassed approximately 7,000 square feet or roughly ten percent (10%) of the property.

The property owner lost appeals to the lower Oregon courts and the Oregon Supreme Court. Before the U.S. Supreme Court, the property owner acknowledged the city's authority to exact some form of dedication as a condition for the permit, but challenged the showings made by the city justifying these particular exactions. The issue therefore, was to what extent would a city have to go in terms of proof in order to demonstrate that any required dedication was justifiable. The court first looked to see if there is a "essential nexus" between the objectives, controlling flooding and traffic congestion, and the required dedications. It concluded that there was an essential nexus between them.

The important part of the opinion comes in the second part of the court's analysis which required it to examine the proof demonstrated by the city concerning the actual impact of the project. The court carefully examined the specific factual findings made by the city. It then reviewed how the state courts have approached this question under the various state constitutions. The court ultimately concluded that there should be some "rough proportionality" between the demonstrated impact of the project and the conditions imposed. "No precise mathematical calculation is required, but the city must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development." Looking at the green way requirement, the court criticized the city's attempt to obtain a dedication finding that "the city has never said why a public green way, as opposed to a private one, was required in the interest of flood control." Of course, from the property owner's standpoint, either one pretty much works a loss of control of the property and if the only different in this case (as it seems to be) is that the property owner must keep control of the underlying property interest rather than dedicating it to the city, the city has not lost much in the overall analysis.

Turning to the issue of the bikeway, the court noted that an increase in the size of the business will of course draw additional customers and cause some slight increase in the degree of congestion. However, the court noted that there was simply no finding by the city that the creation of the bike pathway would offset some of the traffic demand. There was a finding that it could; the court said this was insufficient.

The underlying impact of Dolan is virtually nil. The property owner certainly wins nothing by not having to dedicate the property to the public use if he or she must still not develop on that portion of the property. There is no gain in net usefulness for the land owner, and so the city has lost almost nothing. In addition, virtually every land use planning attorney who would look at a finding by a city would always say that the use of the word "could" is insufficient; the city's finding should always be couched in terms which would imply that there is a reasonable probability that the events will come to pass. In other words, don's say could; say would. The simple change in terminology evidently obliterates the constitutional infirmities in the Dolan case. There was very little reason to get excited about this case if that's all the court was going to decide. In essence, nothing was changed from Nollan.

The First English court set forth the steps that the government can take once it has determined that the regulation is unconstitutionally excessive. One is to withdraw the regulation entirely, another is to amend the regulation to avoid the taking, and a third is to exercise the power of eminent domain to purchase the property (or some portion of the property rights) for the public good. Note that neither of the first two options would remove the liability for the impermissible temporary taking, and most likely the temporary taking would be in addition to the fair market value even under the third option.

Back to Land Use Planning Law in Tennessee