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EMAILED-CDB_OverviewTakings_030811_elhPage 1 of 3/elh 8-Mar-11 OVERVIEW OF TAKINGS ADAPTED FROM MATERIALS OBTAINED FROM THE NATIONAL TRUST FOR HISTORIC PRESERVATION The term “taking” comes from the Fifth Amendment to the US Constitution, which states “…nor shall private property be taken for public use without just compensation.” Under the Supreme Court’s interpretation, the takings clause extends to governmental regulations as well as physical takings of property. Takings cases fall into three categories – physical occupations, exactions or conditions on development, and permit denials. The level of judicial scrutiny varies, depending upon the level of intrusiveness on the part of the government. In general, the more closely the government action resembles “confiscation” rather than simply a restriction on use, the closer the court will look at the governmental purpose behind the alleged taking and its corresponding impact on the property. • Physical Occupations – This category of takings claims involves situations where the government invades or occupies private property. The occupation may be “in fact” such as required for installation of utility lines, or “constructive” such as the flying of airplanes over private property. Because of the close link between physical occupations and actual expropriations through eminent domain, the Supreme Court has established a “per se” rule, requiring just compensation in all physical occupation cases. • Exactions & Conditions on Development – This category of takings involves challenges to conditions imposed by government in exchange for the issuance of a development permit. For example, a local government may condition the issuance of a building permit for a new residential subdivision on the construction of roads servicing that subdivision. In such cases, the Supreme Court has said that there must be an “essential nexus between the burdens placed on the property owners and a legitimate state interest affected by the proposed development.” In other words, there should be a reasonable correlation between the conditions placed on the property owner and the public interest being served. In Nollan v California Coastal Commission, 483 US 825 (1987), the nexus between a lateral beach access condition and the Coastal Commission’s stated goals was ruled insufficient. In addition, the Supreme Court has ruled that a governmentally-imposed dedication of land for public use must be “roughly proportional” to the impacts on the community that will result from the proposed development. This rule precludes the placement of onerous requirements on property owners seeking governmental approval. In Dolan v City of Tigard, 512 US 687 (1994), the Supreme Court found a taking since the City of Tigard had failed to establish that the development exaction of a greenway and bicycle path would mitigate the flooding and traffic impacts caused by a proposed store expansion in a roughly proportionate manner. • Permit Denials – The vast majority of takings cases fall within this category. Under this scenario, a property owner argues that a taking has occurred as a result of the denial of an application concerning the use of his or her property. In determining whether a taking has occurred, it is important to identify the “relevant parcel”. The Supreme Court has said that reviewing courts Page 2 of 3/elh 8-Mar-11 must look at the “parcel as a whole” rather than the land directly affected by the regulatory action. Thus, for example, in analyzing a takings claim, courts should look at the entire property rather than the segment or area where the governmental body has determined that development may not occur. The “parcel as a whole” analysis is especially significant in view of Lucas v South Carolina Coastal Council, 505 US 1003 (1992), which established the rule that a “total deprivation of beneficial use” is per se or categorical taking. In other words, if a regulation renders property completely valueless (i.e. results in a complete “wipe out” according to Lucas), it results in a taking that requires “just compensation”. Without the “parcel as a whole” rule, property owners could claim that a categorical taking has resulted with respect to the portion of property directly affected by the challenged regulatory action. [See District Intown Properties Ltd Partnership v District of Columbia, 198 F.3d 874 (DC Cir 1999), cert denied, 531 US 812 (2000), in which the owner argued, unsuccessfully, that the denial of permission to develop the lawn of a historic apartment building amounted to a categorical taking under Lucas.] Although decided nearly 35 years ago, Penn Central Transportation Co v City of New York, 438 US 108 (1978), is the leading case governing the constitutionality of permit denials under the takings clauses of the federal and state constitutions. As Justice Sandra Day O’Connor wrote in her concurring opinion to Palazzolo v Rhode Island, 533 US 606, 633 (2001), “our polestar…remains the principles set forth in Penn Central itself and our other cases that govern partial regulatory takings.” Her views were echoed by the majority in Tahoe-Sierra Preservation Council, Inc v Tahoe Regional Planning Agency, 535 US 302 (2002), which held that outside the exceptional “wipe out” situation found in Lucas, takings claims must be analyzed under Penn Central’s ad hoc, multi-faceted framework, and again, in Lingle v Chevron, USA, 544 US 528 (2005). Judicial review of regulatory takings claims is based upon a three-factored inquiry: the character of the governmental action; the economic impact of that action on the property; and the claimant’s distinct investment-backed expectations. • Character of Governmental Actions – This factor focuses on the nature of the action in dispute. As noted above, permanent occupations are treated as per se takings and governmental actions involving exactions or conditioned approval are generally subject to a higher level of scrutiny. Land development regulations are rarely challenged on this issue. In Penn Central, the US Supreme Court recognized that preserving historic structures is “an entirely permissible goal” and the imposition of restrictions on historic property through historic preservation ordinance is an “appropriate means of securing” that purpose. • Economic Impact – The vast majority of cases involving takings claims focus on the question of economic impact. To succeed under this factor, the property owner must demonstrate that the challenged regulation will result in the denial of the economically viable use of his or her property. The inquiry focuses on the impact of the regulation on the property and not the property owner. Both federal and state courts have ruled that governmental actions that prevent landowners from realizing the highest and best use of their property are NOT unconstitutional. A taking will not result when the owner can realize a reasonable rate of return on his or her investment or Page 3 of 3/elh 8-Mar-11 can continue to use the property in its current condition or upon rehabilitation. Several courts have also ruled that a property owner must establish that he or she cannot recoup his or her investment in the property through sale of the property “as is” or upon rehabilitation. • Investment-Backed Expectations – Under the final Penn Central factor, the property owner must show that the challenged regulatory action interferes with his or her “distinct investment- backed expectations”. This factor looks at the circumstances surrounding the property in question, such as the owner’s investment motives or his or her primary expectation concerning the use of the property. To prevail, the expectation must be objectively reasonable rather than a “mere unilateral expectation”. In Palazzolo v Rhode Island, the Supreme Court ruled that the acquisition of property subsequent to the adoption of a law, such as a historic preservation ordinance, does not bar a takings claim. This does not mean, however, that the existence of a preservation law or the designation of a property as historic prior to acquiring title is not a relevant factor. Conversely, the argument raised by property owners, that the application of preservation laws unconstitutionally interferes with their investment-backed expectations in situations where the property in question has been designated after the property was purchased has also been rejected. Courts have found that an owner’s expectation to be free from regulation is not reasonable. Many jurisdictions include provisions in their ordinances that establish an administrative process for considering cases of undue hardship that may lead to potential takings claims. Commonly referred to as economic hardship provisions, they enable local governments to address hardship claims on individual cases and help prevent invalidation of commission decisions on constitutional grounds. The standard for measuring economic hardship is typically the same as that for regulatory takings, finding economic hardship when an owner has been denied all economically viable use of his or her property. An applicant is often required to submit detailed information to show that retention or sale of the property is economically infeasible.