When the government uses eniment domain to seize a property, they can do so with several means. First, they can physically seize the property (e.g. using private property to build an interstate). This process is called a physical taking. Second, they can regulate the use of a property (e.g. prevent house from being built by zoning laws in order to preserve natural view). This process is a functuional equivelant or a regulatory taking of property.
Traditionally, lawsuits against the government for regulatory takings were not permitted. The Suprme Court said that as long as the regulation had a valid police power purpose, then no taking had occurred.
However, with the passage of time, the regulatory takings doctrine was permitted. Consequently, acts and regulation that moved to significantly limit the use of property without just compensation were deemed unconstitutional.
Pennsylvania Coal Co. v. Mahon
260 U.S. 393 (1922).
Mahon is the plaintiff. They lost at trial and won on appeal. THus, Pennsylvania Coal Co. appealed.
Is the Act constitutional?
A regulation that limits substantial use of property rights without compensation is unconstitutional. This is true unless the Act relates specifically to the health or safety of the state. To determine if this is a valid state power, the court considers:
“The extent of the resulting diminution in value.”
Here, the Act is unconstitutional, reversed.
The Mahon home was built over land that was full of coal. When the home was built, the deed had an issue. All the property underneath the surface would belong to the mining company.
In the present case, the mining company provided notice that they would begin mining underneath the home. Immediately the homeowners wanted to limit this action for fear that the land supporting thier home would become unstable. Therefore, they sued to seek an injunction agains the action. As part of their argument, they cited an Act that preventing mining from occuring under any home.
The mining company had valid rights to the land underneath the home. These rights must be recognized. Therefore, any Act limiting these rights without just compensation would be unconstitutional for an improper taking.
However, the dissent argues that the current regulation would be a valid exercise of police powers for the safety of the public above the ground.
Before this case, there were two other significant cases:
Mugler – The State limited the manufacture of alcohol and thus put Mugler out of business with little property value.
Hadacheck – State prohibited manufacture of bricks within city limits.
Both of these cases were not takings. Historically, a regulation was not a taking if the purpose was to mitigate a noxious use or nuisance.
Property may be regulated to an extent. But when the regulation goes too far, then it will be considered a taking requiring just compensation. However, this still leaves the question, when does the regulation go too far? The court is going to consider:
- Diminution of value – Would decrease the value of the estate significant.
- Public interest – The regulation was minimizing a public nuisance (weaker point for the majority)
- Reciprocity of advantage – Whether the burdens on the property owner are offset by the benefits of the regulation (balancing test, everyone is treated the same way under the regulation.
The Central Standard
Penn Central Transportation Co. v. City of New York
438 U.S. 104 (1978).
Penn Central is the plaintiff who won at trial, but lost on both appeals. As such, this appeal followed.
Whether the regulation constitutes a “taking” of Penn Central’s property.
A regulatory taking occurs when the court weights the following factors:
- Economic impact of the regulation
- How much the regulation interfered with investment-backed expectations (e.g. “I have a buyer willing to pay this much without the regulation.”).
- The character of the governmental action
No taking occurred, affirmed.
The City of New York wished to designate certain buildings as landmarks. Significantly, the purpose of this designation was to preserve the city as one where tourists would travel to marvel at the historical significance in government, business, and continued growth. One of the buildings designated as a landmark was the Grand Central Station, owned by Penn Central Transportation. The legislation limited the owners ability to remodel, change the exterior, or add to an existing structure with the designation without approval. Additionally, the legislation would allow those who were impacted by the designation to transfer their rights to neighboring structures, to make best use of that land.
Penn Central made a deal with a UK company that they were to construct offices on top of station. However, to do so, Penn Central would have to obtain permission from the City. Unfortunately for Penn Central, the City refused to provide permission. Thus, Penn Central sued, saying that the restriction was an unconstitutional taking of private property.
Using the three factors, the restriction on Penn Central does not constitute a taking.
First, economic impact. Here, the court argues that economic impact (diminution of value) is not enough to establish a taking. In this case, when the diminution in property value is caused by regulation that promotes general welfare, there is not a taking (this is true even if nearly 90 percent of value is diminished).
Second, investment-backed expectations are lacking. Even though Penn Central had an investment lined up, we need to consider the expectation when they first purchased the property. There is no evidence to suggest that Penn Central had ambitions to expand the terminal at the time of purchase.
Finally, the character of governmental action. Here, there was no physical invasion by the government, but only a program that promotes common good.
This case presents two questions. First, is the regulation limiting the airspace above the building considered a taking? If so, is a transferable development right just compensation?
To determine if a taking has occurred, the court adopts a three factor balancing approach:
- Economic impact of the regulation on the claimant – Against Penn Central
- The extent the regulation has interfered with the distinct investment-backed expectations – Against Penn Central
- The character of the governmental action – Against Penn Central
For the first factor, the court is going to consider the loss that occurs as a result of regulation. Here, the parties are claiming that they would lose significant business opportunities. However, the court argues that the property value is not diminished enough to make this first factor pressing (could have approved a different design, still has historical value, might be able to build something else etc.). Additionally, the loss was mitigated by the transferable development rights.
Second, the factor looks at the reasonable expectations when they originally entered into the agreement (look at the preexisting use at the time of purchase). The regulation here does not interfere with the expectations held by the Company at the time.
Third, the vague factor of governmental character. Generally, the more physical in nature, the more likely a taking has occurred. Additionally, the courts will consider the purpose of the regulation (to limit a nuisance, etc.). There are several kinds of governmental actions. See Pennsylvania Coal.
- Permanent physical occupation – favor taking
- Temporary physical invasion – favor taking
- Widespread benefits – Less likely to be a taking
- Limit widespread harm – No taking
Three Categorical Tests
Permanent Physical Occupation
Loretto v. Teleprompter Manhattan CATV Corp.
438 U.S. 419 (1982).
Loretto is the plaintiff who lost and appealed.
Was the installation of minor but permanent fixtures considered a taking?
Permanent physical occupation of a third-party authorized by regulation is always a taking.
The installation of the cable lines was a permanent physical occupation, however minor, requiring just compensation. Thus, the lower court’s ruling is reversed.
Prior to Loretto purchased this property, a cable company was authorized to install cable lines onto homes for the purpose of providing Cable TV to the tenants. Typically, a cable line would have one box installed for a neighborhood which would then have several lines extending across homes to access property which was to be serviced. The standard of the company was to obtain permission to install lines and then to compensate the landowner 5% of the profit made by servicing the home by which passing through required access. However, New York passed a statute to better facilitate the installation of cable lines. As part of this statute, landlords were required to allow installation on or through property without being compensated by the installer.
After Loretto moved into her home, she began to lease it to tenants. Thus, she was subject to the statute requiring installation. Later, she realized that the cable lines were existing and sued. Her argument is that the regulation was a taking and demanded damages and an injunction.
This is a permanent fixture installed by a third-party. Consequently, this will always be considered a taking, regardless of the public benefit that may derive from it. The reasoning provided by the court is that a permanent physical occupation infringes on the most basic and treasured right property owners have, the right to exclude. No matter how small, or minor, the invasion is, if the invasion is permanent, then a property owners rights are excluded and a taking has occurred. The majority makes a distinction between permanent fixture and temporary invasion. A temporary invasion requires the balancing test of Penn Central which permanent fixtures are always a taking.
However, the dissent argues that there is no way to establish a good categorical formula. First, how do you determine what is permanent? Here, the company could have removed the cable lines at any time. Thus, the dissent would argue that this is not a permanent fixture. Additionally, this is a regulation authorizing use, not a physical seizure limiting exclusion.
When the invasion of property is a permanent physical occupation, no matter the reason, a per se taking has occurred.
How can you tell the difference between permanent physical occupation and temporary physical invasion? A permanent physical occupation is defined as a regulation that allows the government or third-party to regularly use the property. A good example would be the building of a dam that regularly floods the owners property. The reason for this rule is to preserve the ability to exclude others from the property.
What about regulations that do not have a third-party? For instance, regulations that require landlords to install smoke detectors or mailboxes. This is not a taking according to Loretto because the landowner still have the ability to choose the placement of those items.
Loss of all Economically Beneficial use of the Land
Lucas v. South Carolina Coastal Council
505 U.S. 1003 (1992).
Lucas was the plaintiff who won at trial but lost on appeal to the South Carolina Supreme Court. Consequently, this appeal followed.
Does the loss of all economically beneficial use of the land constitute a taking, regardless of the purpose of the regulation?
A regulation that results in the loss of all economically beneficial use of the land is a taking. However, if the economically beneficial use of the land was unlawful before the regulation was enacted, the new regulation does not constitute a taking.
Here, the regulation did constitute a taking. Thus, the case is reversed and remanded for further proceedings.
Lucas had purchased land along the beach of South Carolina. His purpose in this purchase was to build residences on the lots. However, a year later, South Carolina passed a regulation saying that there can be no development of lots within a certain distance of the water. This regulation affected Lucas’s lots, making them completely worthless for residential development. Consequently, he sued to be compensated for the taking of his property.
Once again, this is a categorical rule that breaks form the ad hoc analysis of Penn Central. Ultimately, if the land looses all economic value as a result of the regulation, a taking has occurred. Note that this means 100% of the value must be lost. However, it is important to recognize even those who have 95% of their property lost may still have a regulatory taking if they benefit from the ad hoc analysis in Penn Central. The exception to this rule also makes sense. If a property owner is engaging in unlawful use of the land (e.g. nuisance) before the regulation was passed, then the regulation does not constitute a taking. This is because the regulation would be eliminating the unlawful activity.
However, the dissent argues that there is no need for a categorical rule, the ad hoc analysis working just fine.
A complete deprivation of economically beneficial or productive use is fundamentally the equivalent of a permanent physical occupancy.
A regulation that results in the loss of all economically beneficial use of the land is a taking. However, if the economically beneficial use of the land was unlawful before the regulation was enacted (e.g. nuisance. This is a reappearance of the noxious use test outlined in Mugler and Hadacheck), the new regulation does not constitute a taking. These laws must be enacted before the landowner took title.
Economic value = market value
Beneficial or productive use = Any other economically potential uses
A consequence of this standard, and specifically the exception, is that the application will vary from state to state (each state has different property laws).
When the judicial branch interferes with the common law in such a way that a homeowner is deprived of a use of the property, a potential taking may occur. This is unsettled law, but there is some idea that the a court decision may constitute a taking.
Exactions: Essential Nexus and Rough Proportionality
An exaction is when the government requires a developer to either transfer land to the government or cover some fees for development to obtain approval for any development. Thus we are left with a categorical test as to what exactions are considered a taking: 1) if there is no essential nexus between the exaction and a legitimate state interest; or 2) the exaction is not roughly proportional to the impact of the project.
The essential nexus element is defined in Nolan v. California Coastal Commission. 483 U.S. 825 (1987). Quite simply, an essential nexus is a relation between the exaction and the interest to be persevered.
As for the roughly proportional impact, the element is outlined in Dolan v. City of Tigard. 512 U.S. 374 (1994). Roughly proportional means that what is given up must also benefit the landowner to the same amount of what is being given up.
Steps for analysis
- Start with categorical rules.
- If elements are met, a taking has occurred.
- If the categorical rules does not result in a taking, follow the Penn Central analysis
- Economic impact of the regulation on the claimant
- The extent the regulation has interfered with the distinct investment-backed expectations
- The character of the governmental action
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.