Edward Sullivan and Carrie Richter, BridgeTower Media Newswires
As late U.S. Supreme Court Justice Oliver Wendell Holmes stated in 1922, deciding whether application of a land use regulation results in a taking requiring just compensation under the Fifth Amendment depends on if a regulation “goes too far.” The Supreme Court has since taken steps to determine how far is “too far.”
One of the factors in the formula for determining whether the impact is too onerous is evaluating the “economic impact of the regulation” considering the property value both before and after the regulation is imposed. The question that often arises is what is the base property or the “denominator” to be used in this comparison.
In the Penn Central Transportation Company v. New York City case, the court held that the economic consideration must take into account the property as a whole and could not be segmented to consider only the “air rights” as separate from surface development rights. However, in a later case, Lucas v. South Carolina Coastal Council, the court expressed some discomfort when a regulation eliminates all economically beneficial use from the property, which generally results in a taking. In other words, property ownership and how state and local land use laws treat land parcels could significantly influence the nature of the denominator in a takings case.
This was the setting for the Supreme Court’s decision last month in Murr v. Wisconsin. Plaintiffs had, on different occasions, acquired two adjacent parcels from family members or entities connected with those members. Neither of these lots could be developed for residential use separately under the local zoning regulations because the adjacent St. Croix River had been designated for conservation under the federal Wild and Scenic Rivers Act. Also, state-imposed regulations precluded the separate development on both of these lots, although the plaintiffs had already lawfully built a cabin on one of them.
The zoning regulations did allow for residential development of individual undersized lots in certain circumstances, but had also required (before plaintiffs acquired the lots), that adjacent parcels under the same ownership were considered “merged” so that only one house could be placed on these two lots. Plaintiffs claimed a regulatory taking under the merger and prohibition of development on undersized lot requirements.
The lower courts found in favor of the state, concluding that the plaintiffs had other options for use of the vacant lot in conjunction with the existing cabin, which could be moved or replaced and also that they had not been deprived of all economic value of their property. The appellate court held that the merger provision existed before the plaintiffs acquired either property, so that they were on notice of that limitation, and that it was unreasonable to expect otherwise. The court observed further that the difference in value of the merged parcel and the two parcels separately was less than 10 percent.
The Supreme Court agreed with the lower courts. In writing for the majority, Justice Anthony Kennedy’s analysis began with the nature of the property under consideration. The majority refused to define property for constitutional purposes as always coextensive with state law, which could allow that interest to be altered to defeat an otherwise legitimate takings claim, instead choosing three new “factors” to determine the denominator, the parcel as a whole – that is, the treatment of the land under state law (as a landowner must recognize reasonable expectations that legitimate restrictions may be imposed), the physical characteristics of the land (i.e., human, topographic and environmental limits on its use), and the effect of regulations on other lands held by the same owner.
In doing so, the majority rejected the formalist responses of both parties. The state would have found its regulations dispositive, while plaintiffs sought to make lot lines (which themselves may be changed under state law) as having a strong presumption as being the starting point (so that two adjacent lots where a new cabin would be prohibited on one would make a case for a taking under Lucas).
The majority focused instead on the reasonableness of the land use regulations and determined that merger provisions were of long standing and legitimate land use tools that may be used, in conjunction with other similar land use tools, to reduce substandard lots in separate ownerships over time. Reliance on lot lines, which may take different forms and significance across the country, was thus not useful. Applying the newly minted factors, the majority accepted the merger provisions as a reasonable exercise of state policy under the first factor. The shape of the parcels, their rough terrain and significantly undevelopable portions added to the rationality of the merger provisions under the second factor. Finally, under the third factor, the lack of separate residential use on one of the two parcels is offset by the use of the property as an integrated whole, with additional open space and privacy and additional flexibility locating improvements. The market value differential in the value of the parcels separately and as merged also contributed to the rationality of the regulations.
Recently appointed Justice Neil Gorsuch did not participate in the decision. Chief Justice John Roberts, joined by Justice Clarence Thomas and Justice Samuel Alito filed the principal dissent arguing that the majority’s tests for defining the “denominator” represented a move away from deferring to property determinations under state law and that the new factors could appear to conflate the definition of property with the standards used to evaluate a regulatory taking in the first instance. Thomas wrote separately, calling for a complete review of regulatory takings from the standpoint of originalism.
Although local governments, particularly counties that most often use lot merger regulations to establish minimum parcel size for allowing certain uses, should breathe a sigh of relief that the court upheld this clean lot merger approach. Another list of broad factors for making these determinations may lead to greater murkiness rather than clarity.
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Edward Sullivan is a retired partner in the Portland office of Garvey Schubert Barer. He practiced land use and municipal law for more than 45 years. Contact him at esulliva@gmail.com. Carrie Richter is an attorney specializing in land use and municipal law at Bateman Seidel. Contact her at 503-972-9903 or crichter@batemanseidel.com.
