Like a fly that can’t keep away from the flame, the U.S. Supreme Court has decided to add a Fifth Amendment Takings Clause case to its docket for 2016. More than 25 years have passed between the U.S. Supreme Court incursions into the use of the takings clause regarding conditions of approval in cases such as Dolan v. City of Tigard, Nollan v. California Coastal Commission, and the US Supreme Court’s 2013 decision Koontz v. St. Johns Water Management District. The Court has decided to wade back into the takings mire once again. Rather than dealing with efficacy of land use conditions, as with the issue as in Nollan, Dolan, and Koontz, this time the issue relates to the “parcel as a whole” rule.
The facts in the case pending review, Murr v. Wisconsin, are fairly straightforward. The Murr parents purchased a lot on the St Croix River in 1960 and built a cabin on it. Three years later, they purchased the adjacent lot for investment purposes. The river was then designated a federal Wild and Scenic River and the county adopted a regulation that prohibited the individual development of adjacent, substandard lots held in common ownership. Under these regulations, the Murrs could only retain their existing house or replace the existing home with new one on the two lots. The Murr parents transferred one lot to their children in 1994, and then transferred the second lot to them in 1995. The Murr children then sought a variance seeking to separately develop or sell each lot to others. The county denied that request, leading to the filing of a lawsuit alleging a violation of the Fifth Amendment Takings Clause.
The Wisconsin Court of Appeals ruled against the Murrs, holding that they were not entitled to compensation for a regulatory taking under the Fifth Amendment, finding that the county ordinance that "merged" the two lots into one single, buildable lot. Because the Murrs could continue to use this merged property for residential purposes, they did “not suffer the loss of substantially all of the beneficial uses of his land." Therefore, there was no compensable taking.
The “parcel as a whole” rule finds its roots in the US Supreme Court decision, Penn Central Transportation Company v. City of New York, a landmark preservation case in which that Court upheld a New York City’s law that prohibited the owners of Grand Central Terminal from demolishing the terminal or constructing a high-rise on the top of that architecturally significant structure. The terminal owner sued the City, arguing that the City had taken their air rights in the terminal. The Supreme Court rejected the owners’ argument. The Court explained:
“Taking” jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, this Court focuses . . . [on] the parcel as a whole.
In other words, the Court looks at the entire property interest at stake rather than individual property interests to determine if a regulatory taking has occurred. After establishing the parcel as a whole rule, the Court focused on the entire terminal rather than only the air rights above the terminal as providing the owner a sufficient economic return on its investment, notwithstanding the loss of further development rights, to avoid a taking.
The Penn Central Court did not identify any explicit authority for the “parcel as a whole” rule and although the Court has subsequently issued narrow rulings in other cases finding that no takings occurs when economic value is subsequently restored when considering the “parcel as a whole,” common ownership of historic, legally platted subdivision lots have not been recognized thus far as eligible for takings claims. The interest in the Murr case may be explained by Justices Thomas and Scalia calling the “parcel as a whole” rule as “puzzling” in previous opinions.
Whatever the reason, this decision may require planners, practitioners and scholars to once again rethink what had once assumed was settled law on Takings - considering how a government regulation impacts economic interest in real property based on the “parcel as a whole.” It could be that those additional factors are at play such as the legal recognition that lots of record are treated differently, that the history of the parcel at issue must be more closely examined or perhaps that scope of the ownership may not be relevant at all. We should have more clarity on the Supreme Court’s position by the summer.
We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.