Takings Clause

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Although largely unsuccessful, property owners challenging historic preservation laws sometimes argue that such laws, either generally or in their application in a specific case, amount to a taking of private property without just compensation. The term "taking" comes from the Fifth Amendment to the U.S. 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.

Regulatory Takings

Takings cases fall into one of three categories – physical occupations, exactions or conditions on development, and permit denials.

The level of judicial scrutiny varies among each of these categories 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 first category of takings claims involves situations where the government invades or occupies private property. The occupation may be "in fact," such as the required installation of wires or cable boxes on an apartment building, or "constructive," such as the frequent 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. A nexus, perhaps, might not be found if a preservation commission required historic property owners to build a sidewalk in front of their house as a condition to the issuance of a certificate of appropriateness to build an addition on the back of their home. See Nollan v. California Coastal Commission, 483 U.S. 825 (1987), where a 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 U.S. 687 (1994), for example, the Supreme Court found a taking since 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 preservation 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 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 historic estate rather than the segment of the estate on which a historic preservation commission has ruled that development may not occur.

The "parcel as a whole" analysis is especially significant in view of Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), which established the rule that a "total deprivation of beneficial use" is a per se or categorical taking. In other words, if a regulation renders property completely valueless (i.e. a "total wipeout"), then a taking requiring "just compensation" results. 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 (D.C. Cir. 1999), cert. denied, 531 U.S. 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 over 30 years ago, Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978), is the leading case governing the constitutionality of permit denials under the takings clauses of the federal and state constitutions. As Supreme Court Justice Sandra Day O'Connor wrote in her concurring opinion to Palazzolo v. Rhode Island, 533 U.S. 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 U.S. 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-factored framework, and again, in Lingle v. Chevron, U.S.A., Inc., 544 U.S. 528 (2005).

The Penn Central Test

Judicial review of regulatory takings claims is based upon a three-factored inquiry: the character of the government action; the economic impact of that action on the property; and the claimant's distinct investment-backed expectations.

Character of Governmental Action

This prong 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. Historic preservation regulations are rarely challenged on this issue. Indeed, in Penn Central, the U.S. Supreme Court recognized that preserving historic structures is "an entirely permissible goal" and the imposition of restrictions on historic property through historic preservation ordinances is an "appropriate means of securing" that purpose.

Economic Impact

The vast majority of preservation 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. This inquiry focuses on the impact of the regulation on the property and not the property owner.

Takings claims involving the mere designation of properties as historic resources pursuant to historic preservation ordinances under both federal and state constitutions have uniformly been rejected. As the Pennsylvania Supreme Court observed in United Artists' Theater Circuit, Inc. v. City of Philadelphia, 635 A.2d 612, 619 (Pa. 1993), "in fifteen years since Penn Central," no state has ruled that a "taking occurs when a state designates a building as historic."

Takings claims involving the denial of permission to alter or demolish historic structures are also routinely dismissed. Both federal and state courts have ruled that governmental actions under historic preservation laws 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 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 historic 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 are relevant considerations. 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 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.

Statutory Responses

In some situations, statutory provisions may protect individuals from potential regulatory takings. Many jurisdictions, for example, include provisions in their preservation ordinances that establish a separate 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 in individual cases and help prevent invalidation of commission decisions on constitutional grounds. Economic hardship provisions are typically invoked once an owner has been denied permission to demolish or substantially alter his or her property. An applicant may be required to submit detailed information to show that retention or sale of the property is economically infeasible.

The standard for measuring economic hardship may vary from one jurisdiction to the next. Most jurisdictions, however, use the same standard as that for a regulatory taking, finding economic hardship when an owner has been denied all economically viable use of his or her property.

A number of states have enacted so-called "takings" laws mandating a governmental assessment of the impact of a proposed action on individual property owners to avoid situations that may ultimately result in a compensable taking. A proposed regulation or governmental action may fail to be enacted based upon its projected impact on constitutionally-protected property rights. In a very limited number of states, compensation may be required upon a showing by a private owner that the value of his or her property (and, in some cases, a portion of that property) has been diminished by a certain percentage (sometimes as low as 10 percent.)

While highly controversial, the impact of takings laws on historic preservation has not been documented. Nonetheless, because historic preservation laws may affect private property, these laws are likely to have some impact on efforts to regulate historic property and should be consulted where applicable.

Eminent Domain

Under the Fifth Amendment, a federal, state, or local government may confiscate privately-owned properties for public use, provided that "just compensation" is paid. This authority has been both helpful and harmful to historic properties. On the one hand, scores of historic buildings have been demolished through the application of eminent domain proceedings under urban renewal, transportation and other public works programs. On the other hand, dilapidated historic resources have been protected from total ruin by government seizure and subsequent transfer to preservation organizations committed to rehabilitating the structures.

The use of eminent domain or condemnation authority has become an issue of increased importance since the U.S. Supreme Court handed down its controversial decision in Kelo v. City of New London, 545 U.S. 469 (2005). In Kelo, the Court ruled that the seizure of houses for use in a major, private development project that would bring jobs and tax revenues to an economically-distressed area satisfied the Fifth Amendment's "public use" requirement.

In response to the public outcry against the decision, a number of states have amended their state constitutions and eminent domain laws. These amendments restrict seizures of privately-owned property for economic development if the property is to be transferred to another private entity. Many of these laws narrow the definition of "public use" and tighten existing laws relating to the identification of blighted areas. Some also strengthen procedures relating to the condemnation process.

Although many of these laws may help limit the use of eminent domain authority to redevelop areas with historic buildings, local governments – even under the most restrictive statutes – still enjoy considerable authority.

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Takings Law in Plain English: An essential reference book for any preservation library, Takings Law in Plain English provides a clear explanation of essential land-use law for planners and preservation advocates.

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