16.16 Regulatory Takings

• Library: Real Estate Transactions in Virginia (Virginia CLE) (2019 Ed.)

16.16 REGULATORY TAKINGS

16.1601 In General.

A. History of Regulatory Takings Law. Historically, the United States Supreme Court has chosen to remain largely above the fray in local land use matters, perhaps in large part because land use regulation remained relatively benign throughout the greater part of the 20th century. After it established the constitutionality of zoning ⁵⁰⁴ and the principle that zoning ordinances might be constitutional on their faces but unconstitutional as applied to a given fact situation, ⁵⁰⁵ the Court devoted little further attention to the federal aspects of the land use process.

Even before it had blessed zoning as constitutional, however, the Court had looked at the proper balance between such regulation and the Takings Clause of the Fifth Amendment. In Pennsylvania Coal Co. v. Mahon, ⁵⁰⁶ a case involving restrictions on coal mining and land subsidence following mining operations, Justice Holmes remarked that it was possible for a governmental regulation to go "too far," and in so doing to so diminish the value of property as to constitute a taking of property for public uses, requiring just compensation. There must be a balance, Justice Holmes stated, between the public's justification for the regulation and the diminution in value to the private landowner, which strikes some "average reciprocity of advantage" between the two. The underpinning of the doctrine of regulatory takings lies in the fact that "[a] strong public desire to improve the public condition [will not] warrant achieving the desire by a shorter cut than the constitutional way of paying for the change." ⁵⁰⁷

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While the general concept of "regulatory takings" (as distinguished from outright physical invasions by the government) received some notice over the years, the Court had not answered the specific question whether a land use regulation could tip the scales in the landowner's favor, and whether, if it did so, monetary compensation might be required. For many years, these scales were quite heavily weighted in favor of the public interest, and the Court found that even severe reductions in value as a consequence of proper exercises of the police power were insufficient to work a compensable taking. ⁵⁰⁸ Moreover, takings law was of little concern to the land use lawyer since the courts long held that because the proper challenge to an oppressive regulation was under the Due Process Clause and not the Takings Clause, the landowner's sole remedy for an unconstitutional land use regulation was removal or modification of the offending restriction on use.

The latter half of the 20th century brought vastly expanded controls over the use and development of land, both in traditional local zoning and from rapidly growing environmental and historic preservation regulation. In consequence, landowners whose interests in their properties were severely restricted brought new waves of challenges to the courts, focusing not simply on takings without due process but on takings for public use without just compensation.

For a good while, this effort was fruitless, but the United States Supreme Court began to look at the matter with a more jaundiced eye, and takings doctrine began to move in a different and more substantive direction. This evolution in takings law was not, moreover, limited to conservative reaction to land restrictions. Indeed, it was Justice Brennan who first articulated the notion that even a temporary restriction on property that went "too far" could constitute a compensable event. ⁵⁰⁹ This dissent became the law with the Court's decision in First English Evangelical Lutheran Church v. County of Los Angeles, ⁵¹⁰ which held that a temporary taking was indeed compensable. That case did not, however, advance understanding of what constituted a taking, since the Court assumed that there was no use permitted of the land in question because of the procedural posture of the

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case, but it did make it plain that regulatory activity could have a price tag. ⁵¹¹

What regulation may in fact constitute a taking has been somewhat clarified over the years, but the issue remains in a fair amount of confusion, and the Court itself has admitted that it has been unable to develop any set formula for determining when a taking has occurred. ⁵¹² Still, the Court has attempted to articulate a takings framework and has stated that if a regulation "denies an owner economically viable use of his land" it will likely be found to be a taking. ⁵¹³ Regulatory impositions in the form of zoning restrictions or otherwise can, indeed, so restrict the use of land that they have the functional effect of making private property public and requiring the payment of just compensation.

Regulatory takings fall into three rather large categories, loosely identified as "per se," "categorical," and "ad hoc." Per se takings derive from Loretto v. Teleprompter Manhattan CATV Corp., ⁵¹⁴ "categorical" takings derive from Lucas v. South Carolina Coastal Council, ⁵¹⁵ and "ad hoc" takings derive from Penn Cent. Transp. Co. v. New York City. ⁵¹⁶

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B. Per Se Takings. Regulatory takings are involved when the impact of a regulatory structure goes "too far." However, when the government attempts a physical invasion of property in any manner, any such intrusion, regardless of how minor, is a compensable taking. ⁵¹⁷

C. Categorical Takings. In Lucas v. South Carolina Coastal Council, ⁵¹⁸ the landowner had acquired two oceanfront lots, but before he could begin construction, the state passed the "Beachfront Management Act," whose terms prevented any construction on the lots. The Court found that South Carolina's legislative findings on the need to prevent erosion and inland flooding were insufficient to support complete deprivation of the use of the property absent compensation. However, the Court held that compensation is not required, even if a regulation deprives a landowner of all use of his or her property, if the regulation prohibits a use that was not included "in the title to the property" in the first place, as is the case when "background principles of nuisance and property law . . . prohibit the uses [the property owner] now intends in the circumstances in which the property is found." ⁵¹⁹ The Court left open the issue of whether economic deprivation should be evaluated on the basis of the portion of the tract "burdened" by the regulation or on the effect of the regulation on the tract as a whole. The Court then remanded the case to the South Carolina Supreme Court to determine whether the principles of nuisance and property law prohibited the uses the owner intended.

The Court has suggested that the proper analysis is as to the entire parcel and not only that which has been taken. In Concrete Pipe & Products v. Construction Laborers Pension Trust, ⁵²⁰ the Court noted that the claimant had tried to shoehorn its assertions that federal law had effected a taking on the basis that "[t]he property of [Concrete Pipe] which is taken, is taken in its entirety." ⁵²¹ However, the Court said it had

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rejected [that] in Penn Central [citation omitted] where we held that a claimant's parcel of property could not first be divided into what was taken and what was left for the purpose of demonstrating that taking of the former to be complete and hence compensable. To the extent that any portion of property is taken, that portion is always taken in its entirety; the relevant question, however, is whether the property taken is all, or only a portion of the parcel in question. Accord Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 94 L. Ed. 2d 472, 107 S. Ct. 1232 (1987) ("[O]ur test for regulatory takings requires us to compare the value that has been taken from the property with the value that remains in the property, [and] one of the critical questions is determining how to define the unit of property 'whose value is to furnish the denominator of the fraction.'") (Citation omitted). ⁵²²

While the matter is not entirely free from doubt, it would appear that the proper analysis of a taking affecting only a portion of a parcel (as, for instance, with respect to a wetland) must look to the effect on the value of the entire parcel involved.

It had been hoped that the United States Supreme Court would shed additional light on this issue in Palazzolo v. Rhode Island, ⁵²³ but the Court remanded the case for further consideration by the Rhode Island Supreme Court after reversing the Rhode Island court's holding that the plaintiff had no right to challenge a regulation predating the plaintiff's acquisition of the land.

D. Ad Hoc Takings. If there is no categorical taking, then one must turn to Penn Cent. Transp. Co. v. New York City, ⁵²⁴ where the United States Supreme Court articulated three factors it thought relevant to a determination of whether a taking had occurred. They were (i) the character of the governmental action; (ii) the economic impact of the regulation on the claimant; and (iii) the extent to which the regulation interfered with the claimant's legitimate investment-backed expectations. If some economically

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viable use continues, then a more complex factual analysis is required. ⁵²⁵ Takings cases are rare, but when they are found, they can be costly to the government. ⁵²⁶

16.1602 When the Taking Occurs. Takings occur when the government action complained of effectively prevents economic development of the property in question. ⁵²⁷ Ordinarily, where there is a permit system, no taking occurs until the permit has been applied for and denied. ⁵²⁸ This requirement for a determination of a "starting point" in takings cases is, thus, directly linked to the next topic: ripeness.

16.1603 Ripeness. There are a number of procedural hurdles facing a takings claim, perhaps the most important of which is the requirement that the claim be ripe for adjudication. There must be a final determination of the...