Land Use Update

• Pages: 62-63
• Date: 01 January 2023
• Subject Matter: Derecho Público y Administrativo

January/February 2023

62

Published in Probate & Property, Volume 37, No 1 © 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be

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LAND USE

UPDATE

Land Use Update Editor: Daniel R.

Mandelker, Stamper Professor of Law

Emeritus, Washington University School of

Law, St. Louis, Missouri.

Short-term rentals are a challenge to

municipalities. A short-term rental is the

temporary rental of all or part of a resi-

dence for a brief period. Municipalities

have prohibited, regulated, and licensed

short-term rentals to prevent changes in

the character of the neighborhood where

they are allowed and to prevent health

and safety problems. Regulations can

include a permit requirement, a limit on

the number of days a unit can be rented

or on how many units can be rented in

each residence, a requirement that hosts

must be permanent residents, dier-

ent rules for residential and commercial

areas, compliance with noise, trash, and

parking regulations, and safety measures

such as requiring f‌ire safety equipment

and carbon monoxide detectors.

Restrictions like these limit an own-

er’s freedom to use her property and

create losses in economic value by reduc-

ing rental income, provoking lawsuits

that these restrictions are an unconsti-

tutional taking of property. This column

discusses judicial decisions that have

reached dierent outcomes in applying

US Supreme Court regulatory takings

rules to short-term rental ordinances.

The US Supreme Court’s Troubled

Penn Central Doctrine

Takings litigation is problematic, and

US Supreme Court takings rules are con-

f‌licting and incomplete. In Penn Central

Transportation Co. v. City of New York, 438

U.S. 104 (1978), which upheld New York

City’s historic landmarks law and which

the Supreme Court calls its “default” tak-

ings decision, the Court adopted three

factors for regulatory takings cases.

They are: (1) the economic impact of

Supreme Court has never adopted, cre-

ates a circularity problem. It allows the

purpose of the law that is attacked as

a taking to def‌ine investment-backed

expectations. This rule means that

investment-backed expectations do not

exist if a law’s regulation is in the public

interest, such as a law regulating short-

term rentals.

Judge Bibas then explained that

“[a]pplying Penn Central can be hard for

a second reason: we do not know how

much weight to give each factor.” Courts

reject takings claims by applying only

one Penn Central factor, a “one-strike-

you’re-out” rule. This practice, he said,

is “especially troubling because Penn

Central overlaps with per se regulatory

takings claims.” He is referring to the

third Penn Central factor, which requires

courts to consider the character of the

governmental action that is attacked as

a taking. Penn Central explained that this

factor was meant to distinguish between

physical and non-physical takings and

that a court will f‌ind a taking more read-

ily “when the interference with property

can be characterized as a physical inva-

sion by government.”

The problem with this distinction is

that the Supreme Court has now decided

that physical takings are per se takings,

making the character of the governmen-

tal action factor redundant. Judge Bibas

speculated that “[s]mart lawyers” will

try to frame their takings cases as per se

takings, but “where does that leave Penn

Central?”

The Nekrilov Decision

In Nekrilov, a city had legalized short-

term rentals but later adopted an

ordinance that imposed new restric-

tions. Short-term rentals were limited

to 60 nights a year and allowed only

for property owners. Plaintis invested

in properties for leasing as short-term

the regulation on the claimant; (2) the

extent to which the regulation has inter-

fered with distinct investment-backed

expectations; and (3) the character of the

governmental action.

In a recent Third Circuit case, Nekrilov

v. City of Jersey City, 45 F.4th 662 (3d

Cir. 2022), which held that a short-

term rental ordinance was not a taking,

Judge Bibas concurred and provided a

rare judicial critique of the Penn Central

takings factors. Beginning with a com-

ment that “regulatory-takings doctrine

is a mess,” he argued that “[a]pplying the

Penn Central factors is challenging. For

one, they are hard to def‌ine and thus

hard to meet.” He could have added that

the success rate for claimants is very low.

Def‌ining economic impact is one

of the diculties. The plaintis relied

on lost prof‌its, which is a partial tak-

ings claim. Judge Bibas did not discuss

partial takings but explained that “prec-

edent is muddy on whether lost prof‌its

count as an economic burden,” quoting

conf‌licting Supreme Court decisions.

He added that “we do not know how

severe an economic loss must be to sat-

isfy that factor” and that the Supreme

Court had not spelled out a “mathemati-

cally precise” formula. He quoted the

US Supreme Court cases that acknowl-

edge that a 95 percent reduction in value

might be enough but added Penn Cen-

tral’s suggestion that reductions in value

of 75 percent and 87.5 percent that had

occurred in other cases were not enough.

These examples imply that a partial tak-

ing is not a taking under the takings

clause.

The investment-backed expectations

factor lacks clarity. Judge Bibas quoted

a court of appeals case holding that

“investment-backed expectations are

reasonable only if they take into account

the power of the state to regulate in the

public interest.” This rule, which the US

Short-Term Rentals and Takings