Page updated: 03/22/2002 09:06 PM

A while back there was some discussion within the JA Land Abuse forum concerning takings law and how certain environmental advocacy groups lobby for land use control legislation (and subsequent regulation) to achieve an end wherein they can, correctly in their view, limit development. The US Supreme Court has recently heard a couple of important takings cases so the issue has been in the news of late. In this installment of Land Abuse I am going to digress a bit from the area of pure land use considerations focused on off road vehicle access.  Takings law is an interesting topic and I hope you will bear with me.

Development or Conservation?:

Here in Southern California we face very serious development problems.  Estimates indicate that the population of San Diego, my adopted hometown, will double within the next 25 years from the current 1.1 million residents to over 2 million.  Where are all of these people going to live?  Will we be facing a transportation meltdown and freeway congestion rivaling Los Angeles, our megalopolis neighbor to the north?  Will there be single family homes with attached garages (the preferred abode in these parts) all the way east into Anza-Borrego desert?  We are not the only western city facing this kind of development pressure.  The populations of Phoenix and Las Vegas are also growing rapidly.  In both cases the surrounding desert is being quickly consumed by development.

The phrase often heard uttered by city planners in answer to these concerns is "smart growth planning".  The idea is that through controls on development we can limit urban sprawl and congestion.  Other places, notably in Northern California, have adopted development plans seeking a "no growth" result.  In both cases stringent laws and regulations limiting development are put in place.

No growth plans are problematic because they are unrealistic.  The genie is out of the bottle and future growth is really inevitable.  The no growth option appeals only to folks already residents of a community.  They don't care if the price of a single family home, due to housing shortages, rises to an average of $450,000.  Strict land use regulations don't affect them as their land is already developed.  On the other hand, is smart growth really smart?  Developers now face a literal maze and quagmire of regulation.  It costs more to build and the time frames are much longer.  Permitting takes years.  At the same time governments waste public funds on mass transit systems no one uses and the freeways become ever more crowded.  Development controls seem to have been oversold as a solution.

I mention all the above by way of pointing out that I understand the problems we face.  While we all must have a place to live we also need open spaces and watching the desert bulldozed to build luxury townhomes breaks my heart.  There should be some regulation governing the development of land.  In poll after poll the public identifies urban sprawl as a real problem.  And yet sometimes regulations go too far.  Property ownership and rights of possession are the cornerstone of our society and, consequently, our legal system.  I also understand the philosophy that says a landowner should be able to do pretty much whatever they want with their land.  Therein lies the dilemma.

Zoning Law as a Land Use Control:

In the 1920s the city of Euclid, Ohio, instituted a crude system of zoning laws to try to place residences and businesses in appropriate parts of the city.  This was a very rudimentary scheme in which the city was divided into areas with varying use "designations".  If one wanted to site a factory in an area designated "residential" they were prohibited from doing so by the new laws.  Though by today's standards the limitations were minimal, at the time this was a very controversial idea.  In a case that went all the way to the US Supreme Court the zoning laws were found to be constitutional and zoning has become the principal way in which communities control development.

Zoning laws now far exceed the original idea of "use zones".  All manner of uses and construction are now regulated under the rubric of zoning.  Zoning laws tell a landowner how much land he has to have to build a house, how close to the property lines his structures can be (setbacks), how steep the slope can be that he builds on, how tall the structure can be, that he cannot site a business in a area not zoned commercial, on and on.  We are all familiar with these kinds of controls. But what happens when the regulations are so stringent that the landowner can do nothing with the land?  Has the law effectively taken the land away from the owner?

Let's say that you buy a lot next to a lake. You intend to build a nice house and live there in your retirement years.  At the time that you buy the land there are bills to pay and kids to raise so you don't do anything with the property.  Years later you've saved up a little money and decide to build on the property.  You go down to Town Hall to apply for your building permit.  The building inspector has bad news—due to increasing levels of bacteria in the lake, believed to be from high concentrations of fertilizer leaching into the water from adjacent lawns, legislation has been passed requiring that any new houses must be built a mile from the lake shore.  Your property is too close.  You cannot build a house.  As you leave the building inspector's office, stewing and planning your next move, the inspector cheerfully reminds you that you can still pitch your tent and camp on the spot.  Pretty funny, huh?

The Right of Eminent Domain:

The Constitution gives government the right of eminent domain which means they can take private property for public use.  The only requirement is that they pay just compensation, fair market value, for the property.  The state can, for example, take your property to put in a new highway.  They just have to pay you for it. 

Now, a highway obviously benefits the public overall.  However, on what at this point is a purely academic aside, I personally would take a longer look at the "public purpose" part of the clause—with all due respect to sports fans I have to wonder about government taking peoples' property to build a new ballpark for billionaire team owners but, surprisingly, whether the right of eminent domain is being invoked for a truly public purpose is not litigated.  Just about anything qualifies as a public purpose under the law.  So the point which is argued is almost always what "just compensation" is in dollar terms.

A proceeding against a piece of property utilizing the right of eminent domain is called a condemnation action.  The government condemns the property.  Note that despite popular wisdom this has nothing to do with the condition of the premises.

But what if the government hasn't actually taken your property?  In the case of the lake front lot you still own, and hold title to, the property.  You cannot use it for the purpose for which you purchased it.  No one is going to offer you much money for a piece of ground that is undevelopable.  But the government hasn't taken it.

Physical Takings:

Takings law is a real thicket of murky court opinions and unclear statutes.  Of the two kinds of takings, physical and regulatory, we start with physical takings because the law is simpler and more easily understood. 

In a first year law school property class the professor will tell you, based on the tenets of old English common law, a landowner owns a parcel from the heavens to the center of the earth.  The professor will also tell you that, distilled to its essence, property ownership is nothing more than a collection or bundle of rights.  One idea seems to run counter to the other but looking more closely this makes a certain amount of sense.  What you can do with your property flows from rights that attach to you as owner.  You control the property through these rights.  Fundamentally you have the right of possession and the right to exclude others from your property.  This is really what "ownership" means.

Physical takings occur when there has been an infringement on your rights of possession and exclusion by actual displacement.  The seminal case is Loretto v. Manhattan Cable Television.  The plaintiff, Loretto, owned an apartment building in New York City.  A law was passed requiring all apartment building owners to allow for tenants to have access to cable television (this was the very early days of cable).  The cable TV company installed a number of boxes and antennae on the roof of Loretto's building.  Loretto sued, claiming that the presence of the boxes effected a physical taking.  Now, at first glance, this seems really silly.  The boxes weren't very big; the physical intrusion was minimal.  And the US Supreme Court recognized this in its opinion.  But Loretto had been physically displaced, in however small a way, by the presence of the boxes.  The Court ruled that a physical taking, of any size, requires just compensation.  So, the cable company (through its authorization by the City) must pay Loretto a small amount to compensate him for the loss of physical possession of the area where the boxes were installed.  Rule of law: if an actual physical taking occurs through application of a regulation just compensation is owing.

Regulatory Takings:

In the above case Loretto's property had been physically taken by action of City regulation so I have never understood exactly why the distinction, in legal terms of art, calls one a physical taking and the others (that we will discuss) a pure regulatory taking.  They all result from some form of regulation. But far be it for me to blow against the wind so, here as well, we will refer to real displacement as a "physical taking" and other limits imposed by regulation as "regulatory takings".

A regulatory taking occurs when some law or regulation reduces the available uses of a piece of property such that the land is rendered essentially valueless.  More on this in a minute but one thing needs to be pointed out now.  Remember that an exercise of government's eminent domain power is called a condemnation.  In the case of a regulatory taking the legal action by the plaintiff is often referred to as an inverse condemnation.   This is because the plaintiff property owner is not seeking to recover the diminution in value but to force the government to bring the condemnation action and buy the land outright.  The government is saying we didn't condemn your property and we don't owe you compensation.  The property owner responds, yes, you de facto condemned it and I am going to force you to officially condemn it and pay me. 

In the case of your lake front lot, let's say you paid $50,000 for the land.  The nice guy next door, finding out about your development troubles, would like to buy you out cheap so he can extend his lawn.  He offers you $5,000 for the parcel.  Your value reduction (loosely defined) is $45,000.  You cannot sue the government to recover your loss.  You CAN seek to have the government condemn the property and buy you out.  Aha, but what is fair market value (FMV), $5000 or $50,000?  We'll get to that.  Either way it's an all or nothing proposition.

The key to a successful regulatory taking suit is the amount, by percentage, of reduced value.  The problem is that you will never find the amount expressly stated in any case law or court opinion.  In one of the first Supreme Court cases celebrated jurist Oliver Wendell Holmes spoke of regulation that "goes too far".  Later cases refer to "economic loss", loss of "investment backed expectations", property rendered "essentially valueless".  As President Bush would say, the calculus is ripe for the exercise of "fuzzy math".  I will cut to the chase and say that it's my best guess that your loss should be more than 90%.  High 90%s would be good. 

Note that the reduction in value is a measure of whether or not a taking has occurred, not a measure of damages.  You have to show, as a result of the regulation, that the value of your parcel has been reduced by 95% to prove that a taking exists.  This is true even though you are not seeking to recover the 95% but to force the government to pay you 100% of fair market value and you walk away.

Recent Developments in Takings Law, Lucas, Palazollo, Tahoe-Sierra:

There are 8-10 so-called "landmark" Supreme Court takings cases.  Here I will focus on a couple of the more important ones with an emphasis on the most recent.

First among these is the 1992 case Lucas v. South Carolina.  Briefly, Lucas had purchased beachfront lots in SC and sought to build on them—not for a residence for himself but to turn a little profit.  The SC legislature adopted a law, the Beachfront Management Act, which prohibited building new structures on the beach.  Lucas was out of luck.  He sued and lost all the way to the SC Supreme Court but, finally, the US Supreme Court agreed with him and called the Act a regulatory taking.  (SC eventually bought Lucas' property, rescinded the Act, sold the property to a developer and there are now two houses on Lucas' parcels—but I digress).  Why is this case so important?  Because for many years the Court refused to really consider regulatory takings seriously.  Lucas was the first case where the Court sided with the landowner even though the landowner had not been physically displaced, i.e., still owned the land.

In the most recent decision by the Supreme Court, Palazollo v. RI (2001), the plaintiff, an elderly gentleman by the name of Palazollo, prevailed on a number of important takings issues.  Palazollo owned 18 acres of waterfront property in Westerly RI.  He had sought permits to infill some wetlands so that he could develop the property.  His permits were all denied.  The RI Supreme Court, when the case finally got to it, didn't like the fact that Palazzollo had not owned the property at the time the original regulations against wetland filling were passed.  The RI Court said that he knew of the restrictions when he bought the property and therefore he had not had the value of the property reduced while he owned it.  (He had, in fact, been the principal owner of the property for 40 years, far in advance of the regulations, but the early part of that period he had owned the property in a corporate name.  This point is irrelevant legally, the RI Court was correct in that he did not own the property in his name at the time the regulations were enacted but, in a lay analysis, I think its important because certain people will say he bought restricted property and then tried to extort compensation from RI—which is not really the situation).  The US Supreme Court disagreed with the RI Court and found that the fact of knowledge of pre-existing regulation does not bar the owner from bringing a takings action. 

The last case I will mention has just been argued before the US Supreme Court.  No word from the Court yet but a decision is expected later this year.  The case is Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency.  The plaintiff, Tahoe-Sierra, is a group of Lake Tahoe area landowners who have been prohibited from building on their property because they cannot get building permits due to TRPA regulations.  The TRPA, an inter-state (CA/NV) planning authority, is considered by many to be pretty radical in its "protection" of Lake Tahoe and extremely anti-development.  These are the folks who tried to get Placer County to close the Rubicon-McKinney Trail due to contaminated run-off (into the Lake) concerns.  TRPA has taken the position that the building regulation, specifically a moratorium on building private homes, is only temporary and therefore cannot be the basis of a takings claim by affected landowners.  The Ninth Circuit Court (Federal, N.Cal)  agreed with TRPA and the issue to be decided by the US Supreme Court is whether "temporary" regulation can effect a taking.  Note that many of these "temporary" regulations have been "rolled over" and have continued in force for many years.  Commentator opinion seems to be that the Supreme Court will overturn the Ninth Circuit and rule that even a temporary prohibition can amount to a taking of a citizen's property.  If so this will close the "temporary regulation" loophole.  The Courts opinion is due in a few weeks.

In Conclusion:

Many of the more rational among us have been waiting, in vain apparently, for Congress to rewrite the Endangered Species Act.  In case after case common sense gets thrown to the wind and environmental groups now wield the ESA like a hammer over land management agencies.  Similarly, because the Courts always seemed to side with regulators in regulatory takings cases, governments have had essentially unfettered rights to control landowners through regulation.  Many legal experts have been predicting, some for decades, that the Courts would begin to insert a little levity into the takings area so that governmental agencies might be reined in a bit.  While there have been no changes in the ESA it does seem that the winds are changing with respect to land use controls and regulation.  As noted in the above cases, landowner rights have finally, at least partially, been vindicated.  Though we need to control development to some degree lest we pave the whole darn thing, as Justice Holmes said 75 years ago, some laws "go too far".