Under the 5th Amendment real property owners have a constitutional right to just compensation whenever the government takes your property for public use. The same applies whenever the government enacts regulations that essentially “takes” your property away. For decades, the law on regulatory takings has lacked clarity. Recently, the Supreme Court, through Murr v. Wisconsin (“Murr”), had the chance to resolve some of the ambiguity, but, unfortunately, failed to do so. Nonetheless, at a minimum, the Murr decision serves as a reminder that regulatory laws could potentially impact transferred or purchased property differently from what you intended.
The Murr Facts:
The government and the children urged the Court to apply bright-line rules. The Wisconsin government argued that there is “no taking” whenever state laws require the merger of adjoining lot lines when titles are held in common. The Children, however, argued for a bright line rule where the controlling factor should be a Deed’s lot lines. That is, when two lots are described by different lot lines, any governmental restrain on a subsequent sale of one of the lots constitutes a “taking.”
In the end, the Court declined to apply any of these bright-line rules. Instead, it decided to continue applying “flexibility.” To add to the ambiguity, the Court also departed from the tradition of looking only to state and local law to define the private property rights at issue in a takings case. Instead, the Court directed lower courts to “consider a number of factors” including “the physical characteristics of the land,” “the prospective value of the regulated land” and “whether reasonable expectations” would lead the land owner to expect that its holdings would be treated as one parcel. (Murr v. Wisconsin (2017) 137 S.Ct. 1933, 1945.) The Court then mentioned that “the reasonable expectations at issue derive from background customs and the whole of our legal tradition.” (Id.)
Worse yet, the Court entered into the world of valuation to determine if a taking has occurred. (See id. at 1946.) This certainly puts the cart before the horse. Courts should first determine the threshold matter of whether there has been a governmental taking. Only after—when analyzing just compensation—should courts attempt to determine the value of the damage inflicted.
Before Murr, for decades courts in all states have struggled to apply the following factors on regulatory takings issues: (1) the complete deprivation of all economical beneficial use; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action. (Palazzolo v. Rhode Island (2001) 533 U.S. 606, 617; Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, 124.) Unfortunately, the Murr decision only provides lower courts with additional vague factors.
By Randy Aguirre, Esq.