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June 27, 2017

Legal Update
Dylan Sanders

Takings analysis may treat two lots as one, SCOTUS holds

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In its most significant regulatory takings case in several years, the United States Supreme Court has ruled that courts may look at separate but commonly owned, contiguous lots as a single property unit in deciding whether government regulation of the property has risen to the level of a taking of private property under the Fifth Amendment of the United States Constitution. In so holding, the Supreme Court rejected the formalistic argument that courts should presume that individual lot boundaries define the parcel affected by the regulation. The analytic framework endorsed by the decision, Murr v. Wisconsin, echoed a 2006 decision of the Massachusetts Supreme Judicial Court adopting a similar, flexible and fact-intensive approach. Indeed, Massachusetts, through Attorney General Maura Healy, joined an amicus brief in favor of the prevailing analysis.

The Takings Clause of the Fifth Amendment requires government entities to pay reasonable compensation when they take private property for a public purpose. The Supreme Court has long recognized that the Takings Clause applies not only to outright physical appropriation of property, but also to government regulation that is so burdensome as to effectively destroy the economic value of affected property. At the same time, Court has made clear that the government has legitimate reasons to regulate private property for the public good, including protection of the environment and the regulation of development, and not every regulation of private property will rise to the level of a taking.

The dispute in Murr concerned the application of state and local regulations intended to protect the scenic St. Croix River, which forms part of the border between Wisconsin and Minnesota, to two riverfront lots owned by the same family for half a century. The St. Croix enjoys federal protection under the Wild and Scenic Rivers Act. To comply with the federal law (and regulations enacted pursuant to it), in 1976 Wisconsin’s Department of Natural Resources enacted regulations limiting development along the river, including a prohibition on the development or sale of lots with less than one acre of land suitable for building. Local zoning authorities were required to adopt parallel regulations.

The two lots at issue in Murr had come to be owned by four siblings. Their parents bought one of the lots in 1960, built a vacation cabin, and later transferred ownership of the lot to a family company. The parents purchased the second lot in 1963, and left it vacant. In 1994, the family company transferred the first lot, with the cabin, to the plaintiff siblings. The following year, the siblings acquired the second, vacant lot.

Each of the lots had less than one acre of land suitable for building. But because they were separately owned as of 1976 — one was owned by the family company and one by the Murr parents — they initially enjoyed “grandfathering” from the 1976 development-limiting rules. When both lots were transferred to the same owners — the four Murr siblings — local law deemed the two lots to be “merged” into a single lot. (Merger provisions are a feature of many local zoning schemes, and of common law in states including Massachusetts, and generally provide that a non-conforming lot merges with a contiguous lot owned by the same person. Merger rules are intended to minimize the number of nonconforming lots.)

The Murr siblings were interested in selling the vacant lot in order to fund improvements to the cabin lot, but local authorities ruled that the vacant lot was no longer exempt from the 1976 rules, and that the lots could only be developed together. The Murr siblings sued, claiming that this constituted a regulatory taking because it destroyed all of the economic value of the vacant lot.

The critical question in Murr was determining what the “relevant parcel” was for analyzing whether a regulatory taking had occurred. The plaintiffs, supported by property rights advocates, argued that courts should presume the relevant parcel is defined by an individual lot’s boundaries. Because the regulation at issue prohibited building on or selling the vacant lot, plaintiffs claimed, the regulation deprived them of all economic value from the parcel.

But the Supreme Court opted instead for a flexible, multi-factor test that gives what the court characterized as “substantial weight” to how the property is treated under state law, takes account of the property’s topographical and other physical characteristics, and considers the property’s value under the regulation, with particular attention to the effect of the regulation on the owner’s other property holdings. In Murr, this flexible analysis led the high court to find that the relevant parcel was not merely the vacant lot directly affected by the regulation, but both commonly owned lots considered as a whole. Since the combined lot had considerable value, the court held, no compensable regulatory taking had occurred.

In its 2006 decision in Giovanella v. Conservation Commission of Ashland, the Massachusetts Supreme Judicial Court adopted a similar flexible approach in deciding a regulatory-takings case, and likewise concluded that the environmental regulations at issue did not amount to a constitutional taking. The SJC held that courts should presume that contiguous, commonly are one parcel for purposes of a regulatory takings analysis, subject to an owner demonstrating that other factors outweigh the presumption, such as owner proposing two distinct economic uses of the lots. As a technical matter, the Supreme Court’s analytical framework announced in Murr will now supersede the Giovanella analysis; but the viewpoint and rationale underlying the decisions, and the kind of results likely to occur, are in harmony.