Fifth Amendment: Takings

Penn Central involved the conflict between state power to regulate property, and the individual interest in using that property free of regulation. The case involved the question of what constitutes a “taking” within the meaning of the Fifth Amendment. In a number of early cases, the Court had held that the takings clause reached only “direct appropriations” of property, or the functional equivalent of an “ouster of the owner’s possession.” Transportation Co. v. Chicago (1879). When the government physically invades property, the Court has generally required compensation “no matter how minute the intrusion, and no matter how weighty the public purpose behind it.” In one case, the Court held that a New York law requiring landlords to allow television cable companies to place cable facilities in their apartment buildings constituted a taking even though the facilities occupied at most only a few feet of the landlords’ property.

The Court’s decisions have been less clear about when governmental “regulation” of property effects a taking. In Penn Central, the City of New York adopted a comprehensive plan to preserve historic landmarks and historic areas or districts. However, rather than acquiring historic properties, the government chose to “regulate” them by limiting what property owners could do with them. The law provided that, when a property was designated as a “landmark,” the law imposed a duty to keep the exterior of the building “in good repair” and to seek approval of the Landmarks Commission before making any changes to the exterior architectural features. The goal of the law was to ensure that decisions concerning construction on landmark sites are made with “due consideration of the public interest in the maintenance of the structures and the landowners’ interest in use of their properties.” In exchange for the limitations, the law gave owners of historic properties a significant benefit by allowing them to transfer development rights to contiguous parcels on the same city block. Later amendments gave the owners of landmark sites additional opportunities to transfer development rights to other parcels. The city believed that the Landmarks Law would “safeguard desirable features of the existing urban fabric” and benefit it “by fostering ‘civic pride in the beauty and noble accomplishments of the past’; protecting and enhancing ‘the city’s attractions to tourists and visitors’; ‘supporting and stimulating business and industry’; ‘strengthening the economy of the city’; and promoting ‘the use of historic districts, landmarks, interior landmarks and scenic landmarks for the education, pleasure and welfare of the people of the city.’”

The Court concluded that it was more inclined to find a “taking” when the government physically invades property than “when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.” The Court emphasized that “Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law.” In some instances, for example, government seeks to promote “the health, safety, morals, or general welfare” by prohibiting particular contemplated uses of land even though they destroy or adversely affect recognized real property interests. The Court viewed zoning laws as the “classic example” of permissible governmental action even though they may prohibit the most beneficial use of the property. But takings challenges have been rejected even when zoning laws do prohibit “a beneficial use to which individual parcels had previously been devoted and thus caused substantial individualized harm.”

The owners of Penn Central argued the New York City law had “taken” their property by depriving them of any gainful use of their “air rights” above the Terminal. The Court disagreed, noting that “takings” jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, the Court focused “both on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole—here, the city tax block designated as the ‘landmark site.’”

The Court also rejected the argument that compensation was required because New York City’s law applied only to individuals who own selected properties. “Agreement with this argument would, of course, invalidate [all] comparable landmark legislation in the Nation. We find no merit in it.”

The Court downplayed the impact of the Landmarks law on Grand Central Terminal. The law did not interfere with present uses of the Terminal and, in fact, allowed appellants to continue to use the property as it had been used (as a railroad terminal with both office space and concessions). In addition, the Court found that the law allowed Penn Central “to profit from the Terminal and to obtain a ‘reasonable return’ on its investment.” The Court also rejected the appellant’s claim that the Landmarks law “took” their airspace above the terminal. The Court found that some uses of the airspace might be permitted if they “would harmonize in scale, material and character with [the Terminal].” As a result, although the Landmarks Commission had rejected the proposed 50-story structure, it might permit a smaller structure. The Court noted that the abrogated air rights were transferrable to other parcels in the city, and that this transfer would mitigate any financial burdens.

Penn Central is an important decision because it establishes the power of government to “regulate” property without treating the regulation as a “taking” and without requiring compensation.

Mr. Justice BRENNAN delivered the opinion of the Court.

In engaging in these essentially ad hoc, factual inquiries, the Court’s decisions have identified several factors that have particular significance. The economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations are, of course, relevant considerations. So, too, is the character of the governmental action. A “taking” may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.

“Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law,” and this Court has accordingly recognized, in a wide variety of contexts, that government may execute laws or programs that adversely affect recognized economic values. Exercises of the taxing power are one obvious example. . . .

More importantly for the present case, in instances in which a state tribunal reasonably concluded that “the health, safety, morals, or general welfare” would be promoted by prohibiting particular contemplated uses of land, this Court has upheld land-use regulations that destroyed or adversely affected recognized real property interests. Zoning laws are, of course, the classic example, which have been viewed as permissible governmental action even when prohibiting the most beneficial use of the property. . . .

In contending that the New York City law has “taken” their property in violation of the Fifth and Fourteenth Amendments, appellants make a series of arguments, which, while tailored to the facts of this case, essentially urge that any substantial restriction imposed pursuant to a landmark law must be accompanied by just compensation if it is to be constitutional. They first observe that the airspace above the Terminal is a valuable property interest. They urge that the Landmarks Law has deprived them of any gainful use of their “air rights” above the Terminal and that, irrespective of the value of the remainder of their parcel, the city has “taken” their right to this superadjacent airspace, thus entitling them to “just compensation” measured by the fair market value of these air rights.

Secondly, appellants, focusing on the character and impact of the New York City law, argue that it effects a “taking” because its operation has significantly diminished the value of the Terminal site. Appellants concede that the decisions sustaining other land-use regulations, which, like the New York City law, are reasonably related to the promotion of the general welfare, uniformly reject the proposition that diminution in property value, standing alone, can establish a “taking,” and that the “taking” issue in these contexts is resolved by focusing on the uses the regulations permit. Appellants, moreover, also do not dispute that a showing of diminution in property value would not establish a taking if the restriction had been imposed as a result of historic-district legislation, but appellants argue that New York City’s regulation of individual landmarks is fundamentally different from zoning or from historic-district legislation because the controls imposed by New York City’s law apply only to individuals who own selected properties.

Stated baldly, appellants’ position appears to be that the only means of ensuring that selected owners are not singled out to endure financial hardship for no reason is to hold that any restriction imposed on individual landmarks pursuant to the New York City scheme is a “taking” requiring the payment of “just compensation.” Agreement with this argument would, of course, invalidate not just New York City’s law, but all comparable landmark legislation in the Nation. We find no merit in it. . . .

Rejection of appellants’ broad arguments is not, however, the end of our inquiry, for all we thus far have established is that the New York City law is not rendered invalid by its failure to provide “just compensation” whenever a landmark owner is restricted in the exploitation of property interests, such as air rights, to a greater extent than provided for under applicable zoning laws. We now must consider whether the interference with appellants’ property is of such a magnitude that “there must be an exercise of eminent domain and compensation to sustain [it].” That inquiry may be narrowed to the question of the severity of the impact of the law on appellants’ parcel, and its resolution in turn requires a careful assessment of the impact of the regulation on the Terminal site.

Unlike the governmental acts in Goldblatt, Miller, Causby, Griggs, and Hadacheck, the New York City law does not interfere in any way with the present uses of the Terminal. Its designation as a landmark not only permits but contemplates that appellants may continue to use the property precisely as it has been used for the past 65 years: as a railroad terminal containing office space and concessions. So the law does not interfere with what must be regarded as Penn Central’s primary expectation concerning the use of the parcel. More importantly, on this record, we must regard the New York City law as permitting Penn Central not only to profit from the Terminal but also to obtain a “reasonable return” on its investment.

On this record, we conclude that the application of New York City’s Landmarks Law has not effected a “taking” of appellants’ property. The restrictions imposed are substantially related to the promotion of the general welfare and not only permit reasonable beneficial use of the landmark site but also afford appellants opportunities further to enhance not only the Terminal site proper but also other properties. . . .

Mr. Justice REHNQUIST, with whom CHIEF JUSTICE BURGER and Mr. Justice STEVENS join, dissenting.

. . . Over 50 years ago, Mr. Justice Holmes, speaking for the Court, warned that the courts were “in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.” The Court’s opinion in this case demonstrates that the danger thus foreseen has not abated. The city of New York is in a precarious financial state, and some may believe that the costs of landmark preservation will be more easily borne by corporations such as Penn Central than the overburdened individual taxpayers of New York. But these concerns do not allow us to ignore past precedents construing the Eminent Domain Clause to the end that the desire to improve the public condition is, indeed, achieved by a shorter cut than the constitutional way of paying for the change.

Bibliography

Chipchase, Calvert G. “From Grand Central to the Sierras: What Do We Do with Investment-Backed Expectations in Partial Regulatory Takings?” Virginia Environmental Law Journal 23 (2004): 43.

Eagle, Steven J. “The Four-Factor Penn Central Regulatory Takings Test.” Penn State Law Review 118 (2014): 601.

Ides, A., and C. May. Constitutional Law: Individual Rights, 6th ed. Frederick, MD: Wolters Kluwer Publishing Co., 2013, 133–158.