The Fifth Amendment prohibits government from taking private property without just compensation. A taking occurs in the plainest sense when government exercises its power of eminent domain. More difficult cases arise when property value is diminished pursuant to government action. Land use regulation that eliminates all economically beneficial uses of real estate constitutes a taking. Zoning ordinances that restrict development or use, but do not eliminate all economic value, are subject to review that balances competing private and public interests.
The Court, in Penn Central Transportation Co. v. New York (1978), examined whether a landmark preservation law resulted in a taking. It found that the loss of value was not significant enough to outweigh the public interest in historical preservation and environmental management. In Lucas v. South Carolina Coastal Council (1989), the Court found that a land use restriction denying the owner all economically beneficial use of the land constituted a taking. But in Kelo v. City of New London (2005), the Court held that the city’s taking of private property to sell for private development qualified as a “public use” within the meaning of the takings clause. Kelo occasioned great outcry and criticism because it is feared that the ruling effectively removes any meaningful limits in the ability of government to take people’s private property. However, more recently the Court appears to have moved toward greater protection of property rights. In Horne v. Department of Agriculture (2015), the Court ruled that the government’s acquisition of raisins from a raisin farmer (pursuant to a law allowing the Government to regulate the national raisin market) constituted a taking of property and not a mere regulation of that property. The Court refused to draw a distinction between acquisition of personal property (such as raisins) and real property for purposes of its takings analysis.
Citation: 438 U.S. 104.
Issue: Whether the City of New York could designate a building as a historic landmark and thereby prohibit alterations to the property without providing just compensation.
Year of Decision: 1978.
Outcome: In some instances, the government has the right to regulate property without providing compensation for the regulatory taking.
Author of Opinion: Justice William Brennan.
There is inevitable tension between the power of states to regulate property and the rights of citizens to own and possess property. Since the nation’s founding, the states have exercised the power to regulate property for the “health, welfare and safety” of their citizens. Despite this power, the Constitution provides special protections for property rights. Both the Fifth Amendment and the Fourteenth Amendment explicitly provide that the state may not deprive anyone of life, liberty, or property without due process of law. Further protections are provided by the Fifth Amendment, which precludes the state from “taking” private property without providing “just compensation.”
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.’”
Grand Central Terminal was designated as a “landmark,” for purposes of the New York law, because it provided an ingenious engineering solution to the problems presented by urban railroad stations as well as a magnificent example of the French beaux-arts style. Because of the Terminal’s distinctive character, the Landmarks Commission denied the owners permission to build an office tower over the terminal. In concluding that no taking had occurred, the United States Supreme Court began by noting that the Fifth Amendment Due Process Clause prohibits the “Government from forcing some people alone to keep and bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” However, the Court recognized that it had not developed any “set formula” for determining when compensation was required, and instead considered a variety of factors including the “economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations” and “the character of the governmental action.”
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 also rejected the argument that compensation is required for a land-use decision that arbitrarily singles out a particular parcel “for different, less favorable treatment than the neighboring ones.” The Court found no “singling out,” noting that the law included a comprehensive plan for preserving historic structures, wherever they might be found in the city, and the plan extended to more than 400 landmarks and 31 historic districts. The Court concluded that “Legislation designed to promote the general welfare commonly burdens some more than others. Unless we are to reject the judgment of the New York City Council that the preservation of landmarks benefits all New York citizens and all structures, both economically and by improving the quality of life in the city as a whole—which we are unwilling to do—we cannot conclude that the owners of the Terminal have in no sense been benefited by the Landmarks Law. . . .”
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.
. . . Before considering appellants’ specific contentions, it will be useful to review the factors that have shaped the jurisprudence of the Fifth Amendment injunction “nor shall private property be taken for public use, without just compensation.” The question of what constitutes a “taking” for purposes of the Fifth Amendment has proved to be a problem of considerable difficulty. While this Court has recognized that the “Fifth Amendment’s guarantee . . . [is] designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole,” this Court, quite simply, has been unable to develop any “set formula” for determining when “justice and fairness” require that economic injuries caused by public action be compensated by the government, rather than remain disproportionately concentrated on a few persons. Indeed, we have frequently observed that whether a particular restriction will be rendered invalid by the government’s failure to pay for any losses proximately caused by it depends largely “upon the particular circumstances [in that] case.”
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.
Apart from our own disagreement with appellants’ characterization of the effect of the New York City law, the submission that appellants may establish a “taking” simply by showing that they have been denied the ability to exploit a property interest that they heretofore had believed was available for development is quite simply untenable. Were this the rule, this Court would have erred not only in upholding laws restricting the development of air rights, but also in approving those prohibiting both the subjacent, and the lateral, development of particular parcels. “Taking” 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, this Court focuses rather 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.”
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.
Second, to the extent appellants have been denied the right to build above the Terminal, it is not literally accurate to say that they have been denied all use of even those pre-existing air rights. Their ability to use these rights has not been abrogated; they are made transferable to at least eight parcels in the vicinity of the Terminal, one or two of which have been found suitable for the construction of new office buildings. Although appellants and others have argued that New York City’s transferable development-rights program is far from ideal, the New York courts here supportably found that, at least in the case of the Terminal, the rights afforded are valuable. While these rights may well not have constituted “just compensation” if a “taking” had occurred, the rights nevertheless undoubtedly mitigate whatever financial burdens the law has imposed on appellants and, for that reason, are to be taken into account in considering the impact of regulation.
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.
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.
Citation: 505 U.S. 1003.
Issue: Whether the state may regulate land so extensively as to take away all “economically beneficial or productive uses” without paying compensation.
Year of Decision: 1992.
Outcome: When governmental regulation deprives a property owner of all “economically beneficial or productive uses,” the government has “taken” the property and must pay compensation.
Author of Opinion: Justice Scalia.