Takings Claims: An Introduction
(This article is intended as a general discussion of taking claims in New York State. It is not intended as legal advice to any specific town board or individual. In addition, it is assumed in this discussion that in enacting a protective zoning ordinance or a moratorium, the town board has followed proper procedures.)
Across the Marcellus Shale region of New York State debates have been occurring at the local government level – typically town boards – about whether to ban hydrofracking through zoning. Debates continue even as two trial-level courts have upheld the power of town boards to zone out hydrofracking in the face of challenges that state law supersedes all local control over hydrofracking, including zoning.1 As part of the debate, hydrofracking proponents have asserted that a zoning ban on hydrofracking would constitute a “taking” – and thereby expose the town and its board to expensive litigation and substantial damages.
This article is intended as an introduction to “takings” law. Although it is written against the backdrop of the hydrofracking debate, its scope is broader than takings claims that may apply to zoning regulations that ban hydrofracking. And although takings law is for the most part federal constitutional law, this article will highlight significant New York decisions concerning takings claims. Finally, while this article will discuss takings claims outside of the real property arena, its primary focus is on takings claims based on the deprivation of real property rights.
Takings Claims – Based on the U.S. Constitution
Takings claims are claims by property owners against government entities for depriving an owner of property without just compensation. The basis of a takings claim is in the Fifth Amendment to the U.S. Constitution. Among other, perhaps more well-known protections, the Fifth Amendment states: “nor shall private property be taken for public use, without just compensation.”2
In general, government has the right to appropriate private property for public use, provided that it pays just compensation to the owner. A common example of this is a condemnation proceeding, where private property is appropriated by government for a public improvement and the government is prepared to pay the owner just compensation. This is not, generally speaking, subject to a claim of taking. However, when government violates the Fifth Amendment by taking private property without paying just compensation, there is a takings claim.
Types of Takings Claims
The law on takings claims is created through court decisions and exists in judicial precedents, rather than in statutes. The courts, including the U.S. Supreme Court and the New York Court of Appeals, have recognized several different types of takings claims. While directly appropriating property can be considered a taking, most takings claims involve some form of regulatory action by a government entity.
1) Physical Takings
Where government action results in a permanent physical occupation of the property, even as little as one cubic foot, there is a taking that requires compensation. This is referred to as a “physical taking.” An example of this type of taking was the case of Loretto v. Teleprompter Manhattan CATV Corp.3
In Loretto, a New York law required landlords to allow cable television companies to install cable facilities in and upon landlords’ buildings. The law allowed compensation to the landlords as determined by a state commission. In practice, this resulted in landlords being paid one dollar as compensation for the cable company permanently occupying space in the landlords’ buildings.
One unhappy landlord brought a class action challenging the law. Her suit claimed that any physical occupation authorized by government is necessarily a taking, regardless of the amount of property taken. The New York state courts upheld the law, finding that it served a beneficial purpose, that it did not have an excessive economic impact compared to the landlord’s total property rights, and that it did not interfere with any reasonable investment-backed expectations of the landlord.
The U.S. Supreme Court, however, agreed with the landlord. The Court held that a physical invasion of even one and one-half cubic feet (the approximate amount of space in the landlord’s building occupied by the cable company) was a taking that required payment of just compensation. This type of taking is referred to as a “physical taking.”
Loretto has been cited in hundreds of decisions. In New York, the Court of Appeals has applied Loretto to hold that a New York City law that required owners of single-room occupancy buildings to keep their units rented, resulted in a physical taking: “Where, as here, owners are forced to accept the occupation of their properties by persons not already in residence, the resulting deprivation of rights in those properties is sufficient to constitute a physical taking for which compensation is required.”4
Zoning laws that prohibit or restrict specified activities on land within a town do not result in a physical occupation of the land, either by the town or by third-parties. For this reason, the Loretto style takings claim (actual physical occupation) should not apply to local zoning laws and should not be a concern to town boards.
2) Total Takings
Government regulation that deprives an owner of all economically beneficial use of the property, so that the owner cannot do anything with the property other than own it, results in a taking. This is referred to as a “total” taking. An early example of a total taking was Lucas v. South Carolina Coastal Council.5
In Lucas, the property owner purchased two beach-front parcels on a barrier island, intending to build a home on each one. However, after Mr. Lucas purchased the land, South Carolina passed the Beachfront Management Act. This statute prevented Lucas from building any permanent habitable structure on the land.
The U.S. Supreme Court found that this was the “rare” case where a regulation deprived an owner of all economically beneficial use of the property, and was therefore a taking for which compensation was required. The Court did not engage in any balancing of the deprivation inflicted on the land owner against the degree to which the public interest was served by the regulation. Because the taking was a total deprivation of all economically viable uses of the land, and the functional equivalent of a physical appropriation, the owner was entitled to compensation regardless of whether the public interest was promoted by the regulation. This type of taking is referred to as a “total” taking.
“ ‘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 of the interference with rights in the parcel as a whole. ...”
Under this analysis, a taking would occur only if the zoning ordinance deprived the owner of all economic benefit of the parcel, surface as well as subsurface. A zoning ordinance which prohibits sub-surface activities like mining or drilling, but which still leaves the owner the ability to make money from other uses of the property, would not be a “total” taking. These uses might include farming, tourism, camping, residential development, and commercial development. It should be noted that the Supreme Court, which has expressed that it prefers not to lay out per-se rules for deciding takings claims,8 has also expressed some “discomfort with the logic” of the rule that measures the extent of the deprivation against the parcel as a whole.9 Still, the Supreme Court has not changed the rule.10
3) Exaction Takings
When government requires a property owner to make a concession in exchange for a land-use permit, there can be a type of taking referred to as an “exaction.” It is in the area of exactions that the courts most expressly engage in both evaluating the method by which government achieves its goals, and balancing the benefits and burdens of the regulation. As a result, not every instance of requiring a concession results in a taking.
Exaction claims arise in the context of discretionary land-use permits, in other words, where an owner has applied for a use permit and the land-use agency has the discretion to say “no.” Where the agency, rather than saying “no,” requires some concession from the landowner, Courts have found a taking if there is not a sufficiently close relationship between the potential harm from granting the land-use permit, and the beneficial effects of the concession that the land-owner is required to make.11 In addition, even if a sufficient connection exists between the potential harm and the concession, if the relative burdens and benefits of the potential harm and the concession are not “roughly proportional”, there may be a taking.12 Together these two standards are referred to as “Nollan/Dolan” for the cases that defined them.
In Nollan v. California Coastal Commission,13 a beach-front property owner sought to develop its land. Because the development would block the public’s view of the beach, the government conditioned allowing the development on the property owner granting a public access easement across its land to the beach. The Supreme Court held that requiring an access easement as a condition of allowing the development was a taking. The Court found there was not a sufficient connection between blocking the public’s view of the beach, and granting an access easement across the beach. The Court stated that other restrictions on the development such as height and width limitations could have served the same purpose of protecting the public’s view.
In Dolan v. City of Tigard,14 the land owner sought to expand a store and parking lot that were located within a 100-year flood plain. The government required the land owner both to improve storm drainage and to construct a pedestrian and bike path on the owner’s land. The required concessions arguably were related to the potential harm of increased traffic and increased storm-water runoff that would result from expanding the store and parking lot. Nonetheless, the Supreme Court found a taking because the burden to the landowner of these concessions was not “roughly proportional” to the potential harm of increased traffic and storm-water runoff.
Importantly, the Dolan “rough proportionality” test does not apply where the government completely denies a land-use or development permit. The Supreme Court has held that “rough proportionality” only applies in cases where the government exacts a concession from the property owner in exchange for a land-use or development permit.15 Since zoning regulations which prohibit specified activities, by their very nature do not exact concessions in return for land-use permits, such zoning regulations would not be a taking under the “exaction” line of cases.
In New York, application of Nollan/Dolan has resulted in one case in which the Court of Appeals unanimously held that a town’s requirement that subdivision developers pay a per-lot recreational user fee was subject to Nollan/Dolan exaction analysis, and under that analysis, upheld the fee. Yet a year later, the Court of Appeals split 4-3 in holding that a town’s requirement that property owners whose land was already subject to restrictive development regulations enter into a conservation easement was not an exaction.
In the first case, Twin Lakes Development Corp. v. Town of Monroe,16 the town required that any subdivision of over five lots either dedicate park land to public use, or pay a per-lot recreation fee in lieu of the dedication. This was held to be permissible. The Court analyzed the town’s requirements under Nollan/Dolan, and found that the payment of a recreation fee was sufficiently connected to the additional burden that a new subdivision would impose on the town’s recreational spaces, and was roughly proportional to the increased burden on the town’s recreational spaces.
In the split decision, Smith v. Town of Mendon,17 some portions of the landowners’ parcel were subject to severe development restrictions designed to protect environmentally sensitive areas, and the remainder was not subject to the restrictions. When the owners sought town planning board permission to build a house on the non-restricted portion of their land, the town conditioned its permission on the landowners entering into a conservation easement for the already-restricted parts of their land. The conservation easement would have imposed somewhat more restrictive limitations on the landowners’ ability to develop the environmentally sensitive parcels than existed under the town’s regulations.
The four-judge majority stated that exactions have been found only where the property owner is required to dedicate property to public use and thereby give up the important right to exclude others from the property, or to pay a fee in lieu of such a dedication. Because the conservation easement was not a dedication of property to public use, in large part because the owners retained the right to exclude the public from the land, there was no exaction and the town’s requirement was found to be permissible. Two of the three dissenting judges believed that the conservation easement was in fact a dedication of property to public use, and therefore an exaction had occurred.18
These two cases show that, despite what appears to be relatively clear standards for what is an exaction and when an exaction is allowable, there is still uncertainty in the law. Still, town boards that are considering zoning changes can be mindful that exaction cases are a narrow class of cases that come up when a land owner seeks a permit under an existing zoning scheme. Exaction analysis does not apply to broader issues of whether a zoning law’s prohibition of a use or class of uses results in a taking.
4) Penn Central “Goes Too Far” Takings
A zoning regulation which “goes too far” can be found to be a taking.19 This area of takings law is the least well-defined: there are no set formulas for deciding when a regulation has gone too far. Indeed, the Supreme Court prefers not to have any set formula or per-se rules for this type of takings claim.20 Instead the courts have created guidelines.
As the Supreme Court has stated, the guidelines are intended to determine if a regulatory action is “functionally equivalent to the classic taking in which government directly appropriates private property or ousts the owner from his domain.”21 Land use and zoning regulations typically do not appropriate private property, either directly, or by requiring the owner to allow others to use it, 22 or by depriving the owner of all economically beneficial use. By equating going “too far” with directly appropriating property, the Supreme Court made it clear that the line of what is “too far” is a long way from ordinary zoning laws that only determine the allowable uses of property.
In Penn Central Transportation Co. v. City of New York, the Supreme Court established that, in deciding if a zoning or other regulation has gone too far, courts are to look at the economic impact of the regulation on the land owner. In particular, courts look at the extent of the regulation’s interference with “distinct, investment-backed expectations” of the land owner.23
As New York’s Court of Appeals put it in Spears v. Berle, decided a year after Penn Central, to meet an owner’s burden of proof on a takings claim, the owner “should produce ‘dollars and cents’ evidence as to the economic return that could be realized under each permitted use” and must show that “the economic value, or all but a bare residue of the value, of the parcel has been destroyed . . ..”24 An owner’s mere generalities about intended use, not backed up with money spent toward that use, will not support a takings claim.25
Early Supreme Court takings cases and subsequent New York Court of Appeals cases looked at how well the government regulation achieved its purpose; i.e. whether the regulation “substantially advances” a legitimate state interest.26 However, in Lingle v. Chevron U.S.A., Inc.27 the Supreme Court expressly stated that whether the regulation substantially advances a legitimate state interest is a due process-type inquiry that is not part of the evaluation of a takings claim. In Consumers Union of U.S., Inc. v. State,28 decided a month after Lingle, the New York Court of Appeals recognized that whether the regulation substantially advances a legitimate state interest is no longer a takings test, and that the primary inquiry is the extent to which the regulation interferes with distinct investment-backed expectations.29
Thus, while a takings claim may examine how the burden of a regulation is shared among property owners, a takings claim does not closely examine how well the government action achieves its purpose. The focus is on the severity of the burden that the regulation imposes on private property rights.30
New York courts have applied these principles to require a very high standard of proof from a property owner, in effect providing substantial protection to local zoning authorities. In order to prove a taking, New York courts require the property owner to show with “dollars and cents evidence” that “under no permissible use would the parcel as a whole be capable of producing a reasonable return,”31 and would not be adaptable to any other suitable private use.32 In addition, New York courts have stated that the land owner must prove every element of its claim “beyond a reasonable doubt.”33
Penn Central’s requirement to look at the “distinct, investment-backed expectations” of a land owner has a practical effect. A takings claim cannot be based merely on an owner’s belief that a property interest was available for development. New York courts have called this claim “simply untenable.”34
What examples are there of successful “goes too far” takings claims in New York? Fred F. French Investment Co. v. City of New York35 is an early example, coming before Penn Central. In Fred F. French, the City rezoned as a special public parks district, two private parks that a developer had created at the Tudor City housing development. The effect of the rezoning was to take away all control that the developer had over the formerly private parks, open them to public use, and leave the developer with bare title. The rezoning thereby prohibited all reasonable income-producing or other private use of the property. The Court of Appeals found the zoning ordinance unconstitutional. Notably, the Court did not find that the owner was entitled to compensation, because the government had not encroached on the land “with trespassory consequences that are largely irreversible.”36
In Seawall Associates v. City of New York37 the Court of Appeals struck down a law intended to preserve single-room occupancy housing in New York City. The law required owners of SRO buildings to, among other things, rehabilitate vacant units and offer them for rent.
The Seawall Court found a “goes too far” taking on two grounds. The first ground was that the statute substantially impaired the value of the owners’ property and denied the owner the right to commercial development of the property, which the Court believed was the sole use for which the property was purchased.38 The other ground was that the statute did not “substantially advance legitimate state interests.”39 This latter ground, as noted, has since been abandoned by the U.S. Supreme Court.40 The Court also found that the law caused a Loretto-style per se taking, because the mandatory rent-up provision would result in the forced occupancy of the owner’s building, a drastic interference with the owner’s “fundamental rights to possess and to exclude.”41
In contrast to Seawall Associates, in Rent Stabilization Association of New York City v. Higgins42 the Court of Appeals declined to find that a regulation that expanded the definition of who was a “family member” entitled to succession rights under rent stabilization resulted in a taking. The Court distinguished Seawall Associates on the basis that the property owners in Seawall Associates, who were compelled to rent out their property as SRO rooms, had not voluntarily acquiesced in the use of their property as rental housing, while the owners in Rent Stabilization Association had.43 (Frankly, it is difficult to see how one who purchases an SRO building has to any lesser degree acquiesced in the rental occupancy of the building, than one who purchases an apartment building with rent stabilized tenants.)
Manocherian v. Lenox Hill Hospital44 involved another attempted modification of New York City’s rent regulation scheme. In Manocherian, owners of apartment building had leased residential units to non-profit hospitals, which in turn sub-leased the units to their staff, presumably at below-market rents. A statute required the building owners to offer renewal leases to the hospitals despite the fact that the hospitals, in particular Lenox Hill, did not occupy the apartments as a primary residence. The statute also granted the hospitals blanket permission to sublet to their staff without the owners’ consent, in contradiction to the existing subletting provisions of the rent stabilization laws.45
The Court found the statute unconstitutional, relying on the “substantially advances a legitimate state interest” test. The Court found that the statute did not advance the goals of rent regulation and merely served to benefit one special class.46 As the dissent pointed out, the owners did not make any showing that they had suffered any economic loss to their investment.47 It is questionable, at a minimum, whether the Court would have reached the same result after the Supreme Court had abandoned the “substantially advances” test. As an example of an unsuccessful takings claim, in Briarcliff Associates v. Town of Cortlandt,48 the owner purchased land that was being used as an emery mine (as a pre-existing non-conforming use), with the intent to open a crushed stone quarry. Three years later, before the owner had obtained a DEC permit to operate the quarry, the town rezoned the land as residential. The town also passed a law that prohibited heavy trucks on the only road leading to the site.
The owner’s takings claim was denied. The court held that the owner had not proved beyond a reasonable doubt that it could not develop the land for residential use (which the zoning allowed). The court also denied the takings claim because the owner could have continued to operate the emery mine and obtained economic return from that operation. In short, the land still had economic value. The fact that the income from the emery mine was much less than the potential income from a crushed stone quarry did not establish a taking.
A mere loss of anticipated value, in one case as much as an 80% loss, does not establish a taking. As an example, in Putnam County National Bank v. City of New York49 a bank acquired title to an undeveloped parcel in a foreclosure proceeding. After the bank obtained permission for a subdivision from local authorities, the New York City Department of Environmental Protection enacted comprehensive watershed regulations. Under DEP’s watershed regulations, the subdivision could no longer have a central sewer system, and a water pollution discharge permit was revoked. These changes in regulation forced the bank to pursue an alternative proposal that had many fewer subdivision lots and that reduced the value of the subdivision by 80%.
The court found that the 80% reduction in value did not result in a taking. The court stated that a reasonable land use restriction “is not rendered unconstitutional merely because it causes the property’s value to be ‘substantially reduced.’”50
In sum, the standards for judging a whether a regulation “goes too far” are not as definite as those applied to a claim of “physical” taking or “total” taking. Still, local zoning authorities should be secure that a reasonable zoning ordinance will not be a taking unless it destroys virtually all of a parcel’s economic value.
5) Pre-Existing Use or Grandfather Takings
Newly-enacted zoning ordinances that would prohibit the continuation of a pre-existing use result in a type of taking. The pre-existing use need not be fully operational in order to obtain such “grandfather” protection. Rather, if an owner obtains a permit or local permission to engage in a particular use, invests significant money toward that use, and takes meaningful steps to develop the land for the use in reliance on the permit, the owner may be found to have a pre-existing use. The use would then be exempt from a later-enacted zoning ordinance that would otherwise prohibit the use. While a land-owner’s remedy in these grandfather cases is typically to obtain a use exception,51 in some cases significant damages have been awarded.52
The New York Court of Appeals has stated as the general rule that: “a nonconforming use of real property that exists at the time a restrictive zoning ordinance is enacted is ‘constitutionally protected and will be permitted to continue, notwithstanding the contrary provisions of the ordinance.’”53
In order to obtain non-conforming use protection, the owner must show that the property “was indeed used for the nonconforming purpose, as distinguished from a mere contemplated use, at the time the zoning ordinance became effective.”54 As an example, in Glacial Aggregates LLC v. Town of Yorkshire55 an owner acquired land to develop as a quarry at a time when the local town had no zoning law. The owner invested substantial time and money in obtaining a permit from DEC to mine, which required a full environmental impact statement and much testing and study of hydrogeology, soil, traffic, wetlands, and human impacts. The owner dug numerous test pits, and cleared land for mining and for road construction. Then, the town adopted a zoning ordinance that banned mining in the area where the owner’s land was located. Initially, the town recognized the owner’s DEC permit and took the position