U.S. Supreme Court rules on regulatory takings

Property owners forced to hash out regulatory takings in court may lose out more often thanks to a new test used to determine whether two adjacent properties with a single owner could be considered a larger parcel.

The U.S. Supreme Court’s decision in Murr v. Wisconsin found that the properties in question were a single parcel, and because the owners were not deprived of all economically viable uses of their property they could not establish a compensable regulatory taking.

The case addressed land use regulations that merged adjacent parcels (one developed, one undeveloped) into one for environmental reasons, despite the fact they were separately acquired, owned and taxed. The regulations prevented the development or sale of the second, undeveloped parcel.

The case sought to determine whether the “parcel as a whole” concept described in an earlier decision established a rule that two legally distinct but commonly owned contiguous parcels must be combined for takings analysis purposes.

The state of Wisconsin argued for a rule that would tie the definition of the parcel to state law, which in this case considered the two parcels to be merged. The landowners argued for a rule that the lot lines defined the relevant parcel.

The Supreme Court laid out three factors to consider:

• The treatment of the property, in particular how it is bounded or divided under state and local law;
• The property’s physical characteristics, including the topography and surrounding environment; and
• The property’s value under the challenged regulation.

According to the court, all three factors pointed to the lots here being evaluated as a single parcel.

It also noted that the parcel’s terrain and shape made it reasonable to expect the range of potential uses would be limited, and the property’s location adjacent to a river put the owners on notice of potential state, federal and local regulations.

While the court said that the new multi-factor test is objective, it likely will complicate takings law by being more subjective in nature. Perhaps more problematically, the court stated that Wisconsin’s “merger provision” was a legitimate exercise of government power and asserted that such “reasonable” land use regulations do not constitute a taking.

The decision may have implications across the country as the new, fluid multi-factor test appears to give courts more discretion and may result in less favorable outcomes for property owners.