Regulatory Takings

In a typical condemnation, the landowner’s real estate is taken for a specific public use, such as a road or utility line.  A ‘regulatory taking’ is a less common taking where a governmental regulation (e.g., zoning ordinance) burdens or interferes with use of the real estate so much that the landowner receives compensation for the resulting loss in value.  A regulation that denies all of the economic usefulness of the real estate is often found to be a regulatory taking.  Where the regulation interferes with some, but not all, of the economic benefits of the real estate, the courts look at a set of factors to determine whether a regulatory taking occurred, balancing the landowner’s rights of private property ownership with the government’s rights to regulate use for the public good.

In June 2017, the U.S. Supreme Court issued an opinion about whether a regulatory taking occurred where a regulation merged two adjacent lots under common ownership.*  At the time that the Murr siblings inherited two adjacent lots along the Lower St. Croix River, a Wisconsin law designed to protect the river basin required that adjacent lots under the same ownership may not be sold or developed as separate lots unless they each have at least one acre of land suitable for development.  The Murrs’ lots did not meet the one-acre requirement, and they could only sell the combined parcel, which contained one small cabin on one of the lots, or remove the cabin and build on the merged, larger lot.  The Murrs claimed a regulatory taking, arguing that they could not sell or build on the vacant lot, depriving that lot of all of its economic usefulness.

In this case, a main issue for the court’s consideration of a regulatory taking was whether to look at lost value of the combined parcels or lost value of the vacant parcel that could not be sold or developed.  The Court adopted a multi-factor test for determining the ‘denominator,’ looking at the reasonable expectations of the landowner, physical traits of the real estate and the value of the real estate under the regulation.

Ultimately, considering the Wisconsin law and the Murr real estate under this test, the court evaluated the real estate as one parcel, finding that the regulation decreased the economic value of the real estate by less than 10 percent and that this did not result in a taking.  Some compelling facts in the Murr case include that the landowners had a reasonable expectation that their parcels would be merged and that there were desirable characteristics of the two parcels when they merged, mitigating, to some extent, the regulatory restriction.

The regulatory takings cases are fact sensitive and, with the addition of the Murr test, are even more so where the correct ‘denominator’ must be established.

*Murr v. Wisconsin, 137 S.Ct. 1933 (2017)


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