At the end of its term this past June, the Supreme Court issued a regulatory taking decision. Murr v. Wisconsin (June 23, 2017). The Fifth Amendment of the Constitution prohibits the government from taking property without compensating the owner. “Regulatory taking” is the phrase used for situations in which regulation has taken enough of the value from the owner so that compensation should be provided. 

The rule for determining whether there is a regulatory taking comes from the Supreme Court’s decision in Lucas v. South Carolina Coastal Council, 505 US 1003 (1992) where the Court dealt with a South Carolina law that prohibited the construction of habitable structures on the petitioner’s parcels. The court stated that compensation will not be required unless a regulation “denies all economically beneficial or productive use of land.” 

The Murr case arose out of a local law that barred separate sale or development of adjacent lots that are under common ownership, unless each has more than an acre suitable for development. Petitioners acquired the adjacent parcels separately and intended to transfer one parcel to fund an improvement on the other.

Petitioners claimed that this regulation deprived them all beneficial use of the second parcel. The Supreme Court disagreed, reasoning that this regulation did not reduce the value sufficiently to amount to a taking.  The second parcel retained economically beneficial use because the combined parcels had greater value and utility.   

The issue before the court was what property do we look at when asking whether a regulation has taken all economic benefit—the parcel in question or all of the petitioner’s property. To reach that conclusion the court examined three factors: 

(1) How does local law view the property; 

(2) Do physical characteristics suggest one property or two; and 

(3) Does one property enhance the value of the other. 

Here, local law viewed the parcels as one, physical characteristics suggested that they were one and the second parcel enhanced the value of the first. Thus, the court concluded that the petitioners had one large parcel at issue and that regulation had not taken all the value of it.

Aaron Gershonowitz is a partner at Forchelli, Curto, Deegan, Schwartz, Mineo & Terrana LLP, Uniondale, N.Y.

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