The Most Important Property Rights Case of the Term:
SCOTUS Decision, June 23rd: A loss for Property Rights in the
Murr et al. v. Wisconsin et al.: A New Test for Regulatory Taking
Approximately 2 minutes reading time. State governments saw a major win in Murr v. Wisconsin 582 US ___ (2017), a case that established a new fact and circumstances test for regulatory takings and the “parcel as a whole” rule. Justice Kennedy held with the liberal wing of the court that neither the original lot lines nor Wisconsin state law could take precedence when determining whether adjacent lots should be merged together for the purposes of a regulatory takings case. Instead, the court applied a flexible standard, taking into account:
- The treatment of the property under state and local law;
- The physical characteristics of the land; and
- The prospective value of the regulated land.
Ultimately, these factors were used to establish that the Murr family should have reasonably expected that their property would be treated as a single parcel rather than separate tracts. As a result, not only were they forbidden by regulation from selling one of their two lots separately from the other, but they were denied any compensation for this limitation. Many property owners own contiguous lots that could be potentially affected by the decision, including homeowners, small businesses, charities, and others. All in all, a bad end for the owners.
Those of us working in the real estate field are likely to feel sympathetic to Justice Roberts, who noted in his dissent that states could potentially use the flexibility of the standard to aggregate legally distinct properties into parcels by court fiat. To avoid an outcome like this, practitioners will need to take a proactive, state-driven approach to research before any property purchase. Not only the relevant state statutes and regulations, but the topography itself must be taken into account in order to determine whether the use of the property has been “tainted” in any place and, if so, whether there is any way to keep the tainted portion distinct and isolated from other plots. Otherwise, it may well be a case of “one bad apple spoiling the bunch.”
The Takings Clause of the Fifth Amendment requires the government to pay “just compensation” any time it “takes” private property for public use. This ruling allows the government to avoid compensating property owners for the taking of their land, merely because they own the lot next door. But the vague nature of the test established by the court makes it very hard to figure out exactly when that might happen.
- Charles Schultz IV