High Court Upholds Tests for Takings Cases

In a victory for property rights, the U.S. Supreme Court on May 23 clarified the circumstances under which land owners are due just compensation from the government for a “taking” of their property as defined by the Fifth Amendment to the Constitution.

The unanimous affirmation of key property rights precedents came in the case of Lingle v. Chevron, U.S.A., the first of three takings cases the Supreme Court is expected to decide this term. Justice Sandra Day O’Connor wrote the opinion.

“This decision provides much needed clarification for property owners who litigate takings claims and deserve monetary compensation when they are subject to excessive land use regulations,” said NAHB President Dave Wilson.

While the court has reversed some of its prior decisions on this issue, in the Lingle decision it took pains to preserve major precedents that are often used by home builders to challenge excessive impact fees, exactions and other unconstitutional conditions to development approvals. The Court affirmed the “essential nexus” and “rough proportionality” tests, which require impact fees and other exactions to be used to pay for a specific, stated public service and to be proportional to the cost of the public service provided.

NAHB had weighed in with an amicus brief to persuade the Court to maintain the “essential nexus” and “rough proportionality” tests that have been preserved in the Lingle decision.

Lingle clarifies that there are four independent tests that a property owner can use to obtain compensation from the government for a taking:

1. A physical invasion by the government, such as an appropriated public easement demanded from a property owner
2. A “total,” categorical taking in which a regulation deprives a property owner of all economically beneficial uses of their property, such as requiring a parcel to be set aside in its entirety as open space
3. A balancing analysis — to be conducted where government regulations restrict the use of property to a degree, but do not eliminate all uses — that considers the land owner’s expectations for investment and development, and the economic impact of the regulation on the land owner
4. A governmental imposition of unconstitutional conditions for approval of a development project in exchange for a permit. Under the doctrine of unconstitutional conditions, “the government may not require a person to give up a constitutional right — here, the right to receive just compensation when property is taken for public use — in exchange for a discretionary benefit (that is, a permit) conferred by the government where the benefit” is not connected or proportionate to the condition imposed.

The Lingle decision did remove one takings test. In its own past decisions, the Court had stated that a regulation failing “to substantially advance a legitimate government interest” amounts to a taking. In the latest decision, it indicated that this test is no longer appropriate. However, Justice O’Connor made clear that a property owner could still assert a due process violation from a regulation in which the government fails to advance its own interests.

At issue in the Lingle case was a Hawaii statute limiting rents that oil companies can charge to dealers who lease service stations owned by the companies. Chevron sued for a taking, arguing that the rent cap statute failed to “substantially advance a legitimate state interest” in controlling retail prices.  Chevron won at the 9th Circuit Court of Appeals.

In its decision, according to Justice O’Connor, the Supreme Court reversed the 9th Circuit because the substantial advancement test Chevron used to make its claim did not address the effect of a regulation on property, but was concerned solely with the validity of the regulation itself. The Court dismissed Chevron’s claim.

While elimination of the substantially-advance test was not a victory for Chevron, it was the clarification of takings law and the preservation of the essential-nexus and rough-proportionality tests that is important to home builders, Wilson said. “The Supreme Court’s affirmation of these precedents is a significant victory for property rights,” he said.

For more information, e-mail Blake Smith at NAHB, or call him at 800-368-5242 x8583.

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