Property rights hit by high courts

2017 IN REVIEW

Sometimes private property rights are lost to the government in a dramatic event, such as when land is condemned for a public project -- a highway, an airport or a downtown redevelopment. But more commonly, private property rights are lost to the government in small increments, by administrative encroachments that considered separately may not amount to much, but collectively are significant. Like a lobster in slowly warming water, only in retrospect does the magnitude of the loss appear.

Property rights are undoubtedly essential to a free society. But another, often competing, precept of American law is the authority of the government to order society for the protection of health, safety and welfare. These two concepts are often in tension, especially as our society becomes more urbanized. In the area of property rights, several decisions over the last year seem to have tipped the scale in favor of the government. In these cases courts have adopted the view that bureaucratic objectives or legislative discretion override property rights.

In our first example from 2017, Murr v. Wisconsin, the U.S. Supreme Court dealt with the question of how to define the property interest that should comprise the "denominator" parcel for purposes of a takings analysis. The larger the "denominator" parcel, the less intrusive the governmental interference with the overall property interest appears, and the less likely a taking has occurred.

In Murr, a local ordinance provided for the "merger" of two commonly owned parcels for purposes of development and sale. One of the parcels was undeveloped, while the other was developed with a recreational cabin built under prior development standards. Although separate parcels under state law, the parcels did not meet current development standards relative to lot size and useable area. Had the parcels remained under separate ownership a grandfather clause would have relaxed those restrictions. But the parcels came under common ownership, triggering application of the "merger" ordinance. The question was whether the merger ordinance should be viewed in terms of its impact on the undeveloped parcel alone, or on the "merged" parcel, which included an existing cabin.

The court held that considering the unremarkable nature of the merger ordinance, the location of the property in a heavily regulated shoreline area, and the reasonable expectations of the owner, the "denominator" for purposes of the takings analysis should be the merged parcel, rather than each parcel separately. Thus viewed, the ordinance did not effect a taking because a beneficial use of the merged parcel remained.

In California Building Industry Association v. City of San Jose, a 2015 case, the California Supreme Court considered a local ordinance that required a developer to include price controlled "affordable housing" units within its development as a condition of approval. The objective of the ordinance was "to increase the City's stock of affordable housing and promote economically diverse residential projects." The court viewed this requirement as akin to traditional land use regulations such as a height limit or a setback requirement, to be measured against the deferential standards of the rational basis test. The court held the ordinance was neither an exaction nor a development condition subject to a more stringent "nexus" and "rough proportionality" standard of review. San Jose thus applies an expansive notion of regulatory action supported by legislative policies to define away the issue of whether an exaction has occurred.

Another California Supreme Court case, from 2016, Property Reserve, Inc. v. Superior Court involved physical -- rather than regulatory -- encroachments. The question was whether and to what extent the government can physically enter and make changes to private property prior to initiating an eminent domain action. The context was a statutory scheme that under certain conditions allows the government to undertake pre-condemnation testing and inspection of property. In Property Reserve, the project involved a massive water transport project from Northern to Southern California. Prior to filing a condemnation action, a government crew -- under authority of the pre-condemnation inspection statutes -- entered onto the property for days at a time, drilling inspection holes, keeping equipment on site, and otherwise occupying and using the property.

Historically, courts have viewed any intrusion by the government onto private property, however small, as a taking under the Fifth Amendment requiring the payment of just compensation. That approach appears to have softened in Property Reserve, where the court found that the government's entry onto private property without initiating an eminent domain action was justified under the government's traditional police power. The court noted that power includes the ability to enter onto property for the purpose of safety inspection, crime prevention, and code enforcement. However, established case law holds that the police power allows entry and damage to property without compensation only when there is an emergency. There was no emergency in Property Reserve -- indeed, the massive project had been in the planning process for years. Nor did the court address the Fourth Amendment right of property owners to be secure in their persons and property from unreasonable searches and seizures by the government. Case law has held that those rights may be abridged by the government only when the constitutional requirement of a warrant is met, but no warrant was required in Property Reserve.

Our final example, from 2017, is the California Supreme Court case Lynch v. California Coastal Commission. In Lynch, landowners sought to rebuild a seawall that protected their bluff top homes along the Pacific Ocean shore. After a long administrative process, the California Coastal Commission issued a permit allowing for reconstruction of the seawall, but imposed several conditions including limiting the duration of the permit to 20 years and a prohibition on further bluff top development. The landowners filed a mandamus action challenging the validity of the conditions imposed. However, because the seawall was necessary to protect their property in the coming winter, the landowners also built the seawall. In other words, they both challenged the permit conditions and accepted the permit benefits. The owners believed that by filing their challenge first they had adequately protected their right to object, but the California Supreme Court disabused them of that notion.

Applying the doctrine of equitable forfeiture, the court held that by building the seawall, even after filing a lawsuit against the conditions, the owners had forfeited their right to challenge the conditions. The court noted that "complete chaos" would ensue if every applicant could challenge permit conditions while going forward with their project. An exception allowing applicants to challenge a permit's restrictions after taking its benefits would change the dynamics of permit negotiations and foster litigation, according to the court. Once again, the court seemed to be elevating the government's and administrators' needs over the property rights involved.

A balancing always takes place between the interests of the government to regulate for the public good, on one hand, and the interests of private property owners to freely enjoy their property, on the other. In these recent decisions, the U.S. and California Supreme Courts seem to have placed their thumb on the scales in favor of the government to pursue its objectives, while giving short shrift to the interests of the property owners. Whether these cases are anecdotal or reflect a trend remains to be seen.