SCOTUS Rejects Bright-Line Rule, Adopts a Multifactor Standard in Relevant Parcel Analysis

In the context of regulatory takings, issues often arise in identifying what the actual property consists of before the taking.  Because the test for regulatory takings require the courts to compare the value that has been taken from the property with the value that remains in the property, one of the critical components in the analysis is determining how to define the unit of property “whose value is to furnish the denominator of the fraction.”  Keystone Bituminous Coal Assn. v. DeBenedictis, 480 U.S. 470, 497 (1987).

The United States Supreme Court re-visited this issue recently in the regulatory takings case of Murr v. Wisconsin.  Wisconsin laws prevent the use of lots as separate building sites unless each lot has at least one acre of land suitable for development.  The State laws also include a merger provision which provides that adjacent lots under common ownership cannot be sold or developed as separate lots if they do not meet the size requirement.  The case here involved two adjacent parcels (Lot E & Lot F) that were given to petitioners by their parents.  Prior to the transfer, each lot was owned by separate entities, one being under the ownership of the parents and the other under their parents’ plumbing company.  When the two lots were transferred to petitioners, the State’s “merger doctrine” was also implicated whereby petitioners could not separately sell or develop the parcels individually because each lot had less than one acre of land suitable for development.  Petitioners challenged the State laws and provisions alleging that it was a regulatory taking of “all, or practically all, of the use of Lot E because the lot cannot be sold or developed as a separate lot.”

In a 5-3 decision, SCOTUS ruled that petitioners’ property was to be evaluated as a single parcel consisting of both lots, not just Lot E.  The Court concluded this based on a multi factor test which includes three factors: (1) the treatment of the land under state and local law; (2) the physical characteristics of the land; and (3) the prospective value of the regulated land.   When these factors were applied, the Court found that the two lots should be treated as one for takings analysis.  First, Wisconsin’s merger provision is a valid law serving a legitimate purpose and treats the two lots as a single property.  Second, the two lots are contiguous and standing alone limited in potential use which support the treatment as a single parcel.  Lastly, each lot individually is less valuable than the two lots combined as a single parcel and thus the Court stated “[t]he value added by the lots’ combination shows their complementarity and supports their treatment as one parcel.”

The Supreme Court’s decision in Murr has made the analysis more complex in the context of identifying the relevant parcel in regulatory takings.  It will be interesting to see how this new test is applied and whether it will expand beyond the context of regulatory takings.

Murr v. Wisconsin can be read here.

For more information on the Murr case, a blog post by our OCA colleague, Robert Thomas, in his Inverse Condemnation Blog is available here.  Also, our previous blog post on the Court’s grant of certification is available here.

Also check out the Bloomberg News’ story – “Property Rights Curbed by Top U.S. Court in Development Case”