Professor Real Estate® Suzanne Hollander Commentary: Friday’s U.S. Supreme Court Decision Reduces Private Property Rights
If you love your property rights like Professor Real Estate® Suzanne Hollander does, you need to know 6 property rights lessons from the U.S. Supreme Court’s ruling in Murr v. Wisconsin last week! What if you, like the Murr family, owned 2 contiguous (side by side) separately identified waterfront lots (properties) and your state told you that you couldn’t sell or develop them separately because they are next to each other and both owned by you? You might feel your property rights trampled, taken by the government because you can’t use your property the way you want and your property value is reduced! Like the Murrs, you may sue your state and demand “Just Compensation” – to be paid for the reduction in value that your state’s law is causing you.
Professor Real Estate®’ loves the U.S. Constitution because its 5th and 14th Amendments protect private property owners’ rights from being “Taken for public use without Just Compensation.” These are called the “Takings” Clauses because they protect private property from being taken by the government. Takings protections apply to “Physical Takings” (where the government occupies your property) and “Regulatory Takings” (where the government enacts a law restricting how you can use or sell your property).
Since 1922, the Supreme Court has said private property may be regulated by the government to a certain extent, without qualifying as a Taking, unless the regulation goes “Too Far.” If the regulation does not qualify as a “Taking” then your property value is reduced but you don’t get “Just Compensation.” The “Too Far” standard is… Too Vague.
The Murrs’ case is a Regulatory Taking, the state’s regulation prohibited them from selling their two parcels separately, but did regulation go “Too Far”? Far enough to be a taking that qualifies for Just Compensation. The Supreme Court said No!
Professor Real Estate®Suzanne Hollander’s 6 Private Property Rights Lessons from Friday’s Supreme Court Decision
- Individual Property Rights are protected in the U.S. but Not Absolute. “Takings Cases” try to balance the individual’s right to retain interest and exercise freedoms at the core of private property ownership and the government’s power to adjust rights for the public good. In this case, Wisconsin, enacted a regulation to merge adjacent parcels owned by the same owner to reduce the development of lots smaller than the minimum lot size that zoning allows, along the River for the “common good.” The regulation was enacted prior to the Murrs’ transfer of title from their different entities into one entity.
- The Court’s Multifactor Test and the “Too Far” Test are TOO VAGUE, Create Uncertainty of Property Rights. The Court’s Multifactor Test and the “Too Far” test depend on facts and circumstances and require property owners to hire lawyers to figure out and argue. The MultiFactor test lists factors for courts to consider when determining if a regulation rises to the level of a Regulatory Taking of property: evaluate treatment of land under state/local law, physical characteristics land, prospective value of the land, whether reasonable expectations about property ownership would lead a landowner to anticipate his or her holdings would be treated as one parcel instead of separate tracts.
- A Regulation May Limit the Way You Use a Property, Without Qualifying as a Taking. The Court found merging the 2 properties into 1 and prohibiting the individual sale of each separately was not a Taking because, the Murrs still retained rights to use entire property and were not deprived of all economical beneficial use, so the regulation did not go “Too Far” and justify Just Compensation. The state’s regulation did not reduce the full bundle of property rights that the owners had when looking at the property as a whole.
- It’s Your Job to Know Laws that Concern or May Concern Your Real Estate. The Supreme Court found it was a reasonable expectation that the Murrs would anticipate that their 2 properties could be treated as 1 parcel because the State’s merger regulation existed before they took title and federal and state law regulated properties along the river. The Murrs really wanted their properties to be remain 2 separate properties based on each property’s lot lines (legal description) because if the properties remained separate, the State’s regulation prohibiting the sale/development of the separate parcels would be a Regulatory Taking that goes “Too Far.”It is an important (costly) lesson that in any city, county, state or country where you plan to transfer property you own or buy property it is important to know the regulatory framework before your transfer property – whether to a family member or in an arm’s length transaction. Here, the parents acquired the 2 lots on different dates and owned them in different entities, they transferred the properties to their children and that’s when the state’s merger laws applied, the Court said, an “Owner must acknowledge legitimate restrictions affecting his or her future use and sale of the property,” and quoting the 1907 case of Ballard v. Hunter, “Of what concerns or may concern their real estate men usually keep informed, and on that probability the law may frame its proceedings.”
- Just because You Own Two Contiguous Lots Does Not Mean that Your Lots will be Merged into One. You need to read the laws and regulations in your particular area to understand if your contiguous lots would be merged into one and under which circumstances, if any.
- If You Own U.S. Property You are Entitled to Due Process if There is a Taking. Although the Supreme Court ruled in favor of the state, the Murrs still had the opportunity to exercise their rights to due process when they felt there was a taking. The 5th and 14th Amendments extend this right of due process to owners of U.S. properties whether they are U.S. nationals or foreigners. This means that neither the state nor federal government may arbitrarily take property.