Daily Development for Friday, June 22, 2001

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

CONSTITUTIONAL LAW; TAKINGS; INVESTMENT BACKED EXPECTATIONS: The denial of a permit that deprives landowner of all economically viable use of his property is not a taking unless landowner had distinct investment-backed expectations, which do not exist if landowner had taken no initiative to develop property for over 30 years.

McQueen v. South Carolina Coastal Council, 530 S.E. 2d 628 (S.C. 2000).

In the early 1960's, landowner purchased unimproved lots created by fill that were located on manmade, saltwater canals. These properties were essentially submerged, but others in the area had reclaimed similar property by the construction of bulkheads. It appears that a permit for such a purpose likely would have been granted at the time of landowner's purchase, although it is clear that landowner would have had to make application for such permit.

In 1991, landowner applied to the Coastal Council for permits to construct bulkheads to prevent further erosion of his lots and the lots of his neighbors. Both permits were denied on the grounds that the bulkheads would be located in a tidelands critical area, and that any resulting backfill would fill tidal wetlands. It was conceded by all parties that the denial of the permits deprived the landowner of all economically viable use of the property. But, in order to prevail on a takings claim, the landowner had to establish that the regulation interfered with his "distinct, investment-backed expectations." I

The South Carolina Supreme Court, reversing a Court of Appeals decision, held that the landowner did not show any "investment backed expectations" because the landowner had neglected his lots for almost 30 years since acquiring them. The court held that the landowner's neglect, and his failure to seek developmental permits as regulations became more stringent, demonstrated an absence of investment-backed expectations and that there was no taking.

Although the evidence showed that, if permits were granted, the lots would have a value of over $50,000, the court commented:

"[R]espondent neglected his property for thirty years, allowed the land to revert to wetlands, and now expects the State of South Carolina to pay him the going rate for high ground - a twenty-fold return on his initial investment."

The court held that the case was distinguishable from Lucas v. South Carolina Coastal Council, where the U.S. Supreme Court found that the denial of a construction permit that deprived an owner of all value in the land constituted a basis for denial of the permit was not part of the "background principles" of property law that inherently limit the use of the land. Although the court here agreed with the landowner that the environmental regulation in question was not part of the "background principles" of South Carolina law, and that the construction of the bulkheads would not constitute a common law nuisance, it nevertheless distinguished Lucas because in Lucas the landowner clearly had purchased the property with a mind to developing it, and had invested in the land's development potential.

Comment 1: The editor confesses to complete puzzlement here. The landowner gave valuable consideration for land, which was subject to regulation that permitted development. Thirty years later, the landowner seeks to develop. Why wasn't the landowner's original purchase of the property the creation of an "investment backed expectation?" Because, says the court, the landowner should have undertaken development of the property earlier.

Such reasoning seems utterly at odds with classic investment patterns in a market economy. The idea is that landowners ought not to be expected to invest in the development of their property until they decide, based upon their own judgment of value, that the investment is warranted.

And, by the way, the landowner is not claiming the "dry land value," as undoubtedly the construction of the bulkheads will cost money, and in any event the state could regulate the bulkhead construction down to leaving the landowner with only the barest nub of value without crossing over the Lucas line. But here the court conceded that there was no remaining value in the land. Sounds like a taking to the editor. Any other conclusion would encourage uneconomic and wasteful activity to initiate development prematurely for the sole purpose of demonstrating that the landowner really does see investment potential in the property.

What a dumb idea!

Comment 2: Once again, the South Carolina court, by confessing that the regulation destroyed all value from the property, creates a naked confrontation of property values. Is this case going up? One assumes so.

CONSTITUTIONAL LAW; TAKINGS; "BACKGROUND PRINCIPLES:" Prohibition of wetlands development so as to destroy all investment value in the regulated property is not justified by the argument that such regulation is based upon "background principles of state property law" because landowners' basic expectations in land include the right to build on it.

McQueen v. South Carolina Coastal Council, 530 S.E. 2d 628 (S.C. 2000).

This case is also discussed under the heading: "Constitutional Law; Takings; Investment Backed Expectations."

The South Carolina Coastal Council and amicus groups attempted to use this case to establish the principle that there is no inherent right to change the natural character of land, and that restriction on development is a part of the "background principles of state property law." Such a ruling, of course, would justify virtually any land use regulation restricting development, leaving landowners basically with the "investment backed expectation" to picnic, and just about nothing else. Indeed, there are some wetlands decisions that virtually so conclude.

Other arguments raised by amicus included the claim that the restriction of development of riparian land is a "background principle," or that the "public trust doctrine" provided the necessary background principle to regulate wetlands (and lots of other things, arguably) without any concern about takings principles.

The court, although it ultimately concluded that there was no taking in this case, based upon reasoning that the editor criticizes in a prior post, here concluded that it is incorrect that landowners' have no development expectation in their property as a basic principle of state law.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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