Daily Development for
Tuesday, July 15, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law


In a a trio of decisions released the same day, the New York Court of Appeals has clarified how its takings and eminent domain jurisprudence applies to property that is subject to environmental and land use regulation at the time of purchase. Gazza and Basile concerned parcels that, prior to their purchase by the current landowners, had been classified as tidal wetlands under New York's Tidal Wetlands Act. Anello involved a property that had been subject to a "steep slope" ordinance restricting development prior to the purchase by the present landowner.

In Gazza, the owner sought, and was denied, two variances needed to build a residence on the parcel. The record reflected that the property would be worth $396,000 with the variances, but only $80,000 without them. The court held that the failure to grant the variances did not constitute a "taking" because the "economic value of the property had not been extinguished." Moreover, applying the Supreme Court's decision in Lucas v. South Carolina Coastal Council, the court held that the wetlands regulation "form[ed] part of the title to property as a preexisting rule of State law" and that the owner never held an absolute right to build on the property. The court concluded that "[p]etitioner cannot base a taking claim upon an interest he never owned."

In Basile, the Town condemned a parcel of land that, prior to the owner's purchase of it, had been classified as tidal wetlands. The owner claimed that the listing of the parcel as wetlands constituted a "taking," and that the Town should compensate him for its act of eminent domain according to the value that the property would have had absent the restrictive wetlands regulations. The case was otherwise similar to Gazza in that the owner had acquired the property subject to the wetlands regulation. The court rejected this argument. It held that the wetlands regulations "do not affect a taking when a purchaser acquires property subject to such regulations." It required the Town to compensate the owner only for the value of the property as subject to the wetlands regulations.

Anello is perhaps most on point. Unlike the other cases, it does not involve property that arguably had value notwithstanding regulatory restrictions. The "steep slope" ordinance, which was an environmental protection measure, not a safety measure, restricted building on the petitioner's lot to structures no larger than 4200 square feet. The Zoning Code's minimum buildable area was 5000 square feet. Nevertheless, the court ruled that the petitioner had acquired her property two years after the ordinance was enacted, and that she bought the property with the existing regulation as part of her underlying property rights. The court commented that the prior owner of the property may have had a takings claim, but that to view that claim as having been transferred automatically upon the sale of the property "would reward land speculation to the detriment of the public fisc."

In Gazza, the court further notes that a subsequent purchaser might still have standing the challenge the validity of prviously enacted laws without recovering on a takings basis.

Judge Wesley dissented from the majority reasoning in all three cases. In two of them he nevertheless would have joined the result on other grounds, so his only true dissenting opinion was in Anello. He foresaw that the majority's rule will deny landowners the right to challenge a regulation at the time that the regulation in fact interfered with development. Instead, they will have to watch the zoning calendar all the time:

[T]he majority's reasoning effectively forces New York property owners to keep abreast of regulatory enactments and, if an enactement appears to deprive a parcel of its economic value, to seek compensation for the taking. Any property owner who overlooks or misinterprets a regulatory enactment, or who lacks to resources to commence a taking action, cannot transfer the property to someone else without destroying the property's value. Instead, he or she will find that the property has, without compensation, been dedicated to whatever governmental purposes form the basis for the regulatory enactment." Anello, 89 N.Y.2d 543.

Judge Wesley also saw mischief in the possibility that an landowner's death prior to challenging the regulation might deprive the heirs or devisees of the right to secure the value of their inheritance by challenging a regulation as a taking. Judge Wesley would assume that the right to challenge a regulatory ordinance as a taking passes with a transfer of the land.

Comment 1: It makes sense that one should not be able to pay a lower price for land reduced in value by an environmental regulation and then sue for damages based on that regulation. But in many cases the impact of an environmental regulation will not be clear at the time of transfer.

It may be that the Gazza purchasers, for instance, anticipated that they would get a variance for their project, and for that reason in fact paid a higher price than they should have.

Comment 2: Of course, conventional wisdom would be that a buyer never should bank on a variance, and ideally should make the sale conditional on a variance. But in the Byzantine world of wetlands development, with agencies with overlapping jurisdictions and required permits from multiple local, state and federal stories, conventional wisdom may make it difficult to reach an adequate level of certainty while the acquisition remains executory.

Comment 3: One possible approach to the problem in cases in which the parties, at the time of sale, are aware of a potentially fatal regulation is to assign the takings claim to the transferee. A court might also conclude that the right to make a takings claim passess automatically with property transferred at death. The majority specifically reserves its judgment on these issues. 89 N.Y.2d 535, n. 2.

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