Daily Development for
Wednesday, August 19, 1998
by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
CONSTITUTIONAL LAW; TAKINGS; RIGHT OF FIRST REFUSAL: State law granting mobile home park owners a right of first refusal to purchase the park if the owner decides to sell is not an unconstitutional taking of the owner's property, even under state constitutional provision requiring just compensation if property is "taken or damaged," because: (1) under Washington law a right of first refusal is a general contract right to acquire a later interest in property and does not create an interest in land. Therefore it does not infringe a fundamental property right and is not a total taking; and (2) Washington's stated public purpose of preserving affordable housing sites advances a legitimate state interest.
Manufactured Housing Communities of Washington v. State of Washington, 951 P.2d 1142 (Wash. App. Div. 2 1998).
This case is potentially a very significant interpretation of Washington law and of parallel constitutional provisions in a number of other states. Other states have split on the issue. In 1983, a California decision in Gregory v. City of San Juan Capistrano, 191 Cal. Rpt. 47 (Cal App. 1983) concluded that a similar ordinance did constitute a taking because it infringed upon a fundamental constitutional right of an owner to sell property to whomever he chose. (But see FortyNiner Truck Plaza, Inc. v. Union Oil Co., 68 Cal. Rpt.. 2d 532 (Cal. App. 1997) (refusing to apply the Gregory reasoning in the context of a statute restricting sale of gasoline franchises). A more recent Massachusetts. Greenfield Country Estates Tenants Ass'n, Inc. v. Deep, 666 N.E.2d 988 (Mass. 1996). The opinion raises a number of profound concerns and rewards study by anyone interested in state constitutional limits on land use.
Mobile home park owners sued the State of Washington claiming that a statute granting mobile home tenants a thirty day right of first refusal relating to the sale of the park was an unconstitutional regulatory taking. The statute gave the tenants the right to meet the existing contract on thirty days notice, but required that the tenants need produce only two percent of the price as earnest money, although otherwise the tenants must match the terms of the existing offer. Among other arguments, the owners asserted that the Washington State constitution provided greater protection than the federal constitution by providing a more detailed description of a taking to include "damage" to property. The Washington Court of Appeals found, however, that the additional detail was intended to address a narrow interpretation of the federal Fifth Amendment focusing on the actual, physical occupation of property by the government to effect a taking, and was not intended to address regulatory takings. Thus, the Washington constitution provided no added protection to the park owners and to constitute a "total taking" the owners had to demonstrate that the statute infringed upon a fundamental attribute of ownership (the right to possess, exclude others, dispose, or make some economical use of property).
The owners, in failing to show that the statute deprived them of all economic use of the property or resulted in physical invasion of the property, failed to demonstrate such infringement.
The court went on to assert that in any event the interference with ownership by the creation of a right of first refusal was a "minimal" imposition on the interests of the owner. It did not view the restriction as a significant impediment to the sale of the property or of a restriction on any other ownership rights.
Additionally, the existence of a legitimate public purpose prevented the statute from being viewed as a partial taking.
Comment 1: Whether land ownership redistribution is an appropriate public policy objective is an issue that goes beyond the editor's intended scope of discussion. Suffice it to say that the U.S. Supreme Court has already bought into the notion in connection with Hawaii's land redistribution schemes.
The real question here is whether such a policy can be carried out without just compensation through devices that significantly limit a landowner's ability to sell property. Despite the court's protestations to the contrary, a thirty day right of first refusal, together with a minimal down payment requirement, can profoundly limit the ability of a park owner to obtain what otherwise would be full value, and arguably even limits full return on investment. One doesn't sell trailer parks at roadside stands or in the stock market. The sale of these interests involve complex, difficult and expensive negotiations which many potential buyers might not wish to undertake if they thought that their investment plans would be thwarted even after concluding a successful contract.
Comment 2: The court views the fact that Washington's constitution protects owners of property that is "taken or damaged," instead of protecting only owners of property that it "taken," as not relevant to the analysis because the constitutional language was adopted in Washington prior to U.S. Supreme Court's recognition in Pennsylvania Coal that regulatory actions could be takings.
Consequently, the Washington court concludes that the state constitutional drafters could not have had regulatory takings in mind when they drafted that special language. True enough, but if the concept of "taking" evolves, why can't the concept of compensable "damaging" evolve with it? The court gives no answer.
Comment 3: The editor is not ready to declare an ultimate position on the question of whether the creation of special rights of first refusal ought to be regarded as compensable takings, but he is critical of the somewhat superficial reasoning that the Washington court uses to resolve the issue. There is no indication yet of an appeal in this case. Let's hope that the Washington Supreme Court gets a crack at it and gives it a more thoughtful turn.
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 16, 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 firstname.lastname@example.org
Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.