State and local government entities have the ability to use eminent domain authority to force the sale of private property for public projects. See RSA Chapter 498 A. This process aids in the orderly planning and construction of new public infrastructure such as highway widenings, while also giving the landowner the ability to challenge the amount of compensation that the government is offering for the property.
However, when the government takes private property without paying for it, the property owner can file an inverse condemnation (or “takings”) claim. Inverse condemnation actions are based on the government’s unconstitutional taking of property without paying just compensation. These protections are found in the Fifth Amendment to the U.S. Constitution and Part I, Article 12 of the New Hampshire Constitution.
These claims are more apparent when the government physically appropriates private property – such as the government building a sidewalk across your front yard without paying for the legal right to do so. Regulations, rather than a physical invasion, may also take property rights and be the basis of compensation in an inverse condemnation action. There are several variations of regulatory takings claims, but the most common are reviewed under the standard for partial regulatory takings created by the U.S. Supreme Court decision in Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978).
Courts apply the Penn Central analysis to partial takings – meanings those that allege anything less than a total, 100% diminution in value of the property due to the regulation. This standard uses a balancing test, and the elements are viewed in their aggregate to determine whether the regulation goes too far and effects a taking of the property. Instead of a strict formula for deciding whether a taking occurred, the Penn Central factors look to the particular circumstances of the case to determine whether compensation is required.
Penn Central identified several factors that are particularly significant in determining whether a regulation effects a taking including:
- the regulation’s economic impact on the claimant;
- the extent to which the regulation interferes with the plaintiff’s distinct investment-backed expectations; and
- the character of the government action.
Economic Impact
This factor typically focuses on the change in fair market value of the property due to the impact of the regulation. This allows a court to compare the value that was taken from the property with the value that remains.
There is not a set threshold of economic damage to a property’s value that results in the finding an unconstitutional taking. However, the impact must be substantial. For example, in the Penn Central decision itself, the court found there to be no taking, even though the regulation caused a 75% diminution in value.
Investment-Backed Expectations
An unconstitutional regulatory taking is more likely to have occurred if the regulation impacts the reasonable, investment-backed expectations of the property owner. This factor requires an inquiry into what the landowner should have anticipated when investing in the property and commonly looks at the regulations in place when the property was purchased compared to the regulations at the time of the alleged taking.
For example, a taking is more likely where a landowner purchased a property zoned commercial for a gas station and spent money developing the site, only to have the government later preclude the gas station by administratively rezoning the property to a non-commercial zoning district.
On the other hand, a taking is less likely where the property owner only had a subjective desire to use a property for a specific use. For example, if a developer buys a vacant property zoned agricultural in the hopes of later convincing the local government to approve a new residential subdivision, a taking is less likely to have occurred if the government uses their discretion in denying the land use permits.
Character of Government Action
This factor looks to the nature of the government’s action, as a regulation is more easily determined to be a taking when it is characterized as a physical invasion of the property rather than a more general public program that adjusts the benefits and burdens of economic life to promote the common good.
Practically this factor encourages courts to look at the context in which the regulation damaged the plaintiff’s property values. A taking is more likely if the regulation singles out a particular individual or certain property owners to bear the burden of the regulation.