Takings claim rejected for developers on hold

August 11, 2010

In a decision with significant implications for property owners and developers, the U.S. Supreme Court has ruled that governmental agencies are not required to provide compensation when moratoriums they enact prevent development activity.

While it formulated a comprehensive land-use plan for the area in the 1980s, the Tahoe Regional Planning Agency (TRPA) imposed two moratoria totaling 32 months on development of property surrounding Lake Tahoe. Landowners who were unable to develop their property filed a suit claiming that TRPA's actions constituted the "taking" of their property without just compensation, contrary to the Fifth Amendment to the U.S. Constitution.

The Nevada trial judge ordered TRPA to pay damages for the 32-month period of the moratoria. When the case finally reached the U.S. Supreme Court, the High Court reversed the trial court's decision by a six-to-three vote.

TRPA was charged with finding a way to reverse a 40-year trend toward rapid deterioration of Lake Tahoe, which spans the California/Nevada border. The lake's exceptional clarity is attributed to the absence of algae that obscures the waters of most other lakes. Development has caused erosion that threatens the lake's natural beauty. The Court noted that, "The lakes unsurpassed beauty, it seems, is the wellspring of its undoing."

The issue was not whether Lake Tahoe would be protected, but whether the government would have to pay the landowners economic damages for the period when the moratoria prohibited all economic use of the land. It was the landowners' position that they were entitled to compensation because of their inability to develop their land for 32 months, which actually extended to six years due to the litigation time.

The Court's holding

In April, the Supreme Court ruled that the moratoria ordered by TRPA were not per se takings of property that require compensation under the Fifth Amendment. [Tahoe-Sierra Preservation Council vs. Tahoe Regional Planning Agency, 216 F.3d 764] This was a departure from prior Supreme Court cases which held that the "Takings Clause" of the Fifth Amendment was designed to bar government from forcing some people to bear burdens that in fairness should be borne by the public.

But the Court's recent ruling held that the moratoria were not the type of takings that constitutionally require compensation. The Court's decision, like the lake, was crystal clear regarding its concern about the financial impact on governments if it ruled in favor of the landowners. The Court did not want to render a ruling that might transform all government regulation involving restrictions on use of property into obligations that the government could not afford. It also did not want to expose the government to claims for compensation whenever there were long delays in processing permits.

The Court said it did not want to burden decision-making regulatory agencies with financial pressure that would cause them to adopt ill-conceived, rushed plans for land utilization.

In his dissent, Chief Justice Rehnquist said that what happened to the landowners was no different than if the government had taken a six-year lease of their property. Had that been the case, there is little doubt that the government would have been required to compensate the owners, he wrote.

Lessons learned

So long as government planners move with reasonable speed and act in good faith, they do not have to fear having to compensate landowners when moratoria prohibit land development. The Court, however, pointed out that it did not have to decide whether TRPA acted reasonably, as that was not being challenged. If that was the case, the outcome might have been different.


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