July/August 2017 Issue

Also in this issue: Wisconsin Supreme Court Expands Fair Dealership Law to Municipalities     |     Conditional Use Zoning Law in Flux     |     Limitations on Interior Property Inspections for Property Tax Assessments     |     County’s Courthouse Access Policy Violated First Amendment     |     Wisconsin Supreme Court Addresses Open Meetings Law And Committees

Supreme Court Decides Wisconsin Regulatory Takings Case

Julia Potter | 08.06.17

Under the Fifth Amendment to the U.S. Constitution, private property cannot be taken for public use without just compensation. This is commonly referred to as the ​“takings clause.” A ​“regulatory taking” occurs when government regulation so extraordinarily limits a landowner’s ability to use his or her private property that it effectively deprives the landowner of the reasonable use or value of the land. Over the years, courts have struggled with one of the first steps in the analysis — how to define the ​“land” at issue. In a recent decision — Murr v. Wisconsin, 582 U.S. ____ (2017) — the U.S. Supreme Court provided guidance to lower courts on this longstanding question.

The case involved two small adjacent parcels of land located along the lower St. Croix River in St. Croix County, Wisconsin. The Murr siblings received both parcels of land from their parents, who had owned one parcel individually and the other in the name of their family business. After the parents purchased the property, but before they transferred it to their children, local ordinances were enacted that established minimum lot sizes and prohibited the individual development or sale of lots that were too small, or ​“substandard,” under the ordinance. The ordinance contained a ​“grandfather” clause that allowed owners who had purchased their lots before the rule went into effect to build on or sell their substandard lots. It also contained a ​“merger” provision that treated adjacent substandard lots as a single lot if the adjacent lots were owned by the same person. 

The Murrs’ parents were not impacted by the ordinance because their adjacent substandard lots were under separate ownership and had been purchased before the ordinance went into effect. When they transferred the lots to their children, however, the grandfather clause no longer applied and the adjacent lots, now both owned by the Murr siblings, were treated as a single lot under the ordinance’s merger provision. The siblings wanted to sell off one lot and use the proceeds from the sale to renovate the cabin located on the other lot, but the ordinance prohibited them from selling the substandard lot. The siblings argued that this amounted to an unconstitutional regulatory taking. 

In general, if a government restriction deprives the owner of ​“all, or substantially all, of the beneficial use” of the property, then a regulatory taking has occurred. In determining whether a regulation is so burdensome that it amounts to a regulatory taking, the Supreme Court has directed lower courts to consider the effect of the regulation on the ​“parcel as a whole.” In general, the larger the ​“parcel as a whole,” the less likely a court is to find that there has been a regulatory taking. 

The parties to the case offered different theories about how the Supreme Court should define the ​“parcel as a whole.” The Murrs argued that the Court should rely solely on the lot lines established by the property records, and consider the two adjacent parcels separately. Under their logic, because the ordinance prohibited the siblings from selling off one of the lots individually, that lot no longer had any practical use — the hallmark of a regulatory taking. On the other end of the spectrum, the state of Wisconsin argued that the Court should look to state property law to determine whether the lots should be considered separately or not. Because Wisconsin law would treat the two lots as a single unit, the state argued, the Court should do the same in its regulatory takings analysis. St. Croix County offered a third option, urging the Court to reject the simplistic tests put forward by the Murrs and the State of Wisconsin, and instead consider a variety of factors to arrive at an outcome that is just and equitable given the facts of a particular case. 

The Supreme Court ultimately sided with St. Croix County and announced a new approach for determining what is meant by the ​“parcel as a whole.” Courts must now apply a three-factored test rooted in the property owner’s reasonable expectations about whether his or her lots would be treated as one parcel or as separate lots. Courts must consider: (1) the treatment of the land under state and local law; (2) the physical characteristics of the land; and (3) the prospective value of the property under the challenged regulation, with special attention to the effect of burdened land on the value of other holdings. 

The Court went on to apply these factors to the Murr siblings’ land and conclude that the two lots should be treated as a unified parcel for the purposes of the regulatory takings analysis: (1) Wisconsin law would treat the two lots as a single unit; (2) The unique physical characteristics of the property, including the lots’ rough terrain, narrow shape, and location along a regulated riverway make regulations like those enacted by St. Croix County predictable; (3) The lots are more valuable when combined. In line with the Wisconsin Court of Appeals, the Supreme Court held that, when the lots were considered as one unified parcel, St. Croix County’s regulation did not constitute a regulatory taking. 

While the Supreme Court’s decision in Murr v. Wisconsin did not dramatically rewrite the law of regulatory takings, it did provide some further guidance about how to analyze regulatory takings issues. The Supreme Court’s decision to uphold St. Croix County’s ordinance and adopt the three-factor test proposed by the County is widely viewed as a victory for local governments. 

— Julia Potter