By Jones Osborn II

We all know that governmental laws and regulations can interfere with the free use of private property. In many cases, they can also detract from its value. For example, if the city rezones a parcel of property from commercial to residential, it not only restricts the ability of the owner to use the property for certain purposes, in most cases it also reduces the value of the property.

Does the government have to compensate you when it passes a regulation that lowers the value of your property? What if the regulation makes the property virtually worthless? These are fascinating questions that American courts have been wrestling with for more than a hundred years. The answers are still being developed.

Recent Developments. In recent years there have been a number of cases decided by the United States Supreme Court that seem to strengthen the claims of property owners to compensation when government regulations hurt the value of their property.

This string of cases started with Nollan v. California Coastal Commission. In this 1987 case the Supreme Court held that a homeowner could not be required to dedicate a public access easement across his property to the beach as a condition of tearing down and rebuilding his house. The Court said that if the Coastal Commission wanted a public easement to the beach, it would have to pay for it.

The Nollan case was followed in 1992 by the celebrated case of Lucas v. South Carolina Coastal Council. In this case the South Carolina Coastal Council passed regulations requiring a beachfront landowner to leave his property, for which he had paid almost a million dollars, in an undisturbed and natural condition. The Supreme Court held that this was the equivalent of condemning the property and that the Coastal Council would have to purchase the property from the owner at its fair market value because of this regulation.

The third case in the string was Dolan v. City of Tigard, where the city told a property owner who wished to expand his store that he would have to dedicate a green belt and pathway along an adjacent creek. The Supreme Court said this was not a permissible requirement, because the dedication was not related to the expansion of the store. It was just an example of the city using its power to withhold a building permit as a lever to force someone to dedicate property for the general benefit of the public.

These cases have led many to believe that a new era has dawned in the protection of private property rights, led by the United States Supreme Court. The truth is that while these cases represent a change in emphasis, they really do not signal a complete change in direction, even though the property owner won and the government lost each of the cases.

An Example. One shocking example will illustrate the point.

In 1971 a local developer built a high rise building in central Phoenix and leased it to a single user on a long term lease. The developer was required by the city to spray the structural portions of the building with an asbestos-containing material for fire control purposes. Sixteen years later the city adopted an ordinance requiring all high rise buildings to install sprinkler systems. In order to retrofit the building with a sprinkler system, thereby disturbing the asbestos, it would have been necessary to remove the asbestos at a cost that rendered the building economically valueless, given the existing lease. Left undisturbed, the asbestos was not dangerous and would not have to be removed.

The developer introduced evidence that this regulation, if enforced, would render the building valueless, and therefore was a complete taking, just like the Lucas case. The Arizona Court of Appeals did not agree.

The Court said that requiring money to be spent to comply with a safety regulation is not an unconstitutional taking of property, even if the amount of money exceeded the value of the property. The Court said that a property owner "has no property right to be exempt from fire safety laws."

Where Are We Now? What do these cases mean to the property owner? Although these cases may seem inconsistent, it is possible to distill from them several general principles of law.

First, compensation normally must be paid if there is a physical taking or invasion of the land, such as requiring an easement across private property. This is what happened in the Nollan case.

Second, there is an exception to the first rule if the taking is related to and required to mitigate the actions by the landowner; for example, a landowner can be required to dedicate a street right-of-way if the development of his property can be expected to add to the traffic in the area.

Third, any land use regulation which directly prohibits the landowner from doing anything of economic value with his property amounts to a taking. This is what happened in the Lucas case, where the Coastal Council told the landowner he had to leave his land in a natural state.

Fourth, regulations to protect the public health and safety are generally not takings, even if compliance with them costs more than the affected property is worth. This is why the requirement that the developer of the high rise building had to install fire sprinklers was valid, even though the regulation had the practical effect of rendering the building a total loss.

Conclusion. In short, although the Constitution offers protection against physical takings and against regulations which completely prohibit any use of your property, the government still has plenty of latitude in enacting regulations that can affect, or even completely destroy, the value of your property.

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The cases cited above are Nollan v. California Coastal Commission, 438 U.S. 825, 97 L.Ed. 2d 677, 107 S.Ct. 3141 (1987); Lucas v. South Carolina Coastal Council, 112 S.Ct. 2886, 505 U.S. 1003, 120 L.Ed. 2d 798 (1992); Dolan v. City of Tigard, 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed. 2d 304 (1994); and Third & Catalina Associates v. City of Phoenix, 895 P.2d 115, 182 Ariz. 203 (1994).