Penn Central Transportation Company v. City of New York

Penn Central Transportation Company v. City of New York
438 U.S. 104 (1978)

New York City adopted the Landmarks Preservation Law. The aim of this law was to protect landmarks and historical buildings. The law imposed restriction on those who owned historical buildings.

Owners had to maintain the exterior of the building.
Owners could not modify the exterior of the building without approval by a Commission. The Commission would have to grant a certificate saying that the construction would not A) alter the exterior of the building, or that B) the alterations would be "appropriate."

The law allowed for judicial review when the Commission didn't approve an alteration.

Penn Central owned Grand Central Station in NYC, which had been designated a landmark. They applied for a certificate to allow them to build two 53-story office buildings on the roof of the existing building. The Commission denied the building certificate.

The first building would not have altered the faade, but the second building required the destruction of an entire side of the Station.

Penn Central did not seek judicial review of their application, and instead sued NYC, contending that the Landmarks Preservation Law amounted to a taking of their property without compensation.

Penn Central argued that the taking was a violation of due process under the 5th Amendment and the 14th Amendment.

Penn Central argued that NYC had taken 100% of the value of their "air rights."
Penn Central also argued that this was unfair because forced a few people to bear a huge public burden that should be shared by all NYC residents.

Zoning hits everybody equally, but this only hurt people who owned historic buildings.

NYC argued that this wasn't a taking because the restrictions were minor, and even if it was, there was just compensation available because Penn Central could sell the unused development rights to neighboring land.

Under New York City law, land that was not fully developed could transfer or sell those unused development rights to nearby buildings.

The Appellate Court found that the restrictions were necessary for the public interest,
The Court found that a regulation only amounted to a taking if it deprived the owner of all reasonable beneficial use of the property.

The US Supreme Court found denial of the ability to exploit a property interest did not amount to a taking.
The Court found that laws that diminish property values do not amount to a taking (see Euclid v. Ambler Realty Co. (272 U.S. 365 (1926)).
The Court found that the Landmarks Preservation Law was not unfair nor arbitrary even though it only applied to specific properties and the designation as a landmark was a subjective decision.

Especially since Penn Central didn't ask for a judicial review of the Commission's decision.

The Court found that the law didn't stop Penn Central from using their property to make money, nor did it interfere with the present uses of the Station, it just stopped them from significantly changing the exterior.

The law does not deprive Penn Central of their "primary investment backed expectations". Meaning, that Penn Central bought Grand Central Station in order to run a train station, that's the main purpose of the property. So the law doesn't go too far because it doesn't stop the property from being used for its primary purpose.

In a dissent it was argued that the property had been subjected to a "nonconsensual servitude not borne by any neighboring or similar properties." Therefore, some value had been taken from Penn Central.
In Pennsylvania Coal Co. v. Mahon (260 U.S. 393 (1922)) the Court found that if a regulation goes too far, it will be considered a taking, but the courts have never determined what "too far" means.

Penn Central argued that NYC took 100% of the air rights. However, the Court here (and in Pennsylvania Coal) found that there is no such thing as "conceptual severance".

Basically, that means you can't argue that someone is taking 100% of a part of the value. You can only look at the entire value of the property. So Penn Central didn't loose 100% of anything.

In this case, at least part of the lost rights on Grand Central Station were made up by allowing Penn Central to use the unused space to make other buildings higher. So NYC didn't even take 100% of the air rights.
On the other hand, if this case didn't represent going "too far", then what would have to happen for the regulation to go too far? If you buy the argument that there are regulations that can be considered takings, then what would constitute a taking?

The current last word on this topic can be found in Tahoe-Sierra Preservation Council Inc. v. Tahoe Regional Planning Council (535 U.S. 302 (2002)).

One argument for allowing takings without compensation is that if NYC had to pay Penn Central they may not have the $$$ or the political will to spend the $$$, so Penn Central and others would be free to destroy historic buildings.

If the city had to pay, there'd be the possibility of extortion by property owners who propose large modifications specifically in order to get the $$$ for not building.

On the other hand, allowing the city to designate historic buildings without paying basically means that the city is getting something for nothing. Is it fair to property owners to have their property interests damaged with no compensation, just to make the city more beautiful?

The counterargument to that is the city isn't profiting at all, they are simply preventing the property owner from inflicting a harm on the people who live in the city. (For example, less historic buildings means less tourists and less $$$ to storeowners). It's not a taking, it's more like preventing a nuisance, which is within a city's police powers.