Property Condemnation: Public Use Restrictions on Private Developers - International Law Office

Background
Facts
Decision
Comment

Background

The 'taking clause' of the Fifth Amendment to the US Constitution imposes two limitations on the government's power to seize private property from its owner: such seizure must be for public use and the owner must receive just compensation. The definition of 'just compensation' - generally accepted to be the appraised value of the property - has rarely been a matter of dispute, although the appraisal itself often is. The concept of public use, however, has been constantly widening for over 150 years.

The definition of 'public use' has historically been left to each individual state, although the states' definitions follow the same general pattern. Originally, condemnation of private property for public use usually involved the seizure of land for a public park or road. The industrialization of the United States encouraged a broadening of the concept. Railways, for instance, were granted the power to condemn private property for their own use. These cases were justified by the public aspects of the use to which the property was put. More recently, the US Supreme Court has permitted the condemnation for private development of 'blighted' neighbourhoods and the seizure of 'un-blighted' properties within those neighbourhoods. Improving a distressed neighbourhood was held to be a public use because it conferred public benefits.(1) The court also held that the public interest was served when the state of Hawaii compelled landlords to sell their properties to tenants in order to reduce the concentration of land ownership in the state.(2)

In recent decades, the condemnation of privately owned land for economic development has become a major tool for local government. In New York, for instance, the World Trade Centre and Lincoln Centre for the Arts were each created by condemning an entire neighbourhood. Increasingly, municipal authorities have allowed private entities to develop condemned private property as part of comprehensive development plans.

In Kelo v The City of New London (No 04-108, 2005) the Supreme Court considered whether a city council could force the condemnation of an un-blighted neighbourhood on behalf of private developers.

Facts

In 1997 a major drug company announced its intention to locate a research laboratory in New London, Connecticut, a city which had recently suffered from the loss of major industrial concerns. In an effort to capitalize on the drug company's move, the New London Development Corporation - a private entity granted condemnation rights by New London's city council - condemned Fort Trumbull, a blue-collar neighbourhood adjoining the laboratory site. The corporation planned to allow a developer to create in its place an upmarket area including offices, a waterfront hotel, a marina, luxury shops, restaurants, residences, a park and a museum.

Although some of the neighbourhood's landowners were willing to sell, several objected and initiated the lawsuit which was ultimately considered by the Supreme Court. The neighbourhood was not blighted nor was there a significant public policy incentive at issue. The city authorities' rationale for the development was to further economic development.

Decision

The court upheld the local authorities' decision by a five to four majority. It found that the neighbourhood was sufficiently distressed to justify a programme of economic rejuvenation. The court refused to consider whether a condemnation for economic development should be more closely scrutinized than a condemnation on other grounds. The court also rejected the argument that in such cases there must be a reasonable certainty that the expected public benefits will accrue. However, the minority argued in favour of imposing some form of limitation on the municipal power to condemn, suggesting that condemnation for economic purposes allows wealthy, politically connected individuals to benefit at the expense of others.

Comment

In essence, the court supported the status quo, deferring to the decision of elected officials. The unusual feature of the line of Supreme Court cases involving public use - now including Kelo - is the court's unwillingness to set any limitations on the decision making of local officials, even though many Supreme Court opinions on other constitutional rights have attempted to limit the government's power to interfere with the rights of individuals. Only one of the five judges in the majority indicated a willingness to consider such a possibility in the future. However, this case was decided on the basis of the US Constitution; there is nothing to prevent individual states from imposing the kinds of limits on condemnation that the court was reluctant to set, either on the basis of their own constitution or by statute.

The economic benefits from the new laboratory were not a factor in this decision; the drug company had already built its plant and did not join in the lawsuit. The condemnation proceedings were aimed at exploiting the indirect advantages of having a major corporate facility nearby. Windfall benefits enjoyed by neighbouring properties normally accrue to the adjoining landowners. In this case, however, the city council evidently decided that, by having an architecturally coherent development of the surrounding area, the city stood to gain enhanced tax revenue and an attractive waterfront area.

Although many commentators have suggested that it is time for the Supreme Court to limit municipal power under the takings clause, the court's opinion can be justified by its traditional deference to political decisions which are rendered by accountable government bodies. Indeed, the effectiveness of relying on political pressure to govern this power may be seen by the number of Connecticut politicians who have condemned the court's decision.

For further information on this topic please contact Thomas F Berner at Katten Muchin Rosenman LLP by telephone (+1 312 902 5200) or by fax (+1 312 902 1061) or by email (thomas.berner@kattenlaw.com).

Endnotes

(1) See, for example, Berman v Parker 348 US 26 (1954).

(2) Hawaii Housing Authority v Midkiff 467 US 229 (1984).