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July 27, 2017
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By Kandice K. Hull
McNees Wallace & Nurick LLC

The Supreme Court of the United States recently decided the case Murr v. Wisconsin, No. 15-214 (June 23, 2017), which laid out a new test for determining whether separate parcels of land should be evaluated as a single parcel in a regulatory takings analysis.

The case involved two adjacent lots of land located along the St. Croix River in Wisconsin. The Murr family owned both lots and wanted to sell one of them to fund a building project on the other. However, state and local regulations prevented development of separate building sites on these lots unless each contained at least one acre of land fit for development, which the lot to be sold did not. This effectively merged the two lots into one. When the Murrs attempted to follow through on their plan to sell one of the lots, local authorities refused to give the green light.

Due to this setback, the Murrs filed suit in state court alleging that the state and local laws brought about a regulatory taking because they could not sell or develop their lots separately. The state courts found that merger of the lots did not amount to a regulatory taking because the Murrs could still use and enjoy their property and the merger had little effect on the combined property’s value.

The Supreme Court reviewed the case to analyze what was the relevant parcel of land to consider in determining whether a regulatory taking had occurred. If the parcels were considered as a whole, it would be unlikely that a regulatory taking occurred because the combined property remained valuable and useable despite the regulation. If only the single parcel that could not be sold were considered the relevant property, a regulatory taking may have occurred because that single property could not be developed.

The Court, therefore, had to define the property which would be used to consider the effect of the regulations. To do so, the Court crafted a new test considering many factors. Those factors are:

• How the land is treated under state and local law, with substantial weight given to those judgments;
• The physical characteristics of the property; and
• The value of the property considering the challenged regulation.

The Court clarified that the ultimate question is “whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts.”

Under this novel framework, the Court concluded that the Murrs’ property was appropriately evaluated as a combined parcel rather than as two distinct lots. The lots were validly merged under state and local regulations when they came under common ownership, both lots had a similar landscape which limited potential uses of each, and merger of the lots added value to the property as a whole. In fact, the Court focused on the combined value of the lots and noted that it was substantially higher than the value of each separate lot in the aggregate.

Justice Kennedy delivered the opinion of the Court, which four other Justices joined. Chief Justice Roberts wrote a dissent, joined by two Justices, in which he argued that the relevant parcel should be determined by considering only how state law defines the property. He would have remanded the case to the state court to determine how the general law of property in Wisconsin treated the parcels.

In Pennsylvania, the Eminent Domain Code provides, in the context of a traditional condemnation, that where the government condemns all or part of contiguous parcels under the same ownership, or, noncontiguous parcels under the same ownership and used for the same purpose, damages paid to the owner will be determined as if the parcels were one. This means that the combined value of parcels will be used to calculate damages rather than the value of a singular affected parcel or the aggregate of all parcels.

In the context of regulatory takings, however, Murr rejects using state law alone to determine the relevant parcel of land. Thus, a Pennsylvania landowner could not be certain how the relevant property will be defined in a regulatory takings scenario.

Murr leaves us with some important takeaways. First, property owners should be aware that there are many state and local regulations which could affect the use, development, and sale of their property. Owners of separate parcels of land that are contiguous and share similar physical characteristics should especially be mindful of any regulations which may legally merge those properties. Additionally, those owners who wish to challenge such regulations via a regulatory takings claim must understand that a complicated and fact intensive analysis may now be used to determine the property in question.

Kandice K. Hull leads the eminent domain practice at McNees Wallace & Nurick LLC and is co-chair of its appellate and post trial practice group. She wishes to acknowledge the contributions to this article of Logan Hetherington, a law student at the Pennsylvania State University, Dickinson School of Law, to this article. Ms. Hull can be reached at khull@mcneeslaw.com.