Case Name and Citation: Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978)

Parties: Plaintiff: Penn Central Transportation Co.

Defendant: New York City

Court: U.S. Supreme Court

Facts: New York City passed a Landmarks Preservation Law to protect certain sites of significance from unnecessary alteration or destruction. Under this law, Penn Central’s Grand Central Station was designated a landmark. Penn Central opposed the landmark designation of the property but did not challenge it in court. Penn Central subsequently entered into a lease agreement on the property and sought to construct a multistory office building in the air space above the terminal. While the two different plans for this construction met the zoning ordinances, they were found unacceptable under the Landmark Law because they altered or removed some of the historic character of the building.

Issue: Whether or not the Landmarks law constitutes a “takings” because it limits Penn Central’s use of the property.

Case: The New York Supreme Court ruled that the Landmarks Law was applied to the plaintiffs property in an unconstitutional manner. This constituted a “taking” without just compensation and violated the Fifth and Fourteenth Amendments. It also violated the Fourteenth Amendment in depriving the owner use of the property without due process of law. The court enjoined New York City from preventing Penn Central from undertaking lawful construction on the property.

New York City appealed the ruling. The Court of Appeals of New York overturned the decision of the trial court by saying that there was no “taking” since the Landmarks Law did not transfer control of the property to the city and only restricted the appellants use. The court also found that there was no denial of due process because:

• The same uses of the terminal were permitted as before.
• Appellants did not show they couldn’t earn a reasonable return on their investment in the terminal.
• Some of the income from Penn Central’s other holdings in the area could be imputed into the terminal.
• Development rights above the terminal were made transferable to other sites in the area.

Disposition: The U.S. Supreme Court affirmed the ruling by the Court of Appeals of New York.

Holding: The U.S. Supreme Court stated that the Landmarks Law does not constitute a “taking” because:

• The Landmark Law did not interfere with the present uses of the building, it allowed the owner to continue using it in the same manner.
• The law did not deny all use of the owners preexisting air rights because under the TDR program, the owner could transfer development rights from the property in question to another property it owns in the area.
• The relevant parcel for the “takings” analysis was the entire city block that was designated a historic site. As to the station, the original economic use remained.

Implications:

• Offered three relevant factors to consider when measuring regulatory takings: economic impact, investment backed expectations, and character of government action.
• Tested the validity of “reasonable economic use”, which is from municipal zoning case law.
• Police Power regulations are valid if they leave property owners with a reasonable alternative.
• Used a “balancing test” involving the rights and expectations of the property owner vs. those of the public.
• Determined the right to develop the airspace above a property is valuable. And the ability to transfer that to another property may provide “significant” and “fair” compensation.

References:

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

Plater, Zygmunt J.B., Robert H. Abrams, William Goldfarb, and Robert L. Graham. 1998. Environmental Law and Policy: Nature, Law, and Society. West Group. St. Paul, MN.

Wright, Robert R., and Morton Gitelman. 2000. Land Use: In a Nutshell. West Group. St Paul, MN.

Meltz, Robert, Merriman, Dewight H.,Frank, Richard M., 1999. The Takings Issue: Constitutional Limits on Land Use Controls and Environmental Regulation.

Washington D.C. Island Press.