State governments saw a major win in Murr v. Wisconsin 137 S. Ct. 1933 (2017), a case that established a new facts and circumstances test for regulatory takings and the “parcel as a whole” rule. Justice Kennedy held with the liberal wing of the Supreme Court that neither the original lot lines nor Wisconsin state law could take precedence when determining whether adjacent lots should be merged together for the purposes of a regulatory takings case.
Instead, the court applied a flexible standard, taking into account:
- The treatment of the property under state and local law;
- The physical characteristics of the land; and
- The prospective value of the regulated land.
Ultimately, these factors were used to establish that the Murrs should have reasonably expected their property would be treated as a single parcel rather than separate tracts. As a result, not only were they forbidden by regulation from selling one of their two lots separately from the other, but they were denied any compensation for this limitation. All in all, a bad end for the owners.
Real estate owners are likely to feel sympathetic to Justice Roberts, who noted in his dissent that states could potentially use the flexibility of the standard to aggregate seemingly legally distinct properties into a single parcel using this new Supreme Court decision as precedent. To avoid an outcome like this, property owners will need to take a proactive, state-driven approach to research before any property purchase. Not only the relevant state statutes and regulations, but the topography itself must be taken into account in order to determine whether the use of the property has been “tainted” in any place and, if so, whether there is any way to keep the tainted portion distinct and isolated from other plots. Otherwise, it may well be a case of “one bad apple spoiling the bunch.”
The decision in the Murr case underlines the need to seek legal counsel to mitigate the risks associated with a state’s taking power. This counsel should be sought well before the purchase of the real estate interest, particularly if multiple contiguous parcels are involved.
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