Penn Central Transportation Co. v. New York City

Supreme Court of United States
438 U.S. 104 (1978)

ELI5:

Rule of Law:

A government regulation that places restrictions on the development of a historic landmark is not a taking requiring just compensation under the Fifth and Fourteenth Amendments if the regulation is substantially related to the general welfare and permits the owner to earn a reasonable return on their investment.

Facts:

Penn Central Transportation Co. (Penn Central) owns Grand Central Terminal, a renowned beaux-arts style building in New York City.
In 1965, New York City enacted the Landmarks Preservation Law to protect historic buildings and sites.
On August 2, 1967, the city's Landmarks Preservation Commission designated the Terminal a 'landmark' and the city block it occupies a 'landmark site.'
This designation requires the owner to keep the building's exterior features in good repair and to seek Commission approval before making any exterior alterations.
In 1968, Penn Central entered into a lease agreement with UGP Properties, Inc. (UGP) to construct a multistory office building above the Terminal, which would generate millions in annual revenue.
Penn Central and UGP submitted two separate plans to the Commission for office towers of 53 and 55 stories, respectively.
The Commission rejected both proposals, concluding that the proposed towers would overwhelm the historic Terminal, destroy its aesthetic character, and be an 'aesthetic joke.'

Procedural Posture:

Penn Central and UGP filed suit in New York Supreme Court, Trial Term, against New York City.
The trial court granted injunctive and declaratory relief, finding the landmark restrictions constituted a taking.
New York City appealed to the New York Supreme Court, Appellate Division, an intermediate appellate court.
The Appellate Division reversed the trial court's decision, holding that Penn Central had not been deprived of all reasonable beneficial use of the property.
Penn Central appealed to the New York Court of Appeals, the state's highest court.
The Court of Appeals affirmed the Appellate Division's ruling, concluding no taking had occurred.
Penn Central appealed to the Supreme Court of the United States, which granted review.

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Issue:

Does the application of New York City's Landmarks Preservation Law, which restricts the development of the Grand Central Terminal site, constitute a 'taking' of the owner's property without just compensation in violation of the Fifth and Fourteenth Amendments?

Opinions:

Majority - Justice Brennan

No, the application of New York City's Landmarks Preservation Law does not constitute a taking. A land-use regulation that promotes the general welfare, such as preserving historic landmarks, is not a taking if it does not interfere with the owner's primary investment-backed expectations and allows for a reasonable beneficial use of the property. The Court's reasoning is based on several factors. First, the law advances a legitimate government goal of preserving structures with historic and aesthetic importance. Second, the Court rejected the argument that Penn Central's 'air rights' were completely taken, stating that takings jurisprudence looks at the parcel as a whole, not discrete segments of property rights. Third, the regulation does not interfere with the Terminal's present use as a railway station and commercial hub, which allows Penn Central to obtain a reasonable return on its investment. Finally, the law provides a mitigating benefit through Transferable Development Rights (TDRs), which allow Penn Central to sell its unused development rights to other property owners, thus softening the economic impact of the regulation.

Dissenting - Justice Rehnquist

Yes, the restrictions imposed by the Landmarks Preservation Law constitute a taking for which just compensation is required. The law has destroyed valuable property rights—specifically, Penn Central's 'air rights'—which have a clear economic value. Unlike general zoning laws that provide an 'average reciprocity of advantage' by burdening and benefiting all property owners in an area, this law singles out a few hundred property owners to bear the substantial financial cost of a public benefit enjoyed by all New Yorkers. This unfairly forces a few individuals to bear public burdens that, in all fairness and justice, should be borne by the public as a whole. The law imposes an affirmative duty on Penn Central to maintain the landmark at its own expense, effectively creating a non-consensual servitude. A taking does not become a non-compensable police power action simply because the owner is allowed to make some reasonable use of the property; the character and extent of the invasion of property rights are what matter. The case should be remanded to determine if the provided TDRs constitute the 'full and perfect equivalent' required for just compensation.

Analysis:

This decision is a cornerstone of modern regulatory takings jurisprudence. It solidified the principle that a regulation can significantly diminish a property's value without constituting a taking, provided it doesn't extinguish all economically viable use. The Court established an ad hoc, multi-factor analysis focusing on the regulation's economic impact, interference with investment-backed expectations, and the character of the government action. This ruling validated historic preservation ordinances nationwide, empowering municipalities to protect cultural heritage without incurring the immense cost of eminent domain. It also introduced the novel concept of considering mitigating factors like TDRs within the takings analysis itself, influencing how future courts assess the overall fairness of a regulation's economic burden.

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