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Penn Central Transportation Co. v. New York City
Citations: 57 L. Ed. 2d 631; 98 S. Ct. 2646; 438 U.S. 104; 1978 U.S. LEXIS 39Docket: 77-444
Court: Supreme Court of the United States; October 2, 1978; Federal Supreme Court; Federal Appellate Court
Mr. Justice Brennan delivered the Court's opinion addressing whether a city can impose additional restrictions on the development of historic landmarks as part of a preservation program without constituting a 'taking' that requires compensation under the Fifth and Fourteenth Amendments. The case specifically examines the application of New York City’s Landmarks Preservation Law to Grand Central Terminal and its implications for property rights. Over the last 50 years, all states and numerous municipalities have enacted laws to protect historic buildings and areas due to concerns about the loss of significant structures and the belief that such landmarks enhance community quality of life. New York City, responding to these concerns and operating under a state enabling Act, adopted its Landmarks Preservation Law in 1965, aiming to safeguard its status as a global tourist and business hub. The law was designed to prevent hasty decisions that could damage historic landmarks and neighborhoods, thereby fostering civic pride, enhancing tourism, supporting economic growth, and promoting the educational and cultural benefits of historic preservation. Instead of acquiring historic properties, the law encourages public involvement in land-use decisions and offers services, standards, and incentives for private owners to maintain these properties. Although the law imposes restrictions on landmark properties, it also ensures that owners can achieve a 'reasonable return' on their investments while maintaining flexibility in the use of their properties consistent with preservation goals. The Landmarks Preservation Commission (Commission), an 11-member agency, holds the primary responsibility for administering landmark preservation laws. It identifies properties or areas with special historical, aesthetic, or cultural significance. Following a public hearing, if a property meets the criteria, it is designated as a "landmark" or as part of a "historic district." This designation can be modified or disapproved by New York City's Board of Estimate, and property owners can seek judicial review of the final designation. Currently, there are 31 historic districts and over 400 individual landmarks established. Once designated, property owners face restrictions, including a duty to maintain the exterior of the landmark and requiring Commission approval for any alterations or exterior improvements. Owners can seek administrative approval through three procedures: 1. **Certificate of No Effect** - For alterations that will not affect the architectural features of the landmark. 2. **Certificate of Appropriateness** - For changes that align with aesthetic, historical, and architectural standards without hindering the landmark's value. 3. **Economic Hardship Certificate** - For owners demonstrating that designation causes financial difficulties, with procedures differing based on tax exemptions. While designation restricts property owners' control, it can also enhance their economic position in certain respects. Under New York City's zoning laws, property owners can transfer unused development rights to adjacent lots. A 1968 ordinance expanded this opportunity for owners of landmark properties, allowing transfers to parcels across the street, with the condition that the receiving lot's floor area cannot exceed its authorized level by more than 20%. In 1969, the regulations were further relaxed to prevent the Landmarks Law from overly constraining developments, particularly concerning Grand Central Terminal. This case pertains to the application of the Landmarks Preservation Law to Grand Central Terminal, owned by Penn Central Transportation Co. The Terminal, a notable example of French beaux-arts architecture, was opened in 1913 and is situated in midtown Manhattan. Although initially designed to include a 20-story office tower above it, the structure was never built. The eight-story Terminal currently serves as a railroad station and commercial space. Penn Central owns several other properties in the vicinity, many of which could potentially receive development rights from the Terminal’s landmark designation. The Terminal was officially designated a landmark on August 2, 1967, a decision confirmed by the Board of Estimate on September 21, 1967. Despite opposing the designation, Penn Central did not pursue judicial review. On January 22, 1968, Penn Central entered a 50-year lease agreement with UGP Properties, Inc. for the construction of an office building above the Terminal, promising substantial annual payments. UGP and Penn Central subsequently sought approval from the Commission for two proposed office building designs, both compliant with the zoning ordinance. Breuer I proposed a 55-story office building cantilevered above the existing facade of the Terminal, while Breuer II Revised involved demolishing part of the Terminal, including the 42nd Street facade, to construct a 53-story office building. The Commission denied a certificate of no exterior effect on September 20, 1968, followed by a rejection of a certificate of appropriateness after extensive hearings with over 80 witnesses. The Commission's denial for Breuer II Revised was predicated on the principle that protecting a landmark involves preserving its features, not removing them. Breuer I was given more favorable consideration, particularly regarding its potential impact on the unique view of the Terminal from Park Avenue South. Although the appellants argued that existing buildings had already impacted the view, the Commission maintained that a new 55-story tower would significantly detract from the south facade's majesty. The Commission concluded that the proposed tower would overshadow the Terminal, making it appear merely as a curiosity rather than a landmark, which must maintain its integrity in relation to its setting. The appellants did not pursue judicial review of the Commission's denial of the certificates, and due to the Terminal's tax exemption and ongoing suitability for its uses, no further administrative remedies were available. Instead, the appellants filed a lawsuit in New York Supreme Court, claiming that the application of the Landmarks Preservation Law constituted a taking of their property without just compensation and violated their due process rights. Appellants sought a declaratory judgment and injunctive relief to prevent the city from using the Landmarks Law to obstruct construction on the Terminal site, along with damages for a 'temporary taking' from the law's designation date in 1967 until the removal of restrictions. The trial court granted the requested injunctive and declaratory relief but separated the damages issue. On appeal, the New York Supreme Court, Appellate Division, reversed the trial court's decision, asserting that the restrictions served a legitimate public purpose of landmark protection. It ruled that appellants needed to prove a deprivation of all reasonable beneficial use of the property to sustain their constitutional claims. The Appellate Division found that the evidence presented by appellants, which included financial statements indicating net operating losses for certain years, did not meet their burden of proof. The court noted that appellants had improperly allocated some railroad expenses to their real estate operations and failed to include rental value for space used for railroad purposes. Additionally, it determined that appellants did not demonstrate they could not increase commercial income by utilizing vacant space or that they could not profitably transfer unused development rights to nearby sites. The court concluded that appellants were merely deprived of the property's most profitable use, which did not constitute an unconstitutional deprivation. The New York Court of Appeals affirmed, rejecting claims of 'taking' without 'just compensation,' stating the law only restricted exploitation of the property rather than transferring control to the city. The Court held that an attack on the law could only succeed on due process grounds, focusing on whether the restrictions denied appellants a 'reasonable return.' The Court concluded that the Landmarks Law did not violate due process because: it allowed the same use as had been made of the Terminal for over fifty years; appellants failed to prove they could not earn a reasonable return; potential income from other real estate holdings could be imputed to the Terminal; and the transferable development rights above the Terminal provided significant compensation for the loss of rights directly above it. The Court of Appeals allowed appellants the opportunity to provide additional submissions to further develop factors discussed in its opinion but noted that appellants chose not to do so and instead filed an appeal. The issues on appeal include whether New York City's restrictions on the Terminal site represent a 'taking' of property under the Fifth Amendment and whether transferable development rights qualify as 'just compensation.' The Court emphasizes the need to assess whether a 'taking' has occurred, highlighting the complexity of defining 'taking' under the Fifth Amendment, which aims to prevent unfair burdens on individuals. The Court has not established a definitive formula for when compensation is necessary, noting that it often depends on case-specific circumstances. Key considerations include the economic impact of the regulation, the extent of interference with investment-backed expectations, and the nature of the governmental action. A 'taking' is more likely to be recognized in cases of physical invasion rather than regulatory adjustments aimed at public benefit. The Court has upheld regulations that adversely affect property interests when they serve public health, safety, or welfare, illustrating that governmental actions can diminish property values without constituting a 'taking' requiring compensation. Zoning laws include restrictions on industrial use, construction limits, and height regulations, which are considered valid government actions even when they prevent the most beneficial use of property. Legal challenges to 'takings' have often been dismissed when government actions restrict beneficial uses of property, as exemplified in Miller v. Schoene. In that case, a state statute mandated the removal of ornamental cedar trees to protect local apple trees from disease, allowing for expense recovery for removal but not for the loss in value of the standing trees. The Court upheld the statute, asserting the State’s right to prioritize the preservation of one type of property over another for the greater public benefit. Similarly, in Hadacheck v. Sebastian, a law prohibiting a brickyard's operation was upheld as it aligned with the legislative intent to maintain community standards. Government actions perceived as acquisitions for public purposes have also been classified as 'takings.' For instance, direct overflights that disrupted a chicken farm were deemed a 'taking' since the government was utilizing part of the claimant's land. The appellants argue that New York City’s landmark law constitutes a 'taking' under the Fifth and Fourteenth Amendments, asserting that significant restrictions must be accompanied by compensation to be constitutional. However, they acknowledge the legitimacy of New York City’s goal to preserve historically significant structures and do not dispute the appropriateness of the imposed restrictions or the factual bases of the lower court's decision. They accept that the land in question can yield a reasonable return and that the transferable development rights related to the landmark designation are valuable, but still maintain that these factors do not negate their claim of a 'taking.' The airspace above the Terminal is viewed as a valuable property interest, with appellants arguing that the Landmarks Law has deprived them of the ability to use their air rights, constituting a 'taking' that warrants 'just compensation' based on fair market value. However, the Court disagrees with the appellants' interpretation of the law's effects, asserting that a 'taking' cannot be claimed merely by demonstrating a loss of potential development. The Court emphasizes that it considers the overall impact on the property rather than isolated segments. Appellants also argue the law diminishes the Terminal's value, but concede that mere loss in property value does not establish a 'taking' under existing precedents, especially if such regulations serve the public welfare. They claim that the landmark regulations differ significantly from zoning laws because they affect selected properties, suggesting this makes them unfair. The Court rejects this argument, noting that landmark laws are part of a comprehensive preservation strategy and are not akin to discriminatory zoning practices. Additionally, the Court dismisses claims of arbitrariness in landmark designations, asserting that the laws are designed to maintain historic and aesthetic integrity rather than unjustly target individual property owners. Appellants did not seek judicial review of the Commission's designation or the denials of certificates related to the Terminal and do not claim that the Commission's decisions were arbitrary. Landmark owners have a right to judicial review of Commission decisions, and courts are capable of identifying arbitrary actions in landmark regulation as they are in zoning matters. Appellants argue that New York City's Landmarks Law differs from zoning laws because it does not impose uniform restrictions on all structures, suggesting that it cannot ensure equitable distribution of governmental benefits and burdens, a constitutional requirement for just compensation. While the law indeed impacts some owners more severely than others, this disparity does not constitute a "taking," as legislation aimed at promoting general welfare often affects individuals unevenly. Historical cases demonstrate that zoning laws can similarly burden certain property owners without being deemed invalid. The claim that appellants are uniquely burdened ignores that the law applies to numerous structures beyond the Terminal, affecting many landmarks and historic districts, which the New York City Council deems beneficial for all citizens. Appellants' assertion that they are solely burdened is factually incorrect. Lastly, the argument that the law functions like a government appropriation of property, similar to the Causby case involving airspace, is misplaced; the Landmarks Law does not exploit the Terminal for city purposes or impede its current use, distinguishing it from the circumstances of Causby. The Landmarks Law prohibits appellants from occupying certain airspace above the Terminal but allows them to continue using the rest of the property for profitable purposes. This restriction is comparable to zoning laws aimed at aesthetic considerations and does not constitute government appropriation of property. The inquiry into whether the law necessitates eminent domain and compensation focuses on the law's impact on the appellants' property. Unlike other cases involving significant governmental interference, the New York City law does not disrupt the Terminal's current use as a railroad terminal with office space and concessions, allowing appellants to continue their established operations. The law permits appellants to earn a reasonable return on their investment and does not preclude them from utilizing any portion of the airspace above the Terminal. Although applications for taller structures were denied, the Commission has not outright prohibited construction above the Terminal; rather, it emphasizes that any construction must harmonize with the Terminal's existing character. Furthermore, even if they face restrictions, the appellants retain the ability to transfer their air rights to nearby parcels suitable for new developments. Thus, the law does not eliminate their air rights entirely, but rather modifies how they can be utilized. New York City’s transferable development rights program, while criticized, has been deemed valuable by the courts in the context of the Terminal property. Although these rights may not represent “just compensation” in the event of a “taking,” they alleviate some financial burdens on the appellants and are relevant in assessing regulatory impact. The court concluded that the application of the Landmarks Law does not constitute a “taking” of the appellants’ property, as the imposed restrictions are significantly related to the promotion of public welfare. These restrictions allow reasonable beneficial use of the landmark site and provide opportunities for the appellants to enhance the Terminal and other properties. The document references legislative efforts at both state and federal levels aimed at historic preservation, including the National Historic Preservation Act of 1966, which emphasizes the importance of preserving historical and cultural foundations. It notes that more than half of the buildings listed in the Historic American Buildings Survey have been lost since its inception in 1933. Furthermore, it highlights that public ownership of historic properties is generally considered impractical due to its negative impact on tax revenue and public budgets, leading to a preference for economically productive urban features. The New York City Landmark Preservation Commission is required to have diverse expertise, including architects, historians, city planners, realtors, and community representatives, ensuring comprehensive oversight in preservation efforts. Improvements over thirty years old that possess special historical, aesthetic, or cultural significance can be designated as landmarks under specific provisions. A landmark site includes the parcel on which a landmark is situated, as well as adjoining parcels that are part of the landmark premises. Historic districts are designated areas with improvements that have distinctive historical or architectural significance, representing various styles and periods. While some landmarks are publicly owned, most, like Grand Central Terminal, are privately owned. If a private owner is denied a certificate of appropriateness for alterations and cannot earn a reasonable return on the property, city agencies must create a plan to allow the owner to achieve a reasonable return. This plan may involve tax exemptions or approvals for alterations, which the owner can accept or reject. If rejected, the Commission may recommend the city acquire an interest in the landmark via eminent domain; if the city does not act within a specified time, the owner can proceed with their original alteration proposal. For tax-exempt structures, special treatment is granted only if certain conditions are met, including prior agreements contingent on certificate approvals and proof that the property is not earning a reasonable return. If these conditions are satisfied, the Commission must either find a buyer or allow the property to be altered or sold. Owners of tax-exempt landmarks can also seek judicial relief if they prove the landmark is inadequate for their legitimate needs, as established in case law. Approval for transferring a landmark requires following specific procedures. Permission from the Commission is required to assess the compatibility of development plans for the transferee lot with the landmark's integrity. Next, the New York City Planning Commission must approve the transfer's impact on nearby building occupants and verify the landmark owner's commitment to preservation. The final decision rests with the Board of Estimate, which can approve or deny the application. The Terminal's foundation was specifically designed to support a proposed 20-story tower. The Commission noted Grand Central Station's unique architectural and engineering significance, highlighting its monumental scale and functionality. Appellants initially submitted a plan called Breuer II, which was later revised due to conflicts with existing easements, leading to the evaluation of Breuer II Revised. The Commission cited previous approvals for landmark additions, such as those to Gracie Mansion and the First Presbyterian Church, emphasizing that they harmonized with existing structures. Similarly, the new Watch Tower Bible and Tract Society building, while modern, respects its historical context. The court highlighted that any regulation protecting landmark values must provide "just compensation," noting that operating costs for Penn Central's Terminal exceeded revenue from tenants. The court also recognized that transferable development rights did not adequately compensate for the landmark designation's impact. The duty to maintain the Terminal's architectural features is a constant consideration in assessing the legality of landmark restrictions. Additionally, the Appellate Division dismissed claims invalidating the Landmarks Law based on agreements between Penn Central and transit authorities. The court indicated that any value calculations for property entitlements must exclude components attributable to public efforts and societal context. The Court of Appeals' decision did not provide a method to distinguish between privately and publicly created value of the Terminal site, and since the bases for affirming the judgment are adequate, the court does not need to explore the separability of "social increments" in property value. The jurisdictional statement outlines four critical questions: 1. Whether the social and cultural value of preserving historical landmarks through regulation undermines the constitutional requirement for just compensation for property taken for public use. 2. If Penn Central is entitled to compensation for the portion of value related to its rights to construct an office building over the Terminal, which is claimed to have been generated by societal efforts. 3. Whether the determination that Penn Central can earn a reasonable return on its remaining properties, without exercising its development rights, justifies not compensating for the taking of those rights. 4. If the potential for Penn Central to realize value by transferring development rights, despite a complex and speculative process requiring governmental approval, satisfies just compensation standards for landmarks. The first and fourth questions assume a taking has occurred and examine if transferable development rights satisfy just compensation. The second and third questions address whether a taking has taken place. The court clarifies that a taking can occur without transferring physical control of property. It is noted that the appellants do not seek review of the New York courts’ finding that Penn Central could earn a reasonable return on its investment, and the ability to profit from the Terminal is independent of the Court of Appeals' rationale. The document also references Pennsylvania Coal Co. v. Mahon to reject claims that deprivation of air rights inherently impacts investment-backed expectations. A “taking” does not occur merely because a land-use restriction imposes a “servitude” on a property, as illustrated by cases such as Welch, Goldblatt, and Gorieb. The New York Court of Appeals distinguished the Landmarks Law from zoning and historic-district regulations, asserting that the Landmarks Law’s objectives justify differential treatment of specific parcels. When a property owner challenges a zoning ordinance, the court assesses whether the restriction aligns with the community’s land-use goals, considering how similar parcels are treated. A similar approach should apply to challenges against landmark designations. Appellants argue that past cases involved restrictions on “noxious” uses, contrasting with their proposed construction, which they claim is beneficial. However, the uses in those cases were lawful, and the key issue was whether the restrictions served a public policy, similar to those in historic preservation. The potential harm of altering a historic landmark is acknowledged, and the appellants’ claim that their construction aligns with zoning laws is deemed insufficient given evolving preservation standards. There are numerous designated landmarks and historic districts in Manhattan, suggesting that the Landmarks Law provides safeguards against arbitrary enforcement, comparable to zoning laws. Appellants contend that transferable development rights do not equate to “just compensation,” yet it was noted that the Commission might approve substantial developments, such as a 20-story office tower. The ruling is based on the current record, reflecting Penn Central’s ability to utilize the Terminal productively. The city acknowledged that if economic viability for the Terminal changes in the future, the appellants may seek relief.