Penn Central Transportation v. New York City (1978) is a landmark Supreme Court case that established the framework for analyzing regulatory takings claims under the Fifth Amendment. The Court created a three-factor balancing test that remains the primary method for determining when government regulation constitutes a taking requiring just compensation.
Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978)
Penn Central Transportation Company owned Grand Central Terminal in New York City, a Beaux-Arts masterpiece completed in 1913. In 1967, New York City enacted the Landmarks Preservation Law to protect buildings and areas with special historical, architectural, or cultural significance.
In 1968, Grand Central Terminal was designated a landmark under the law. The designation prohibited Penn Central from making exterior changes to the building without approval from the Landmarks Preservation Commission. Penn Central sought to build a 55-story office tower above the terminal to generate additional revenue from the valuable air space above the building.
The Landmarks Commission rejected Penn Central's proposals for the tower, finding that it would destroy the terminal's historic character. Penn Central sued, claiming that the landmarks law constituted a taking of their property without just compensation by preventing them from developing the air rights above the terminal.
Does a city's landmarks preservation law, which restricts the development of individual historic landmarks but does not involve the acquisition of property or physical invasion, constitute a taking requiring just compensation under the Fifth and Fourteenth Amendments?
To determine whether a regulatory taking has occurred, courts must engage in a fact-specific inquiry examining: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation interferes with distinct investment-backed expectations; and (3) the character of the governmental action.
No. The Supreme Court held that New York City's landmarks law did not constitute a taking. Applying the three-factor test, the Court found that the regulation did not interfere with Penn Central's reasonable investment-backed expectations and that the company could still earn a reasonable return on its investment in the terminal.
Justice Brennan, writing for the majority, established the Penn Central test by analyzing each of the three factors:
The Court emphasized that regulatory takings analysis requires a case-by-case factual inquiry rather than rigid rules. The Court rejected the argument that any restriction on property use constitutes a taking, noting that property rights have always been subject to reasonable government regulation.
The decision also noted that the landmarks law included provisions for transferable development rights, which allowed Penn Central to transfer unused development potential to other properties, providing some compensation for the restriction.
Penn Central Transportation v. New York City has had enormous influence on regulatory takings law:
The Penn Central test remains the dominant approach for regulatory takings analysis, though it has been supplemented by categorical rules like those established in Lucas v. South Carolina Coastal Council for total economic loss situations.
The three factors are: (1) the economic impact of the regulation on the property owner, (2) the extent to which the regulation interferes with distinct investment-backed expectations, and (3) the character of the governmental action.
Investment-backed expectations are reasonable expectations about property use that property owners form when making investments. These expectations are shaped by existing laws, regulations, and the nature of the property when acquired.
Penn Central provides the general balancing test for regulatory takings, while Lucas established a categorical rule for cases involving total economic loss. Courts use Penn Central for partial regulatory impacts and Lucas for complete elimination of economic value.
Transferable development rights allow property owners to sell unused development potential to other properties. In Penn Central, these rights were considered as mitigation for the development restrictions, though they don't automatically prevent a taking finding.
Explore more cases on regulatory takings and property rights to understand this complex area of constitutional law.