On the eve of its 25th anniversary this June, Penn Central Transportation Company v. New York City, the U.S. Supreme Court’s decision upholding the constitutionality of local historic preservation laws, should itself be designated a landmark. Despite criticism from likely (pro-private property) and, occasionally, unlikely (pro-government regulation) quarters, this agenda-setting opinion not only stands upright, but has recently been fortified by the Court’s latest regulatory takings pronouncement. Today, it is no exaggeration to call Penn Central the single most important regulatory takings case ever, controlling not only the regulatory present and future of historic preservation law but, more generally, the regulatory present and future of all land-use and environmental regulatory laws.

Anniversaries provide an opportunity not only for celebration but for reflection. In retrospect, it is hard to imagine the modern historic preservation movement without the backbone of Penn Central. While non-regulatory approaches such as historic preservation tax credits have played important roles in securing the adaptive use of worthy buildings, the local landmark designation regulatory approach has made preservation the default position and the wrecker’s ball an option of last resort. Although now taken for granted, the basic constitutionality of the local landmark law regulatory approach was still not settled in the mid-1970s.

In many ways, Penn Central came out of nowhere. After a flurry of opinions in the 1920s addressing the constitutionality of zoning and other land-use restrictions, the Supreme Court for the next half century withdrew from the playing field and declined to take on similar constitutional reviews. Local government was not so passive. The outsized losses of such architectural masterworks as New York City’s Pennsylvania Station in 1963 stimulated the introduction of new regulatory techniques to curtail a private property owner’s ability to demolish, or even modify, structures deemed historically significant by a locally appointed expert body, without the permission of that expert body. To be sure, those enacting such laws publicly would assert that their actions could be sustained under the same constitutional jurisprudence that had approved zoning, but in their hearts there must have been some question about how closely the historic preservation regulatory model could be considered analogous to zoning. After all, it is one thing to impose uniform rules across a large, continuous zoning district, and quite another to pick one building for special, harsher treatment than its immediate neighbors. Indeed, only following a favorable Supreme Court decision would local historic preservation laws gain national traction.

The facts of the Penn Central case reveal the high stakes at issue. New York City enacted in 1965 its Landmarks Preservation Law, creating a locally appointed commission of experts that would have the power to designate buildings and neighborhoods as landmarks and historic districts. The law defined landmarks as buildings 30 years old or older, with special character, or special historical or aesthetic interest. Historic districts were areas containing landmarks and representing styles of architecture typical of the city’s history. The crux of the law, however, was what would happen upon commission designation. An owner henceforth would lose the right to modify in any way her property’s exterior appearance without commission approval. Activities ranging from replacing windows to total demolition would now be subject to the control of governmental third parties.

Grand Central Terminal, that 1913 Beaux-Arts masterpiece sitting astride Park Avenue in the heart of midtown Manhattan, was designated a landmark by the commission in 1967. The owner of the terminal, the Penn Central Transportation Company, in partnership with a private developer, wanted to build an office skyscraper above the terminal that would generate millions of dollars annually in extra rental income. The company submitted two Marcel Breuer–designed proposals to the commission in 1968. In one, a 55-story tower would sit atop the terminal itself. In another, a 53-story structure would also extend downward to destroy part of the terminal’s 42nd Street facade. The landmarks preservation commission rejected both proposals, citing harm to the terminal’s landmark qualities.

Penn Central and its partner subsequently sued New York City in state court, claiming a taking of property in violation of the federal constitution’s Fifth Amendment command, “nor shall private property be taken for public use, without just compensation.” The trial court ruled in favor of Penn Central, the two state appellate courts ruled for the city. By the time the case arrived at the Supreme Court in 1978, the arguments were crisply drawn. Penn Central emphasized the unfairness of saddling it, or other owners of landmarks, with the economic burden associated with landmark designation and subsequent entanglements with a government commission. If the public wanted to preserve landmarks, argued the company, let the public pay for it. For its part, New York City emphasized the importance of public efforts to preserve the historical legacy of the built environment. It maintained that the burden of historic preservation was spread comprehensively enough throughout the city to escape the company’s claim of disproportionate individual unfairness.

The extent of comprehensiveness lay at the heart of a dispute between the majority opinion of Justice William J. Brennan and the dissent of now Chief Justice William Rehnquist. As a general rule in reviewing land-use rules, the broader the application of the rule, the more acceptable it becomes under the constitution. At the time the Penn Central litigation commenced, the commission had designated not only Grand Central Terminal but also more than 400 landmarks and 31 historic districts. For Justice Rehnquist, however, that would hardly suffice. Scoffing at any notion of comprehensiveness, he observed that New York City imposed landmark designations on “less than one onetenth of one percent of the buildings in New York City for the general benefit of all its people.” The landmark owner’s pride of designation would soon devolve to horror once he or she realized the true import of designation, huffed Justice Rehnquist.

With refreshing, if disquieting, candor, Justice Brennan’s 6-3 majority opinion conceded a long-standing judicial inability “to develop any ‘set formula’ for determining when ‘justice and fairness’ require that economic injuries caused by public action be compensated by the government, rather than remain disproportionately concentrated on a few persons.” Indeed, he could have added that there had been little evolutionary movement beyond Justice Oliver Wendell Holmes’ notorious remark in the 1922 Pennsylvania Coal Co. v. Mahon decision that, “if regulation goes too far it will be recognized as a taking.” As an initial matter, the Court summarily disposed of the public interest issue, declaring that landmarks preservation laws substantially advance legitimate state interests because historic preservation enhances the quality of life in urban neighborhoods. As to the meatier question of whether the law, in furtherance of that goal, placed too much of a burden on Penn Central, the Court found that the city’s actions did not breach the “economic” protections afforded property rights by the just compensation clause. In place of set formulas, the majority announced a three-factor inquiry, requiring case-by-case consideration of, first, the economic impact of the regulation on the claimant; second, its effect on his or her distinct investment-backed expectations; and third, the character of the governmental action.

The Court provided no general guidance as to the weight such factors should be given, especially as compared with one another. In the specific factual setting of the Penn Central case, however, the Court could demonstrate how the analysis should be applied. Relying on the first two factors, the Court enumerated three salient facts that worked in the city’s favor. First, in what hindsight suggests was a strategic blunder, Penn Central had conceded in state court that rental income from terminal activities produced a reasonable return. Second, the Court observed that Penn Central’s primary investment-backed expectation was tied to the terminal itself, not the construction of an office building above it, and that primary expectation was undisturbed by application of the landmarks law. Third, the Court noted the possibility that Penn Central might be able to derive additional financial gain by utilizing a feature of the city’s landmarks law known as “transfer of development rights,” allowing the owner to take the zoning-defined air rights above the terminal and use them on surrounding parcels. The majority also insisted that its three-factor analysis should be applied to the “parcel as a whole,” meaning that courts should consider the economic value associated with the usable portion of the parcel (the terminal) as well as the economic value, or lack thereof, associated with the restricted portion of the parcel (the air rights above the terminal). In many cases, the “parcel as a whole” concept would mean that, all in all, the owner had not suffered as much as he or she claimed.

The Aftermath of the Penn Central Decision

How would Penn Central change the definition of private property? The short answer is, very little. After half a century of inaction, the Court recapitulated its core conclusion registered in the 1920s that government regulation could significantly cut into private property rights in furtherance of evolving public interests without violating the constitution. Consistent with the 1926 Village of Euclid v. Ambler Realty Company case and progeny, Penn Central would deem the most malleable aspect of private property to be its financial value, especially when such value was speculative rather than firmly grounded. Newly ascertained public goals, such as preservation of historic buildings and neighborhoods, would be no more troubling to the justices than the newly ascertained goals served by zoning in the 1920s.

Starting in 1987, almost a decade after Penn Central, the Court issued a steady stream of opinions that, with few exceptions, favored private property owners. The list would include First English Evangelical Lutheran Church v. County of Los Angeles, Nollan v. California Coastal Commission, Lucas v. South Carolina Coastal Council, Dolan v. City of Tigard, Suitum v. Tahoe Regional Planning Agency, City of Monterey v. Del Monte Dunes, Ltd., and Palazzolo v. Rhode Island. Although close readings of the cases revealed that they did not erode the fundamental architecture of just compensation clause jurisprudence as set forth in Penn Central, their cumulative impact undeniably suggested a new judicial concern for private property rights.

That genie has been put back in the bottle, at least for now, by the 2002 Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency decision. There, the Court held that a 32-month moratorium temporarily denying a landowner all economically viable use of land is not an automatic taking. Although the decision surely pleases moratorium practitioners, its true significance resides in its jurisprudential choices and rhetorical positioning. Indeed, Tahoe- Sierra is a champion of Penn Central’s ad hoc, factual, no-set-formula decision-making approach. Writing for the majority, Justice John Paul Stevens invokes Justice Sandra Day O’Connor’s words of praise for Penn Central, first announced in her concurring opinion in Palazzolo v. Rhode Island. Anything less than a complete elimination of value must be adjudicated under the Penn Central multi-factor inquiry. The “parcel as a whole” rule was, and is, good law. For Justice Stevens, who, it must be recalled, joined Justice Rehnquist’s dissent in Penn Central, and who now is the Court’s most reliable vote in favor of land-use planning and regulatory values, this could be dubbed redemptive jurisprudence. Tahoe-Sierra is a beacon, in and out of court, that land-use regulation is constitutionally alive and well, and signaling that owners cannot count on reflexive obeisance to property rights from a majority of the justices.

For a quarter century, Penn Central has remained the most prominent and complete constitutional statement ever from the U.S. Supreme Court on the meaning of the just compensation clause. Later cases have elaborated upon its basic analytical approach, but have never contradicted it. That property rights advocates eventually turned to executive and legislative branch solutions, to wit statutory rather than constitutional avenues, to secure heightened protection for property rights, merely underscores its enduring constitutional legacy. Tahoe-Sierra makes it harder still for a future Court to deviate from its basic approach. In short, when it affirmed New York City’s decision to save Grand Central Terminal, the Supreme Court also affirmed a nation’s ability to secure through regulation its historical bricks-and-mortar legacy.

Publication Date: Spring 2003