Courts find in favor of property owners

Governments must compensate for "takings."

by Tom Morgan   In two recent cases, Texas courts of appeals have decided in favor of private-property owners. The cases demonstrate that Texas courts are applying the legal concept of a government "taking" under both the United States and Texas constitutions in a manner favorable to property owners whose right to develop land has been hindered by municipal governments.

What is a "taking"?

The Fifth Amendment of the United States Constitution and article I, section 17 of the Texas Constitution prohibit the taking of private property–both real and personal, and including money–for public use without just compensation. According to the U.S. Supreme Court, the prohibition against uncompensated takings was "designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."

Three different general categories of takings claims exist: a physical taking, a regulatory taking, and an exaction taking. A physical taking may occur when the government authorizes an unwarranted physical occupation of an individual’s property. This is typically the case when the government takes property through an eminent-domain proceeding. A regulatory taking may occur when governmental land-use regulation deprives a land owner of all economically viable use of his land or when the land-use regulation does not substantially advance a legitimate state interest. An exaction taking may occur when the government conditions the granting of permit approval, plat approval, or some other type of governmental approval on an exaction, such as paying for unreasonable public road improvements, from the approval-seeking landowner.

City of Glenn Heights vs. Sheffield

A recent ruling by the Waco Court of Appeals in favor of a homebuilder has the potential to expand significantly the protection of private property rights against regulatory takings by municipalities. The decision, City of Glenn Heights vs. Sheffield Development Company, is currently on appeal to the Texas Supreme Court. If it is upheld, it will create a statewide precedent requiring municipalities to compensate landowners for "down-zoning" of properties that cause a decrease in the value of the affected property. This decision concerns some of the same issues that TAR’s own down-zoning bill, S.B. 1398, sought to address in the 2001 session of the Texas Legislature. S.B. 1398 passed the Texas Senate but didn’t make it to the floor of the House before adjournment.

In the Sheffield decision, the court awarded the homebuilder $485,000–the difference between the value of the land when the homebuilder purchased the property and the decreased value of the property after the city down-zoned the land requiring the builder to sell larger lots. The homebuilder may be entitled to additional damages, because the city also imposed a temporary moratorium on the project; that issue continues to be litigated.

The court in Sheffield did find that the city of Glenn Heights’ decision to down-zone the property in question passed one constitutional test by substantially advancing the city’s interest in protecting the community from the ill effects of urbanization. But the court also found that the down-zoning caused a sufficient adverse economic effect on the homebuilder to interfere unreasonably with his ownership rights in the land. This second finding resulted in the award of damages to the homebuilder.

The court also opened the door to further expansion of private-property rights under the Texas Constitution noting that its wording may actually guarantee rights greater than those under the U.S. Constitution.

Two Texas municipalities, Fort Worth and Webster, have recently backed down from down-zoning certain properties, perhaps due to concerns about potential liability under the Sheffield decision.

Town of Flower Mound vs. Stafford

In this exaction case, the developer sued the town of Flower Mound, contending that a condition attached to plat approval that required the developer to construct and pay for improvements to an adjacent public street was a taking without just compensation. The court held that the proper measure of damages is the amount paid for the public improvements in excess of the estimated amount assigned to the consequences generated by the development, minus any special benefits conferred on the development by the exaction. Damages in this case totaled $425,426.

Flower Mound had required Stafford to replace an existing two-lane asphalt road that was in good repair with a new concrete two-lane road based on the premise that the concrete road would be more durable and therefore able to handle the additional traffic generated by Stafford’s subdivision. While the court agreed that the subdivision would generate additional traffic on the new road, the court found that the cost of the additional traffic to the town was not proportional to the entire cost of building the new road and therefore required Flower Mound to refund the difference to Stafford.

Tom Morgan is associate counsel for TAR.

Photo © Comstock Images.

home   current issue    top 10    resources 

discussions   contact us   search

Buyers & sellers, visit www.texasrealestate.com.
REALTORS®, visit www.texasrealtors.com.

The court found that the down-zoning caused a sufficient adverse economic effect on the homebuilder to interfere unreasonably with his ownership rights in the land.