Can a city's historic preservation law that limits development of designated landmarks constitute a regulatory taking requiring compensation under the Fifth Amendment?

Penn Central Transportation Co. owned Grand Central Terminal in New York City, which was designated as a landmark under the city's Landmarks Preservation Law in 1967. The company sought to construct a 50-story office building above the terminal. However, the Landmarks Preservation Commission denied permission for this construction project. In response, Penn Central initiated legal action, asserting that the application of the preservation law to their property amounted to a 'taking' without just compensation.

The legal dispute progressed through the New York state court system before ultimately reaching the United States Supreme Court. Penn Central's claim centered on the argument that the landmark designation and subsequent denial of their development plans constituted an unconstitutional taking of their property rights without proper compensation.

Penn Central initiated the legal proceedings by filing a lawsuit in the New York Supreme Court, Trial Term, seeking declaratory and injunctive relief. The trial court ruled in favor of Penn Central, granting the requested relief. However, the Appellate Division reversed this decision on appeal. Penn Central then appealed to the New York Court of Appeals, which affirmed the Appellate Division's ruling. Undeterred, Penn Central pursued further legal recourse by appealing the case to the United States Supreme Court.

(Brennan, J.)

No. Historic preservation laws that limit development of designated landmarks do not necessarily constitute a regulatory taking requiring compensation under the Fifth Amendment. The application of such laws must be evaluated on a case-by-case basis, considering several factors. Regulatory takings analysis requires examining the economic impact of the regulation on the property owner, the extent to which the regulation interferes with distinct investment-backed expectations, and the character of the governmental action. In this case, the preservation law did not interfere with the present use of the property or the owner's primary expectations concerning its use. The property could still earn a reasonable return on investment, and the transferable development rights provided under the law mitigated any financial burden. Furthermore, the restrictions were substantially related to promoting the general welfare and allowed reasonable beneficial use of the landmark site. The government has a legitimate interest in preserving historically significant structures, and such regulations do not necessarily violate constitutional protections. The mere fact that property value is diminished does not, by itself, constitute a taking. A taking is more likely to be found when the interference with property can be characterized as a physical invasion by the government or when the regulation denies all economically beneficial or productive use of land. Here, the regulation did not go so far as to constitute a taking, as it allowed for continued economic viability of the property while serving important public interests.

Dissent (Rehnquist, J.) The Landmarks Law imposes a unique burden on Penn Central without providing just compensation, violating the Fifth Amendment's Takings Clause. This decision unfairly singles out individual property owners to bear public burdens, which should be borne by the public as a whole. The majority's ruling fails to adequately protect private property rights and sets a dangerous precedent for future government intrusions without proper compensation.