Historic Preservation and the Constitution: Thirteen Myths

By: Richard J. Rodewig*
April 15, 2002

One of the biggest problems facing historic preservation at the local level today is the blustering lawyer who claims that recent United States Supreme Court--and state
court--decisions have fundamentally changed the rules of the "preservation game." The typical landmark commission, when confronted by an attorney who incants a litany of case names, usually does not know how to respond. While many preservation ordinances require that at least one member of a preservation commission be an attorney, he or she may not have the experience necessary to face up to the frontal attack and call the bully's bluff. And most of the time, it is just that--a bluff.

The legal rules of the preservation game are the same today as they were ten years ago, despite such often-cited cases as First English Evangelical Church v. City and County of Los Angeles, Nollan v. California Coastal Commission, or, most recently, Lucas v. South Carolina Coastal Commission. That's not to say that there is nothing to worry about in some of the recent U.S. Supreme Court and state Supreme Court decisions of late. There is much to watch and consider, and historic preservation is more on the defensive today than at any time in the past three decades. But despite the new attacks from the property-rights movement, historic preservation is on the same strong constitutional footing today as it was ten or twenty years ago.

Let me summarize the arguments most frequently heard from attorneys for the property-rights movement. I call them "constitutional myths," and for each there is a simple response that can call the bluff of the barrister bully and shatter the myth. Remember one very important thing: The typical attorney who posits these myths is probably no constitutional scholar; he or she is more likely to be a general practitioner, or perhaps a real estate attorney more
comfortable reviewing title reports than the Fourteenth Amendment, or, at best, a zoning and land use attorney who knows much about due process and equal protection but little about the First Amendment or the history of the takings clause in the Fifth Amendment.

THERE ARE AT LEAST THIRTEEN MYTHS LIKELY TO BE ENCOUNTERED.

Myth 1: Historic Preservation is unconstitutional.

Nothing could be further from the truth. Historic preservation, and the well-drafted historic preservation ordinance, is perfectly constitutional. The basic legal support is contained in Penn Central Transportation Company v. New York City,1 the seminal 1978 decision
of the U.S. Supreme Court that for the first time clearly upheld historic preservation as a valid component of the "police power," the term that encompasses that trilogy of local government obligations: the protection of the health, safety, and general welfare of the community. Historic preservation has been recognized by court after court at both the state and federal levels as a legitimate exercise of the police power and necessary for the protection of the general welfare.

Although only four members of the Penn Central court remain on the Supreme Court, the basic holding in the case has been reaffirmed in even some of the most recent pronouncements by the more conservative Reagan/Bush court.

Myth 2: Maybe Historic Preservation once was constitutional but it is now unconstitutional after First English, Nollan, and Lucas.

This, too, is a myth. First English and Lucas deal with the Fifth Amendment taking clause of the Constitution. In the former, a 1987 case, the Supreme Court for the first time ruled that monetary damages could be required to be paid if a law or regulation denies the property owner all reasonable use or return from his or her property. That threshold for proving that a taking has occurred is the same high threshold put forth by Justice Brennan in Penn Central. In fact, the most important result of First English is that it confirms Penn Central's central principle--that there is no unconstitutional taking unless all reasonable use or return has been denied a property owner.

The principal difference between Penn Central and First English is that in the latter case the Court has now recognized the point that in the rare situation in which all reasonable use has been denied, monetary damages may have to be paid. But in First English itself, neither the U.S. Supreme Court nor the lower courts on remand required that any monetary damages be paid, despite the fact that
the property at issue was limited severely in use by the Los Angeles regulation.

It's not enough that some use has been taken. For monetary damages to be paid, all reasonable use or return must be denied. The Lucas decision involves that rare case in which all use or return has, indeed, been denied the property owner. Mr. Lucas was denied the right to build single-family dwellings on two beachfront lots. Only very limited construction of such non-habitable improvements as wooden walkways or small wooden decks was permitted. The purpose of the regulation was to prevent storm destruction of the barrier dune system. This was a case in which it was admitted that all use had been denied. Mr. Lucas had paid $975,000 for the lots, and evidence submitted at trial indicated that the regulation rendered the lots essentially valueless. At best, therefore, it is a red herring for historic preservation. In 99.9 percent of all preservation disputes, substantial uses remain for the property owner, a reasonable return can be gained from the property, and "reasonable investment-backed expectations" (another Supreme Court takings touchstone) have not been thwarted.

Myth 3: Private property rights are sacrosanct in our form of government.

Yes, private property rights are given significant protection by the Constitution. But are they sacrosanct? Not quite. And anyone who carefully considers the nature of private property rights in America eventually finds an unmistakable truth: A substantial component of the value of private property is created by government action. What would the value of a piece of private property be without the public investment in utilities, roads, parks, schools, fire departments, or police? Or without such regulations as building codes, zoning ordinances, environmental regulations, or traffic laws? The fact is that public property rights are inextricably intertwined with private property rights, and government creates a good portion of value by such things as land-use planning laws, zoning and building codes, and even historic preservation ordinances.

Myth 4: The founding fathers never intended us to regulate property this intensively.

Variations on this myth may include such statements as the
following: "A strict construction of the Constitution means historic preservation laws are unconstitutional;" or "The intent of the framers of the Constitution was to make protection of private property a preeminent right." This never was true and those who advocate that point of view just do not know their constitutional and political history.

Certainly, private property rights are important in our constitutional scheme. But the whole history of common law prior to the enactment of our Constitution recognizes that private property rights derive from the Crown--in other words from government.  Remember, the land that formed the thirteen English colonies was claimed by the early explorers on behalf of the Crown. And it was the Crown that gave land grants, in fee or in lesser title, to the various mercantile and religious groups that settled the English colonies in the New World. Private property rights were derivative of government ownership of the land, at least in the New World.

Additionally, our Founding Fathers operated in a legal tradition that recognized the overreaching authority of the Crown to regulate private property rights for the public good in a variety of forms. The best summary of this English Common Law of land use is found in the book The Taking Issue, published in 1974 by the President's Council on Environmental Quality.

Myth 5: If you designate my property as historic, you must pay me its full market value.

There are two things wrong with this statement. First, mere designation of a property as historic is not enough to create even the possibility of some entitlement to damages. There must be something more, and usually the courts hold that the something more is outright denial of an application for a permit to "do something" with the property, and, even further, when historic preservation is involved, a final denial of an application for an alteration or demolition permit.

The word "final" is very important. Courts don't want to get
involved in these messy land-use disputes unless they have to. If there is any type of administrative relief that has not been tried, courts won't even consider the constitutionality of an attack on a historic preservation law. The legal term for this principle is "ripeness" courts won't get involved in land-use disputes until they are "ripe" for judicial consideration, and such controversies are not ripe until all of the possible administrative avenues for relief (e.g., variances, economic-hardship exceptions, appeals to the city council, etc.) have been exhausted.

Second, courts simply do not like these preemptive attacks on historic designation, so-called "facial attacks" on historic
preservation laws, or indeed, on any other kind of land-use law.  Designation of properties as historic, assuming the designation complies with a good set of designation criteria, is a legislative act, and courts give legislative acts a strong "presumption of validity." Courts prefer to step in only when a property owner has actually applied for some permit and been denied.

Myth 6: If you decrease my property value even a little bit, that's a taking and you must pay me damages.

Untrue. The constitutional "threshold" for having a valid claim for damages is quite high. There are many cases in which state and federal courts have upheld land-use laws that have decreased property values by as much as eighty percent to ninety percent or more. For example, in the first U.S. Supreme Court case to uphold local zoning laws, City of Euclid v. Ambler Realty, the owner's property was decreased in value by seventy-five percent, from $10,000 per acre to only $2,500 per acre. In other cases, too, serious effects on value have been upheld. For example, in Haas v. City of San Francisco, property was decreased in value from $2 million to only $100,000, but a federal court of appeals ruled it was not a taking. So the property owner must demonstrate a high impact on value in order to cross the constitutional threshold and have a legitimate claim for damages.

Even the most recent U.S. Supreme Court pronouncement on the taking issue, Lucas v. South Carolina Coastal Commission, reiterates that the threshold is indeed high. The Court recognizes that it is reviewing a remarkably unusual factual situation in which virtually all value has been taken from the property owner. It calls this case "the extraordinary circumstance when no productive or economically beneficial use of land is permitted." The footnotes to the case are as important as the majority decision, and in footnote eight the Court states that "it is true that in at least some cases the landowner with ninety-five-percent loss will get nothing, while the landowner with total loss will recover in full.”

How much of an impact on value must be shown before the courts will find a taking? The answer is still not clear, even after the Lucas decision. In Lucas the Supreme Court reiterated that this is a case-by-case process. A couple of things seem to be clear, however, from the way in which courts through the years have handled these taking claims. Decreases in value of less than fifty percent will be held by the courts not to create a taking in virtually every case.  Decreases exceeding ninety percent are likely to be held to constitute a taking most of the time. And courts will be inconsistent when the alleged impact on value is between fifty percent and ninety percent--some courts will find a taking while others will not.

Myth 7: If the property owner wins on a constitutional takings claim, the community will have to pay a huge damage award.

This myth fundamentally misunderstands the calculus that the courts must apply in a takings case. Let's imagine a situation in which a property owner has proven more than a ninety-percent decrease in value of his property as a result of denial of a demolition permit in a historic district, and the court decides this is a taking of all reasonable use. The court will then have to calculate the amount of damages that must be paid. The property owner gets neither the full value of the property nor even ninety percent of the value of the property. Instead, the owner gets much less.

A court, when it finds that the damages threshold has been crossed, overturns the offending regulation or action. If it is a preservation-board denial of a demolition permit application that has been reversed by the court, the judge will order the board to issue the permit. The property owner now gets the demolition permit and can undertake the development project that was temporarily delayed while the legal wrangling on the taking question was in process. So there has been no "permanent" taking of the property, as there is when a local government takes property for a road or utility line. Instead there has been a "temporary" taking.  And courts realize it would be fundamentally unfair to pay the property owner the full value of the property and also let him keep the property.

So the rules of the taking game state that the owner must be properly compensated for the actual loss incurred during the time that the regulation was in place. The precedent for the formula was established during World War II when the United States actually took over and operated some businesses and factories. The best statement of this old rule as it applies in contemporary land use taking cases is in Nemmers v. City of Dubuque in which the Eighth Circuit Court of Appeals set out the essential five steps to the calculus:

(1) Determine the market value of the property "before and after" the denial of the permit; 
(2) determine the date of the taking--usually the date of "final" denial of the permit application;
(3) select an appropriate annual "rate of return" on value;
(4) apply that rate of return to the difference between the value of the property "before and after" denial of the permit application to derive the annual loss to the owner of the property;
(5) multiply the annual loss by the number of years, or partial years, between the final denial of the permit application and the decision of the court.

Let's apply those five steps to a hypothetical case. A preservation commission denies a demolition permit, there is an appeal to the city council, and the city council upholds the denial. Assume that the value of the property would be $200,000 if the owner could demolish the historic structure on it. If the court found a ninety-percent decrease in value, the value with the historic property in place would be $20,000. And let's further assume that the appropriate annual rate of return is ten percent.

If it took one year between the time that the demolition permit application was finally denied and the date that the court entered its judgment that a taking had occurred, then the total damages payable would be only $18,000--not $200,000 or even $180,000.

Myth 8: Maybe it is constitutional to review applications for alteration work, but review of applications for demolition is unconstitutional.

Another myth. The same constitutional standards apply whether alteration or demolition is being reviewed. The takings test is the same. Of course, there may be a somewhat greater chance that a property owner can prove a serious impact on property value when a demolition permit application is denied than when an alteration permit is denied. But the high constitutional threshold of denial of all reasonable use or return is still the standard.

In reviewing demolition permit denials, the possibility arises for scrutinizing more than just the impact of denial on property value. Justice Brennan in his classic formulation of the taking test in Penn Central posited that there were three economic standards that might apply:

Was the property owner denied all reasonable use?
Or was the property owner denied all reasonable return?
Or did the regulation interfere with distinct investment-backed expectations?

The courts have really not given us too much explanation of what each of these standards means. But remember, in Penn Central the U.S. Supreme Court emphasized that even if the railroad could not construct a new office building above the existing station, it still could continue to use the station just as it had for many decades, as a railroad station. The courts seem to say that if your original purchase of the property was to use it (rather than demolish it), you have had a reasonable use of the property for many years (i.e., you have recovered a fair return on your original investment), and now you have an opportunity to sell the property for demolition at a much higher price than its current market value for its current use, your reasonable investment-backed expectations are not dashed if you are denied a demolition permit.

Myth 9: If you deny me the right to demolish my historic building and construct a new building, you must pay for the lost profits I would have made on the new construction project.

This, too, is untrue. The general rule is that future profits are "too speculative" and therefore not a proper basis for compensation. That makes sense. Consider all of the possible things that can go wrong in a development project between inception, completion of construction, and even full occupancy or total sellout. Sources of financing may dry up, interest rates may increase, carpenters could go on strike, the country could enter into a recession, over building might create an imbalance between demand and supply, etc. All of these things did go wrong in the early 1990s making fools of some of the most sophisticated developers, lenders, and real estate analysts of the 1980s who predicted that the boom of the 1980s would continue indefinitely.

Exclusion of possible profits from the damages calculus is a
well-established rule in eminent domain (condemnation) law. However, there is one worrisome decision of a federal court, Wheeler v. City of Pleasant Grove, that does allow for consideration of lost profits as part of the damages calculus. This method has been followed in a couple of more recent cases--in one case reluctantly and only after the lower-court judge expressed his disagreement with the principle of compensation for speculative lost profits.

It's my hunch (and a prediction), however, that as courts become more experienced in measuring the damages in Fifth Amendment takings cases, they will increasingly look to the established body of doctrine in condemnation law for guidance. When they do, they will discover the sound policy reasons for ignoring speculative future profits. But if some courts do decide to throw consideration of the future profits into the takings recipe, isn't it fair also to consider whether denial of the permit saved the developer from making a real estate mistake—in other words, if potential future profits can be added as damages, so should potential future losses avoided be an offset to damages. If there is one thing the 1990s have taught us so far about the real estate business, it is that losses occur as frequently as gains.

Myth 10: The preservation commission has the burden to prove that the historic designation or permit denial is not a taking.

The burden in the takings game is quite the opposite. The property owner must prove by "clear and convincing" evidence and by the "preponderance of the evidence" that the denial of the permit application results in the owner's loss of all reasonable use or return.

Again, the reason for imposing the burden on the property owner is simple--respect for the legislative process. Courts give great weight to the deliberations of federal, state, and local governments--as they should in a democracy. There is a strong presumption of validity given every piece of legislation. About the only time that courts might shift the burden to the government is when, for some unusual reason, the government appears to have "dirty hands."

Perhaps there is strong evidence of discrimination against this particular developer for reasons of race, religion, or gender, or maybe the city is eyeing this piece of property for some public use and denies a demolition permit in order to keep the value (and therefore the potential purchase price) of the property low. Otherwise, the developer has the burden to prove that he or she cannot make a reasonable return through continued ownership of the historic structure.

And remember, under the typical historic preservation ordinance, that evidence must be presented before the preservation commission itself. And typically, decisions of preservation commissions are reviewed by the courts under state "administrative review acts." Usually that means no new trial is held and the trial court is limited to a review of the record made before the preservation commission to see if the owner of the property satisfied its burden of proof.

Myth 11: Even if historic preservation is valid under the U.S. Constitution, it is unconstitutional under state constitutions.

The source of this myth is the recent Pennsylvania Supreme Court decision in the United Artists case. Actually, the doctrine that some activities given constitutional protection under the U.S. Constitution are not protected in the same way under state constitutions goes back even further.

In the United Artists decision, the Pennsylvania Supreme Court overturned the designation of the Boyd Theater by the Philadelphia Historical Commission and found that historic designations "without the consent of the owner, are unfair, unjust, and amount to an unconstitutional taking without just compensation in violation of Article 1, Section 10 of the Pennsylvania Constitution." But note one very significant thing about that case: Its initial decision in the case created such an outcry that the highest court in Pennsylvania agreed to rehear the case. It did so in October of 1991. To this day the court still has not issued any final decision in the case. And even if this becomes the rule of law in Pennsylvania, it may not become law elsewhere. State supreme court decisions are only precedent in the state in which they are issued. For the rule of law to apply elsewhere, another state supreme court will have to also adopt this rule. No other state supreme court has done so, and in fact, in most states, judicial support for historic preservation under state constitutional principles is quite strong.

Myth 12: Maybe historic preservation is constitutional as it applies to privately owned property, but the rules are much different in the designation and protection of religious properties.

Once again, myth not reality. The traditional rule is that land-use and zoning laws, like other health and safety laws, apply to religious groups and religious organizations in the same manner as to all Americans. Only if the land-use and zoning restriction actually interferes with the exercise of the religion will it be overturned.

Religious groups have been zealous in recent years in attempting to carve out exceptions from land-use and zoning laws as they apply to religious properties. With the exception of only two cases, however, all of these efforts have failed. And there are other recent cases that stress the traditional rule. The most significant is Rector, Warden and Members of the Vestry of St. Bartholomew 's Church of New York v. City of New York, commonly known as the St. Bart's case, in which the Second Circuit Court of Appeals upheld the New York City landmarks ordinance from an attack that claimed landmark designation and protection was an interference with the "free exercise" of religion guaranteed by the First Amendment. On the contrary, the court held, landmark designation is "facially neutral" and applies to historic religious buildings in the same way it applies to other types of historic structures. The court also held that denial of the application to demolish the St. Bart's community house did not confiscate the church's property in violation of the Fifth Amendment prohibition against "takings."

The central question in these religious cases, according to the Second Circuit, "is whether the claimant has been denied the ability to practice his religion or coerced in the nature of those practices." For the church to prove that there has been interference with its First Amendment rights, there must be evidence of discrimination, coercion in religious practice, or interference that creates interference with the church's religious mission.

The mere fact that denial of a demolition permit means that the church will have less money to apply to parts of its mission is not enough, by itself, to create either a First Amendment violation or a takings claim under the Fifth Amendment. The St. Bart's decision is especially helpful to the cause of historic preservation because the U.S. Supreme Court refused to grant a review of the case. That
indicates support on the Supreme Court for the reasoning of the Second Circuit.

There are two troublesome cases involving churches. Not once, but twice, the Supreme Court of the state of Washington has invalidated the Seattle landmarks ordinance as it applies to churches. In the first case, First Covenant Church v. City of Seattle, the U.S. Supreme Court reviewed the case, vacated it--in effect reversing the Washington Supreme Court--and remanded it back to the Washington court for further action. But the state Supreme Court again invalidated the Seattle landmarks ordinance, this time citing the Washington state constitution as support.

The second case is Society of Jesus of New England v. Boston Landmarks Commission in which the Massachusetts Supreme Court overturned Boston's designation of the interior of a church as an interference with religious worship.

Despite these two cases to the contrary, the majority of cases that have examined designation of churches as landmarks or as parts of historic districts have upheld the historic preservation law. The Washington Supreme Court decision in First Covenant appears to be an aberration not repeated elsewhere in preservation law. The Society of Jesus case raises a significant red flag for preservationists: be very wary of designating the interiors of religious structures.

Myth 13: Maybe zoning and other types of land-use laws are constitutional, but landmark designation creates no benefits to offset the burdens of the regulatory scheme and therefore is illegal.

The source of this myth is Justice Rehnquist's dissent in the Penn Central case. Justice Rehnquist distinguished between designation of historic districts and the designation of individual landmarks. In the former situation Justice Rehnquist could clearly see a mutuality of benefits and burdens--every owner of property in a historic district is assured that every other owner of property in the district will take care of his or her property in a way that assures
the historic character of the neighborhood will be preserved (the benefit) but also equally share in the process by which alteration and demolition applications are reviewed (the burden).

The key quote from Justice Rehnquist is as follows:
The owner of a building might initially be pleased that his property has been chosen by a distinguished committee of architects, historians, and city planners for such a singular distinction. But he may well discover that the landmark designation imposes upon him a substantial cost, with little or no offsetting benefit except for the honor of the designation.

The question in this case is whether the cost associated with the City of New York's desire to preserve a limited number of landmarks within its borders must be borne by all of its taxpayers or whether it can instead be imposed entirely on the owners of the individual properties.

Only in the most superficial sense of the word can this case be said to involve zoning. Typical zoning restrictions may, it is true, so limit the prospective uses of a piece of property as to diminish the value of that property in the abstract because it may not be used for the forbidden purposes. But any such abstract decrease in value will more than likely be at least partially offset by an increase in value that flows from similar restrictions as to use on neighboring properties. All property owners in a designated area are placed under the same restrictions, not only for the benefit of the municipality as a whole but also for the common benefit of one another.

Mr. Justice Rehnquist does not see the same mutuality when he scrutinizes designation of individual landmarks. Although he does not articulate the distinction particularly well, he probably has in mind the situation in which a historic building in a neighborhood is designated as a landmark. All the other property owners on the block or in the neighborhood receive the benefit of seeing the historic building preserved, and reap the benefit of the positive impact of the landmark protection on the character (and property values) of the neighborhood. However, they do not have to share in the burden that results from the process for protection of the neighborhood landmark.

There are a lot of problems with the Rehnquist distinction. For example, the whole theory breaks down when you analyze what happens at the edge of a designated historic district. Property owners across the street participate in the benefits but aren't affected by any of the burdens. And it ignores what most preservationists intuitively know, but seldom articulate well to the uncommitted--there are significant benefits even to owners of individually designated landmarks. For example, it is generally understood--although not very well documented-that the value of historic single-family landmarks increases following designation; there is a panache that attaches to official designation that has some market value, as almost any real estate broker will attest.

People simply want to live in landmarks. And in many states there are special incentives available to the owners of designated landmarks not available to the owners of non-historic property next door. And, of course, if the designated landmark is income-producing, it qualifies for the opportunity to utilize the investment tax credit for rehabilitation of historic structures provided by the federal tax laws. More importantly, each individual landmark owner benefits from the designation of other landmarks in the same community. In essence, communities that designate individual landmarks rather than historic districts simply are treating the entire community as one historic district, and the properties not designated are simply noncontributing structures or intrusions.

Justice Rehnquist's "benefits vs. burdens" analysis was picked up by the Pennsylvania Supreme Court in its United Artists decision. During the rehearing of the United Artists case, many questions were asked of the National Trust's legal counsel concerning this issue. More courts will be asking the same question in the future. A clear presentation of the benefits of landmark designation should be high on the agenda of the preservation community. In fact, it indicates that we need to "get back to the basics" in preservation. That is, we need to define the benefits of historic preservation for a new generation of Americans, and for a new cadre of judges who may have little or no experience with the concept. How the preservation community responds may be one of the most significant challenges facing preservation in the 1990s.

What should the preservation community be doing in the wake of this renewed interest in property rights and the Constitution? There are at least six lessons to be learned:

First, don't be bullied by the blustering barrister. Despite--in
fact, because of--such recent cases as First English and Lucas the law is on our side.

Second, get sound legal advice. City and village attorneys sometimes don't have enough experience with preservation (or even land-use) legal issues to be of much help. Call the office of the general counsel of the National Trust or your state historic preservation office for advice. They can at least set the record straight and often can give you good ammunition for a sound legal response to the blustering barrister.

Third, make sure your preservation ordinance has sound
administrative processes. Make sure property owners are treated fairly.

Fourth, consider adding a process for considering economic hardship and granting certificates of economic hardship.

Fifth, create a package of local incentives for relieving the
potential hardship that can sometimes result from denial of
alteration or demolition permits. This can be as simple as creating a small revolving fund for low-interest loans for proper restoration/rehabilitation of historic structures.

Sixth, proceed slowly in your efforts to establish strong protection for designated historic resources. Build political support before you try "state-of-the-art" preservation techniques. Although the preservation commission may see through the bluster of a bullying barrister, the city council may not unless the benefits of preservation have been clearly demonstrated to the local government leaders.

The mere fact that an article like this has to be written indicates how far astray the preservation movement has gone. Our successes have created a complacency—a complacency that the benefits of historic preservation are obvious and that the opponents of strong protection for historic resources were defeated in the 1970s. In reality, historic preservation has to be reinvented every decade--perhaps even every day. This requires permanent vigilance and constant effort to educate America concerning the benefits preservation carries with it.

*Richard J. Roddewig is an attorney specializing in real estate,
planning, and preservation issues. He is the president of Clarion
Associates, Inc., which is based in Chicago.
 
Thanks to Kim Trent, who first found this article and posted it on the Knox Heritage mailing list.