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New York Real Estate Law ReporterFeaturesLand Use and PlanningLitigationLJN NewslettersUnited States Supreme Court

U.S. Supreme Court Addresses the 'Denominator Problem'

By Stewart E. Sterk

Government may generally regulate land use in ways that diminish the market value of the regulated land, unless the regulation amounts to an unconstitutional taking under Penn Central Transportation Company v. City of New York, 438 U.S.104, or Lucas v. South Carolina Coastal Council, 505 U.S. 1003.

When a landowner claims that the regulation constitutes a Penn Central taking or a Lucas taking, the court must measure the regulation against a baseline. If, for instance, the landowner owns a 25-acre parcel, and the state declares one acre a wetland, the regulation may deprive the landowner of only 4% of the market value of the whole. But if the relevant baseline is the one acre designated as a wetland, then the regulation may have wiped out the market value of the wetland. As a result, the Court itself, and many scholars, have wrestled with what has come to be known as “the denominator problem”: What property rights should be included in determining the effect of a regulation? The Supreme Court faced that problem this term in Murr v. Wisconsin, 2017 WL 2694699.

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