• 30 November 2009

Existing Uses and the Limits of Land Use Regulations

Christopher Serkin - Brooklyn Law School

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Existing uses occupy a special place in property and land use law.  A use, once established, is imbued with an expectation that it may continue to exist, even in the face of regulatory change.  For example, once built, a building becomes all but immune from subsequently enacted zoning rules.  As much as this comports with strong intuitions, there is something peculiar about the law’s special solicitude for existing uses.  If a developer purchases undeveloped property, planning to build a new condominium, the government has broad powers to downzone or otherwise restrict development on the site.  But once the developer has built the condos—in fact, once the developer has done enough to vest her development rights—the entire legal landscape changes.  Instead of a nuanced inquiry into the government’s interference with the developer’s investment-backed expectations, the existing condos suddenly receive near-absolute protection.

This raises important questions:  To what extent does current land use and property law protect existing uses?  To what extent does the Constitution demand this level of protection?  Are there normative justifications for protecting existing uses?  The answers turn out to be surprising.

Courts have developed a variety of doctrines that assume categorical protection for existing uses.  In fact, however, current constitutional rules do not compel it.  Moreover, there are no particularly good reasons to treat the existence of a use as the boundary line between property that can and cannot be regulated.  A more sensible approach to existing uses—and one that the Constitution in fact permits—is to treat them in the same way as prospective future uses.  There is no persuasive reason to afford greater legal protection to an existing decrepit shack in the woods than to a developer’s reasonable but not yet realized plans for the future.

 
I.
The Special Protection of Existing Uses

The law’s treatment of existing uses appears across a wide cross-section of land use doctrines.  The Standard Zoning Enabling Act, dating back to the 1920s, wrestled with the problem of existing uses,and implicitly took the view that the Constitution does not compel their protection.  Nevertheless, the subsequent evolution of zoning and land use law has largely assumed constitutional protection without explicitly addressing the issue.  In fact, much of the protection of existing uses in current law can be found in its exceptions—exceptions that, by their nature, assume some unstated background rule that existing uses are categorically different than prospective future uses.

This is most apparent in the law of prior non-conforming uses, that is, preexisting uses of property made impermissible by a subsequent zoning change.

To deal with prior non-conforming uses, many states have adopted amortization provisions that allow the application of zoning restrictions to prior non-conforming uses so long as the use is allowed to remain in place for some time.  If the property owner is given sufficient time to amortize her investment, the government can then require the property to come into conformity with new zoning regulations without paying compensation.  The constitutional issue often presented by amortization provisions is the duration of the amortization period required under the Due Process and Takings Clauses.  Strikingly, courts have almost entirely failed to ask why an amortization period is required at all.  The unstated assumption built into amortization rules is that existing uses are categorically protected from zoning changes in the absence of amortization. 

Another easy place to discern the special protection of existing uses is in the vested rights doctrine, which defines when a property owner has taken sufficient steps in developing her property so as to immunize it from new regulations.  The doctrine is implicated when a property owner has begun, but has not yet completed, some project before the government downzones the property or otherwise changes applicable land use regulations.  The constitutional issue here is usually deciding when the development rights vest—upon hiring an architect, obtaining permits, or pouring a foundation?  Under the vested rights doctrine, then, property rights are subject to a kind of existing use tipping point:  Once a property owner has done enough to establish a particular use on her property, it is suddenly protected from regulatory change.

The nuisance exception to takings liability is similar.  Core takings doctrine holds that the government can regulate away an existing use in order to prevent a harm.  The corollary is equally important but invariably left unstated:  If the government is not preventing a harm, it cannot eliminate an existing use.

In short, a number of important land use doctrines assume that existing uses are entitled to protection, but the basis for that protection is left unstated and is entirely unclear.

 
II.
The Illusory Constitutional Basis for Existing Use Protection

Instead of a coherent set of protections based on sound constitutional footing, existing use protection is generally an unexamined assumption that courts blindly follow.  Neither the Takings nor the Due Process Clauses provide the protection for existing uses that courts generally assume.

 
A.     The Takings Clause

The principal basis for takings liability comes from the Supreme Court’s Penn Central1 test.  The factors for determining whether a regulation is a taking include its interference with distinct investment-backed expectations and the extent of the diminution in value it caused.  The first factor has the potential to provide the most significant protection for existing uses; however, it is now principally used to distinguish a property owner’s reasonable expectations from pie-in-the-sky development dreams.  In other words, the test today focuses more on the reasonableness of a property owner’s expectations, not on the extent of her investments, and therefore focuses on future uses and not existing ones.

Diminution in value, the second Penn Central factor, has become the cornerstone of takings jurisprudence, and it provides even less doctrinal justification for protecting existing uses.  Applying this factor, a regulation is a compensable taking if it reduces the value of the property by too much.  A regulation of an existing use is more likely to be a compensable taking than a regulation of a prospective future use because it will have a more significant impact on the value of the property.  But because the Penn Central test is applied in reference to the value of the property as a whole, it serves only to prevent the government from eliminating valuable existing uses on parcels of land that have little other value.  Where the existing use either does not add very much value to the underlying property—such as in the case of run-down, low-income housing in a gentrifying neighborhood—or where an existing use is but one part of a much larger property, the diminution in value test provides very little protection.

 
B.     Due Process Clause

The Due Process Clause is the other principal source of constitutional protection for private property.  For almost a century now, courts have had little appetite for striking down economic regulations on substantive due process grounds.  Land use, however, remains one area where courts have consistently been willing to invalidate regulations under substantive due process.

As the Supreme Court recently explained in Lingle v. Chevron,2 the Due Process Clause prevents government regulations that are arbitrary or irrational, including regulations that have an insufficient means-ends fit.  Due process therefore prohibits the government from imposing harms that are disproportionately high compared to the benefits that are created.  Judicial review is highly deferential, and land use controls enacted pursuant to the government’s police power are entitled to a presumption of validity.  Some courts have found land use regulations irrational simply because of their impact on existing uses.  More typically, however, the due process inquiry into means-ends fit is only tangentially related to existing uses.  Indeed, in most situations, a municipality’s decision to eliminate an existing use is both perfectly rational and likely to succeed in achieving its goals.

Therefore, the due process inquiry itself does not appear to provide particularly strong protection for existing uses.  Its balancing of benefits and burdens is effective at proscribing arbitrarily short amortization periods or arbitrary distinctions in the development process that determine whether rights vest, but it does not explain why amortization periods are required at all or why vested rights are entitled to protection against legislative change.

 
III.
Normative Accounts of Existing Use Protection

If the Constitution does not compel categorical protection of existing uses, does (or should) the protection come instead from more general normative considerations?  The most likely normative justifications focus on:  (1) the nature and extent of the loss; (2) protecting reliance interests and the status quo; and (3) political economy.  None of these possible justifications for the categorical protection of existing uses withstands serious scrutiny, although each could justify protection in specific cases or contexts.

 
A.     Nature and Extent of the Loss

It is perhaps tempting to situate the protection of existing uses within the broader set of legal constraints against retroactive legislation.  While the Ex Post Facto Clause does not apply outside of the criminal context, deep rule-of-law concerns disfavor retroactive laws.  Failing to grandfather existing uses looks like retroactive lawmaking.  In actuality the line between retroactive and prospective laws does not necessarily track the line between existing uses and prospective ones.

It is surprisingly difficult to define what counts as a retroactive law.  Even prospective-only regulations can have a significant retroactive effect.  Leading academic accounts of retroactivity distinguish between strongly and weakly retroactive laws.  The former alter a legal status retroactively (for example, defining conduct as criminal after the fact); the latter change a legal status only prospectively, but rely on events that predate enactment of the law (for example, prospectively repealing the mortgage interest tax deduction).  In the land use context, imagine a new zoning ordinance that eliminates a particular existing use.  That zoning ordinance is not strongly retroactive because it only operates prospectively—that is, it does not impose civil or criminal penalties, say, for the existence of the use in the past.  It has a severe “weak” retroactive effect, however, because it interferes with the owner’s prior investment in the existing use.  But almost all land use regulations are retroactive in this sense.  Any land use regulation threatens to undermine settled expectations concerning the uses of property.

Antiretroactivity rules and norms are therefore either under- or over-inclusive when it comes to protecting existing uses.  If they only prohibit regulations that actually change preenactment legal statuses (that is, that are strongly retroactive), then they permit prospective regulations regardless of their impact on existing uses.  If they prohibit regulations that simply interfere with settled expectations (that is, that are weakly retroactive), then they do not distinguish between regulations of existing uses and regulations of undeveloped property where the owner reasonably expected to be able to build.  Retroactivity on its own does not explain, let alone justify, existing use protection.

Perhaps, alternatively, existing uses demand protection because of the nature of the losses they impose.  Simply put, the owner of an existing use is likely to value it more than an otherwise identical use that does not yet exist—a phenomenon that behavioral economists cast in terms of endowment effects.

While this account has considerable descriptive force, it is very difficult to justify treating these psychological connections differently from any other subjective value an owner may feel toward her property.  In other contexts, courts have reasoned that the difficulty—indeed, the seeming impossibility—of measuring subjective value with any precision militates in favor of ignoring it altogether.  There is really no conceptual difference between the subjective value resulting from the actual possession of property and the subjective value resulting from, say, property being in the family for a long time.  Furthermore, applying the subjective value intuition to justify protecting commercial property or abstract investments in property is far more of a stretch.

One may argue that these economic accounts miss some more fundamental aspect of existing uses and the connection that can develop between people and their property.  As Professor Margaret Radin has observed, these relationships can implicate the owner’s very personhood.3

Even if this is sometimes true, an existing use is at most a necessary but not sufficient precondition for property to implicate personhood.  It is simply not the case that all or even most existing uses involve personhood at all, let alone to an extent that demands protection.  The kinds of existing uses frequently at issue in land use disputes are commercial uses or property owned by corporations.  Personhood in such contexts simply is not—or at least not often—at issue.

 
B.     Protecting the Status Quo

Another kind of explanation for the protection of existing uses may come from property law’s more general role in promoting stability.  This claim, however, is problematic both descriptively and normatively.

First, descriptively, existing use protection could either protect stability in legal rules or in actual uses of property.  Neither are plausible, however.  The former provides no basis for singling out existing uses for special protection—stability in legal rules would resist any change in the law, regardless of the impact on existing uses.  But existing use cannot be about stability in the actual use of property either.  Indeed, the history of property law in this country is the history of promoting increasingly intensive uses.  It is not about stability but about encouraging productivity.  Existing use protection is only consistent with this history to the extent that it protects existing uses from less intensive uses, not more intensive ones—a distinction that simply does not exist in the doctrine.

Instead of protecting some kind of objective stability, perhaps existing use protection can be justified as protecting property owners’ subjective expectations about the use of property.  It is one thing to protect a property owner’s claim that she hoped, someday, to develop her property.  It is, perhaps, something else to protect the property owner who has already actually done so.  Viewed this way, existing uses have salience primarily because they are particularly good evidence of a property owner’s real expectations about the use of her property.

This account has some descriptive power, but again it does not justify categorical protection of existing uses.  Most profoundly, it does not explain why a property owner’s individual plans should be a relevant consideration for property protection in the first place.  When it comes to prospective future uses, the law does not even aspire to protect all genuine and reasonable expectations.  Developers are routinely required to scale back projects and offer concessions as part of the development process, regardless of the sincerity of their original expectations.  So long as that interference does not go too far, it is not impermissible and does not trigger takings liability.

 
C.     Political Economy

An entirely different kind of normative justification for existing use protection comes from the potential for systemic political malfunction.  Under one account, property protection should be at its highest when political protections are at their weakest.  The question, then, is whether owners of existing uses are likely to suffer from a predictable political failure.

If anything, owners of existing uses would seem to enjoy a predictable political advantage:  They are easy to identify and tend to have high stakes in regulatory changes affecting their uses, making them easy to mobilize into an effective special interest group.  In the rough-and-tumble of interest group politics, the class of existing owners appears far less susceptible to the kinds of political failures that can occur when costs are imposed on a diffuse, disinterested, and unorganized group.

There are admittedly some political process failures that may suggest a need to protect particular existing uses from exploitation. Most pressingly, governments can single out owners of specific kinds of disfavored existing uses to bear regulatory burdens. Zoning away adult businesses is perhaps the easiest example. But this same political dynamic exists whenever a municipality can single out any disfavored use.

Ultimately, however, it is difficult to generalize about the political power of owners of existing uses.  It is likely to depend on the nature of the government and the nature of the use.  This variety in the political story cannot justify the blanket protection that existing uses receive.

 
IV.
Existing Uses as a Proxy for Other Interests

The fundamental problem with the plausible justifications for categorical protection of existing uses is that the presence of an existing use does not always correspond to the various interests that existing use protection might claim to protect.  Importantly, though, this is not an argument that existing uses are irrelevant or never represent important and protectable interests.  Frequently, the presence of an existing use is a relatively good proxy for high transition costs or high subjective value.  Existing use protection can then perhaps be defended as an easy-to-administer bright-line rule.  Although overbroad, it prevents harms that are often—even if not always—associated with the elimination of an existing use.

If existing use protection were costless or sufficiently cheap, an admittedly overbroad prophylactic rule might make good sense.  But even without providing a full empirical accounting of the costs and benefits, there are some strong reasons to be skeptical of this prophylactic justification:  The costs are likely to be too high and the benefits too low.

Protecting owners from legal change—whether in the form of compensation or grandfathering—creates predictable and potentially perverse incentives.  One of the most obvious is the opportunity it creates for property owners to make investment decisions specifically to take advantage of temporarily favorable regulatory treatment.  In the face of a future regulatory change, property owners can lock in a current use by building or by vesting rights before the regulatory change takes effect.  This can precipitate a race to develop and can lead to inefficient over-investment in property.

Existing use protection can also lead to inefficient investment decisions simply by allowing property owners to ignore the risk of an adverse government action.  If property owners know that the government will compensate them for their existing uses, they may fail to account sufficiently for the risk of regulatory change.

Existing use protection may also make local governments less willing to experiment with zoning.  The less flexibility local governments retain to get out of unsuccessful zoning decisions, the less they will innovate where the outcome is uncertain.  If planners have to zone around existing uses, then a significant part of any zoning project will involve incorporating the existing uses, whether or not they make sense where they are.  Categorical existing use protection can hobble a local government’s zoning power by locking in the status quo and preserving incompatible neighbors.

In addition to these significant costs of existing use protection, many of the apparent benefits are largely illusory.  There are two principal problems.  The first, quite simply, is found in the exceptions to existing use protection.  Because courts generally accept as inviolable the implicit protection of existing uses, they instead focus on such theoretically unsatisfying questions as whether pouring a footing for a foundation is sufficient to vest development rights or whether environmental protection counts as preventing a harm or conferring a benefit.  If the benefit of categorical existing use protection is supposed to derive from the ease with which it can be applied, the myriad and murky exceptions substantially undermine this rationale.

The second problem with existing uses as a category is deciding what it actually includes.  How the use is characterized will determine whether or not a regulation even implicates the protection of an existing use.  The more narrowly an existing use is defined, the more any regulation will look like it eliminates that use.  If a local government requires homeowners with wells to hook into the municipal water supply, it could be seen as eliminating the existing well or merely as regulating the continuing use of the house.  Existing uses may not define an easily administrable category for property protection after all.

 
Conclusion

The normative justifications for current existing use protection are surprisingly unconvincing.  The costs are also substantial.  This is not to suggest, however, that existing uses are irrelevant and should simply be ignored.  Rather, it is to argue that blanket, categorical rules exempting existing uses from regulatory change protect too much.  Instead, courts and government actors should apply the same kind of inquiry to existing uses that they apply to prospective future uses.  The outcome may well be different if a use already exists, but not because there is anything sacrosanct about the existing use, and not because the analysis itself is any different.

Following this approach, governments still should not make a common practice of trampling over existing uses.  In many, if not most instances, governments should protect existing uses as part of the usual cost-benefit analysis that they undertake.  It is ultimately an empirical question whether a particular existing use should be protected in a particular case.  In other contexts involving such economic regulations, courts rarely interfere to second-guess legislative cost-benefit determinations.  There is little, if anything, conceptually different about existing uses that justifies special judicial protection.dingbat

 

Acknowledgments:

Copyright © 2009 New York University Law Review.

Christopher Serkin is Associate Professor at Brooklyn Law School and a 2009 Visiting Associate Professor at the University of Chicago Law School.

This Legal Workshop Editorial is based on the following Law Review Article: Christopher Serkin, Existing Uses and the Limits of Land Use Regulation, 84 N.Y.U. L. REV. 1222 (2009).

  1. Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104 (1978).
  2. Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005).
  3. See Margaret Jane Radin, Property and Personhood, 34 STAN. L. REV. 957, 965-66 (1982).

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