Substandard Lots and Regulatory Takings

January 6, 2015

Virtually every municipality in the State of Wisconsin has encountered the following factual circumstance:

A plat was recorded many years ago, prior to enactment of a comprehensive zoning ordinance. The plat created a number of lots. Subsequently, the municipality enacted a zoning ordinance, which established a minimum lot size greater than the already platted lot. This would result in the lot being considered “substandard” in the sense that it does not satisfy the current area requirements. Although “substandard,” the lot may nevertheless be a “non-conforming” lot that could be developed if certain conditions are met.

The situation I want to discuss arises when substandard lots are under common ownership. In this circumstance, the question is whether or not each individual lot must satisfy the applicable area requirements, or are the requirements applied to the “combined” lots?

Recently, the Wisconsin Court of Appeals had occasion to address the foregoing question. In Murr v. State, No. 2013AP2828 (Wis. Ct. App. Dec. 23, 2014) (unpublished), the property owner owned two separate lots, which were contiguous and abutted a river. When the two lots were combined, they contained approximately .988 acres of developable area. Well after the platting of the lots, the county enacted an ordinance which prohibited the individual development or sale of adjacent, substandard lots under common ownership, unless an individual lot has at least one acre of net developable area. If the lots contiguous to each other did not contain this minimum net area, the ordinance considered the combined lots together as a single buildable lot.

In the case before the court, one of the lots had a cabin located thereon. The property owner decided to subsequently sell the adjoining lot, which was vacant. In order to do so, the property owner sought a variance from the county which would allow the owner to sell the vacant lot as a separate buildable lot for development purposes. The county applied the ordinance, and the variance was denied. Litigation subsequently arose.

The property owner claimed that the county ordinance, as applied to the property in question, deprived the owner of all or substantially all beneficial use of the property; and therefore constituted a “taking” entitling the owner to compensation from the county. That was the issue presented to the Court of Appeals. In reviewing the matter, the Court of Appeals decided that a “taking” does not necessarily arise from an actual physical occupation of land by a condemning authority. A taking can also occur if a governmental authority enacts legislation “…that is so onerous that its effect is tantamount to a direct appropriation.”

A landowner who believes that a government has taken his property without formally commencing condemnation proceedings can bring an action against the governmental authority for inverse condemnation and recover just compensation. To successfully recover for such a takings claim, the facts of the case must demonstrate that the governmental authority “…deprives the owner of all, or substantially all, of the beneficial use of his property.” In the case before it, the property owner argued that the ordinance, as applied, rendered the vacant lot unsalable because it could not be built upon. Because of this, there was a taking.

However, the court noted that the issue was not as black and white as the property owner asserted. Rather, the issue is whether or not contiguous property is analytically divisible for purposes of a regulatory takings claim. In analyzing a regulatory taking, a court must first determine what precisely “is the property at issue.” The landowner argued that it was the single vacant lot. However, the county and the court concluded that the property at issue was the total property of the owners, i.e., the two combined lots, under common ownership.

When applying the regulatory takings test to the combined properties, the court concluded that the property owner had failed to establish that a compensable taking had occurred as a matter of law. There was no dispute that the combined lots sufficed as a single buildable site under the ordinance in question. The property owner continued to use the property for residential purposes. The ordinance allowed the owner to build a residence on the property, if the owner chose to raze the cabin at its present location. The new residence could be located on the existing site or alternatively moved to the buildable area on the other lot or straddle both lots. The court felt that the property owner’s ability to use the vacant lot for residential purposes adjacent to their existing structure was a significant and valuable use of the property. Accordingly, the property owner had failed to establish that “all or substantially all practical use” of the property had been taken by application of the ordinance.

Many communities throughout the state of Wisconsin have similar ordinances. When you have substandard lots that do not satisfy the areas requirements of the current zoning district, it is quite common for municipalities to have ordinances indicating that, for development purposes, the substandard lots must be combined to satisfy the area requirements. This case validates the application of these ordinances in many development situations.

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