Pennsylvania Central Pennsylvania Central Transportation Co. Transportation Co. v City of New Yorkv City of New York

98 S.Ct. 2646, 197898 S.Ct. 2646, 1978

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Grand Central TerminalGrand Central Terminal

In Mid-Town ManhattanIn Mid-Town Manhattan

TheTheTerminalTerminal

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Grand CentralGrand Centralabout 1915about 1915

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Then

Now

Met Life Bldg

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Original ConceptOriginal Concept19131913

I.M. Pei’s ConceptI.M. Pei’s Concept19561956

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One One RedevelopmentRedevelopmentAlternativeAlternative

Building in the airBuilding in the airRights above the Rights above the Terminal.Terminal.

Turned down by theTurned down by theLandmarks Preservation Landmarks Preservation Board as not being in Board as not being in harmony with the harmony with the character of the character of the structurestructure

Met LifeMet Life

Original Original TerminaTerminall

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Max Weber’s Terminal Max Weber’s Terminal DesignDesign

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Penn Central vs. New YorkPenn Central vs. New York

• The Facts:The Facts:– August 2, 1967, following a public hearing, August 2, 1967, following a public hearing,

the Commission designated the Terminal a the Commission designated the Terminal a "landmark“"landmark“

– January 22, 1968, Penn Central entered January 22, 1968, Penn Central entered into a renewable 50-Year lease UGP, Inc. into a renewable 50-Year lease UGP, Inc. [Union General Properties] Under the [Union General Properties] Under the agreement, UGP to construct a multistory agreement, UGP to construct a multistory office building above the Terminal.office building above the Terminal.

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•UGP to pay Penn Central:UGP to pay Penn Central:– $1 million annually during construction $1 million annually during construction

and and – at least $ 3 million annually thereafter.at least $ 3 million annually thereafter.

•Worth $35 – 40 Million, perhaps Worth $35 – 40 Million, perhaps more.more.

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•In 1968, two separate plans, both satisfying zoning, In 1968, two separate plans, both satisfying zoning, were submitted to the Commission for approval. were submitted to the Commission for approval.

–Breuer I: A 55‑story office building above Breuer I: A 55‑story office building above thetheexisting facade and to rest on the roof of existing facade and to rest on the roof of the Terminal.the Terminal. –Breuer II: Would tear down a portion of the Breuer II: Would tear down a portion of the Terminal that included the 42d Street Terminal that included the 42d Street facade, stripping off some of the remaining facade, stripping off some of the remaining features of the Terminal's facade, and features of the Terminal's facade, and constructing a 53-story office building. constructing a 53-story office building.

• Landmarks Commission denied the applications.Landmarks Commission denied the applications.

•Penn Central applied for a certificate of Penn Central applied for a certificate of "appropriateness" for both proposals. "appropriateness" for both proposals. Commission denied this application for both Commission denied this application for both proposals.proposals.

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•Penn Central did not avail itself of a Penn Central did not avail itself of a “hardship”“hardship”

waiver provision in the Landmarks waiver provision in the Landmarks Ordinance.Ordinance.•Penn Central filed suit, alleging a Penn Central filed suit, alleging a “taking”“taking”• Penn Central submitted evidence that it Penn Central submitted evidence that it was was losing money on the Terminal (therefore losing money on the Terminal (therefore theytheydid not have an economic use of the did not have an economic use of the property)*property)*

•Penn Central lost in the state courts Penn Central lost in the state courts and appealed to the US Supreme and appealed to the US Supreme Court.Court.* Unfortunately for their case, Penn Central was a little * Unfortunately for their case, Penn Central was a little “creative” with their financial information and did not “creative” with their financial information and did not get their claim to hardship before the court. Did they get their claim to hardship before the court. Did they use Arthur Anderson?use Arthur Anderson?

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Opinion by . . .

• BrennenBrennen

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• ““The question presented is whether a city The question presented is whether a city may, as part of a comprehensive program, may, as part of a comprehensive program, place restrictions on the development of place restrictions on the development of historic landmarks without effecting a historic landmarks without effecting a ‘taking”‘taking”

•““The Landmarks Law's effect is simply to The Landmarks Law's effect is simply to prohibit appellants from occupying portions of prohibit appellants from occupying portions of the airspace above the Terminal, while the airspace above the Terminal, while permitting the use of the remainder of the permitting the use of the remainder of the parcel in a gainful fashion. parcel in a gainful fashion. This is This is no more an appropriation of property by no more an appropriation of property by government for its own uses than is a zoning government for its own uses than is a zoning law prohibiting, for "aesthetic" reasons, two or law prohibiting, for "aesthetic" reasons, two or more adult theaters within a specified area, or more adult theaters within a specified area, or a safety regulation prohibiting excavations a safety regulation prohibiting excavations below a certain levelbelow a certain level.”.”

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Note the first point that Brennan Note the first point that Brennan makes - - -makes - - -

• ““Over the past 50 years, all 50 Over the past 50 years, all 50 States and over 500 municipalities States and over 500 municipalities have enacted laws to encourage or have enacted laws to encourage or require the preservation of buildings require the preservation of buildings and areas with historic or aesthetic and areas with historic or aesthetic importance. These nationwide importance. These nationwide legislative efforts have been legislative efforts have been precipitated by two concerns:precipitated by two concerns:

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• The first is recognition that, in The first is recognition that, in recent years, large numbers of recent years, large numbers of historic structures, landmarks, and historic structures, landmarks, and areas have been destroyed without areas have been destroyed without adequate consideration of either adequate consideration of either the values represented therein or the values represented therein or the possibility of preserving the the possibility of preserving the destroyed properties for use in destroyed properties for use in economically productive ways.”economically productive ways.”

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• ““The second is a widely shared belief The second is a widely shared belief that structures with special historic, that structures with special historic, cultural, or architectural significance cultural, or architectural significance enhance the quality of life for all. Not enhance the quality of life for all. Not only do these buildings and their only do these buildings and their workmanship represent the lessons of workmanship represent the lessons of the past and embody precious features the past and embody precious features of our heritage, they serve as examples of our heritage, they serve as examples of quality for today.”of quality for today.”

• ““[H]istoric conservation is but one [H]istoric conservation is but one aspect of the much larger problem, aspect of the much larger problem, basically an environmental one, of basically an environmental one, of enhancing – or perhaps developing for enhancing – or perhaps developing for the first time – the quality of life for the first time – the quality of life for people.”people.”

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• ““We now must consider whether the We now must consider whether the interference with appellants' interference with appellants' property is of such a magnitude that property is of such a magnitude that "there must be an exercise of "there must be an exercise of eminent domain and compensation eminent domain and compensation to sustain [it].”to sustain [it].”

• ““New York City’s law does not New York City’s law does not interfere in any way with the present interfere in any way with the present uses of the Terminal.”uses of the Terminal.”

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• ““More importantly, on this record, we More importantly, on this record, we must regard the New York City law as must regard the New York City law as permitting Penn Central not only to permitting Penn Central not only to profit from the Terminal but also to profit from the Terminal but also to obtain a "reasonable return" on its obtain a "reasonable return" on its investment.”investment.”

• ““. . . it simply cannot be maintained, on . . . it simply cannot be maintained, on this record, that appellants have been this record, that appellants have been prohibited from occupying any portion prohibited from occupying any portion of the airspace above the Terminal.”of the airspace above the Terminal.”

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• [Construction would be [Construction would be allowed if it] “would allowed if it] “would harmonize in scale, material, harmonize in scale, material, and character with [the and character with [the Terminal].” Terminal].”

• Since appellants have not Since appellants have not sought approval for the sought approval for the construction of a smaller construction of a smaller structure, we do not know structure, we do not know that appellants will be that appellants will be denied any use of any denied any use of any portion of the airspace above portion of the airspace above the Terminal.”the Terminal.”

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• ““. . . to the extent appellants have . . . to the extent appellants have been denied the right to build above been denied the right to build above the Terminal, it is not literally the Terminal, it is not literally accurate to say that they have been accurate to say that they have been denied all use of even those denied all use of even those pre‑existing air rights.”pre‑existing air rights.”

• ““. . they are made transferable to at . . they are made transferable to at least eight parcels in the vicinity of least eight parcels in the vicinity of the Terminal, one or two of which the Terminal, one or two of which have been found suitable for the have been found suitable for the construction of new office buildings.”construction of new office buildings.”

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• ““While these While these [transferable [transferable development] rightsdevelopment] rights may well not may well not have constituted ‘just compensation’ have constituted ‘just compensation’ if a ‘taking’ had occurred,if a ‘taking’ had occurred,

the rights nevertheless undoubtedly the rights nevertheless undoubtedly mitigate whatever financial burdens mitigate whatever financial burdens the law has imposed on appellants the law has imposed on appellants and, for that reason, and, for that reason, are to be are to be taken into account in considering taken into account in considering the impact of regulation.the impact of regulation.””

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• ““We conclude that the application of New We conclude that the application of New York City's Landmarks Law has not York City's Landmarks Law has not effected a ‘taking’ of appellants' property.effected a ‘taking’ of appellants' property.

• The restrictions imposed are substantially The restrictions imposed are substantially related to the promotion of the general related to the promotion of the general welfare and not only permit reasonable welfare and not only permit reasonable beneficial use of the landmark site . .beneficial use of the landmark site . .

• . . but also afford appellants opportunities . . but also afford appellants opportunities further to enhance not only the Terminal further to enhance not only the Terminal site proper but also other properties.”site proper but also other properties.”

• Note may be taken of the fact that Note may be taken of the fact that Renhquist and Stevens dissented. Renhquist and Stevens dissented.

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Some of the factors to be considered are:Some of the factors to be considered are:

1.1. The character of the government actionThe character of the government actiona.a. Advancement of a legitimate state Advancement of a legitimate state

interest?interest?

2.2. Whether there is a physical invasion of the Whether there is a physical invasion of the property.property.

3.3. The degree to which there is a diminution in The degree to which there is a diminution in value of the property. Or stated another value of the property. Or stated another way, whether the regulation precludes all way, whether the regulation precludes all economically reasonable use of the property.economically reasonable use of the property.

The Penn Central analysis

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4.4. The economic impact on the property The economic impact on the property ownerowner

5.5. The extent to which the regulation The extent to which the regulation curtails investment-backed curtails investment-backed expectations.expectations.

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The denominatorThe denominator• Penn Central’s viewPenn Central’s view

– Prior value of air rightsPrior value of air rights $40 – 50 million$40 – 50 million– Post value of air rightsPost value of air rights __________00____________– Extent of diminutionExtent of diminution 100% 100%

• Brennan’s view:Brennan’s view:– Prior valuePrior value FMV of siteFMV of site– Post valuePost value value of terminal value of terminal

+ + Value of Value of TDRsTDRs

< 100%< 100%

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Another famous building Another famous building preservedpreserved

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The lobby of the The lobby of the preserved/restored Willard Hotelpreserved/restored Willard Hotel

• Whence we got the word “lobbyist” Whence we got the word “lobbyist”