Tag: property rights

The Right to Own Includes the Right to Rent Out

Since 2005, the city of Winona, MN will not grant rental licenses to property owners if more than 30 percent of the lots on their block already have rental licenses (the 30% “rule”). The rule contains a “grandfather clause,” however, that allows property owners who had licenses prior to the rule to continue renting even if their block has already reached the 30 percent threshold. Therefore, many blocks in the city violate the rule, which the Minnesota Supreme Court is now reviewing.

Cato has filed an amicus brief, joined by the Minnesota Free Market Institute at the Center of the American Experiment, supporting the property owners challenging the rule. We argue that the rule is an arbitrary, inefficient, and unconstitutional restraint on an essential and fundamental property right because it strips property owners of their right to manage and enjoy their property at the result of actions of their neighbors. The rule also damages communities by reducing property values and creating inefficiencies in the local economy and housing market without a substantial government interest.

First, the rule is a significant intrusion into the fundamental rights of residential property owners because it denies the right to rent—one of the three principal ways to use a property—and significantly limits the right to sell. In addition, since the rule restricts fundamental rights, it needs to be tailored to achieve a legitimate government interest to be held valid—but the rule is both over-inclusive and under-inclusive.

Second, the right to rent is too important to restrict with an arbitrary limit on rental licenses. The rule isn’t an effective way to protect “community character”—its purpose according to the city—especially given the fact that the law has many exceptions and is applied arbitrarily. For example, the rule favors currently licensed property owners and encourages them to add rental properties to their lots, thereby defeating the asserted goal of avoiding rental clustering. Finally, the rule harms communities by artificially depressing property values and increasing the probability of vacancy. It further fails to rationally address the city’s other concerns. For example, one of the rule’s ostensible purposes is to reduce student-housing-related nuisance complaints, but it still allows large groups of students to live together in “theme houses.”

For these reasons, the Minnesota high court should reverse the lower courts’ ruling and protect the full constitutional rights of Minnesota property owners.

(Full disclosure: My condo building established a similar rule a few years ago because, due to federal regulation, it’s hard to get lenders to approve mortgages to finance purchases in buildings with a high rental quotient. Because I’m one of the original owners in my 7-year-old building, my unit is grandfathered in—except the condo board is now trying to apply the rental cap even to owners who predate the rule. It hasn’t come to litigation yet and the issue here is contractual rather than constitutional or statutory—and I don’t plan to rent out my place any time soon—but this episode just reinforced for me the practical importance of the high-fallutin’ principles Cato defends.)

Connecticut, Drunk on Power, Uses Bottle Bill to Steal Money

For nearly 30 years, Connecticut beverage distributors received the unclaimed refund value of recycled bottles as part of the state’s Bottle Bill, which set up a refund system for used bottles as an attempt to encourage recycling. As in other states, the law requires beverage dealers to pay refunds for every bottle turned in.

Fiscal troubles in 2008 prompted Connecticut to amend the law, however, to require a “deposit account” from which distributors were to pay the refunds. This requirement was intended to aid the state environmental agency to study the rates of deposit payments and returns. The following year, the fiscal situation worsened, and the Bottle Bill was again amended, this time to require the remaining funds in the deposit accounts (after returns were paid out) to be paid to the state—retroactively including any unpaid remainder funds since the accounts went into effect in 2008.

A. Gallo & Co. and other beverage distributors in Connecticut saw this as an uncompensated taking of their property and sued the state. They took their case through the state court system, but even the Connecticut Supreme Court turned a blind eye, holding that beverage distributors never had a property right in the remainder funds in the first place. The distributors have now asked the U.S. Supreme Court to hear their case, and Cato joined the New England Legal Foundation, the Southeastern Legal Foundation, and the National Federation of Independent Business on a brief supporting their petition.

We argue that Connecticut’s budgetary troubles are no excuse for violating a longstanding property right without compensation. Moreover, by twisting its statutory interpretation to satisfy political pressures, the Connecticut Supreme Court has made itself complicit in the uncompensated taking. It’s bad enough when strapped-for-cash legislatures unfairly force public burdens onto the shoulders of private parties to feed their spending addictions, but when all three government branches – including the one entrusted with soberly interpreting the law, especially in times of fiscal emergency – get drunk on power and deny even the existence of a property right, it’s time for a Supreme Court intervention.

The Supreme Court will decide by winter’s end whether to take the case of A. Gallo & Co. v. Esty.

The Supreme Court Takes up Old-Timey Property Rights

In the 19th Century, when railroads were being built across the West, the federal government granted significant land and benefits to railroad companies. The Great Railroad Right-of-Way Act of 1875 empowered the government to grant railroad companies right-of-way easements to build tracks across others’ land to facilitate the expansion of the nation’s railways – that is, railroads were granted a right to use sections of another’s property for railroad purposes without owning title to the land underneath. In 1976, the government sold the Brandt family a parcel of land in Wyoming which was crossed by one of these railroad easements.

In 2001, the railroad that owned the easement formally abandoned all claims to it.  Typically, when this happens, the easement is simply extinguished and the owner of the land may then use the former easement however he or she wishes. But the federal government had different plans for the thin strip running through the Brandts’ land. In 2006, the government sued for title to the land lying under the former easement on the theory that it had retained a “reversionary interest” in the land when granting the railroad the right of way easement, even though it never actually set aside any interests when granting the easement.  The government thus claimed that after the railroad abandoned the easement (after only ever owning an easement and never full title to the land), full title to the land “reverted” back to the federal government. The Brandts argue that under the basic principles of the common law of property, the government had no such right, and that even if any legislative act allowed the government to somehow acquire their land, such an act would require payment of just compensation under the Fifth Amendment’s Takings Clause.

Although this may seem like a small, unique problem, the scope of the Old West’s railway system was huge and those old easements criss-cross the land of thousands of property owners. In 1983, Congress amended the National Trails System Act to allow the government to take abandoned railroad easements and turn them into land for public recreation and “railroad banking.” Landowners have been fighting the taking of their property under the Trails Act ever since, claiming, as here, that the government’s original grant to the railroads contained no residual right of possession for the government.

After the trial court rejected the government’s radical claims, the U.S. Court of Appeals for the Tenth Circuit split with the Seventh and Federal Circuit courts (and ignored some of its own precedent on the way) and held that the government did indeed have a reversionary interest in the land, even though it never actually carved itself an exception, as the law requires. The Brandts, faced with the uncompensated government confiscation of a strip of land cutting their property in two, have now brought their case to the Supreme Court in an attempt to keep the government’s hands off their land and off the land of thousands of other landowners in their same position.

After supporting the Brandts’ request for Supreme Court review, Cato, along with four other groups and several property law professors – including Richard Epstein – has now filed a brief supporting the Brandts’ fight against the government’s poorly justified land-grab. We argue that the Tenth Circuit’s decision threatens to unsettle longstanding presumptions of property law because it willfully ignores basic differences between easements and “fee estates” in land and other basic principles of property law like the “strip and gore” doctrine (which holds, for example, that land under a right-of-way is split down the center and owned by those who own the land on either side of the easement).

This case is important, because there are many thousands of miles of old railroad rights-of-way crossing the countryside that would be potentially subject to uncompensated government confiscation if the Court were to follow the Tenth Circuit’s approach.  In addition, some 3,000 to 4,000 miles of old railroad easements are abandoned every year. It’s not entirely surprising that the government would go full throttle on such a shoddy legal argument for the chance to be able to snatch this land back without having to pay for it. The surprising thing is that the Tenth Circuit green-lighted it. We urge the Supreme Court to switch tracks.

The Court will hear argument in Brandt v. United States on January 14.

Cato legal associate Julio Colombo co-authored this blogpost.

Luxury Mobile-Home Parks Don’t Need Rent Control

Contempo Marin isn’t your stereotypical mobile-home park. The park sits two miles from San Francisco Bay and offers tenants a pool, spa, clubhouse, and lagoon. Because of the location and amenities, these mobile homes—some of which offer vaulted ceilings, gas fireplaces, walk-in closets, and jetted tubs—can sell for over $300,000. That’s what makes the rent- and vacancy-control ordinance imposed on the park by the City of San Rafael in the name of “affordable housing” so outrageous.

The ordinance caps the amount that MHC Financing, the owner of Contempo Marin, may charge its tenants—who own their mobile homes but rent the land underneath—and mandates that the land be rented at the same price to each homeowner. The result isn’t lower costs for incoming tenants, but a redistribution of the value from the below-market rent directly to the mobile-home owners, whose homes now sell at a premium of nearly $100,000 above their pre-existing value. Thus far, the ordinance has transferred more than $95 million from MHC to its tenants.

MHC challenged the ordinance in federal court as an unconstitutional taking. The district court ruled in MHC’s favor, finding that the alleged public purpose of the ordinance—“affordable housing”—was merely a pretext, such that the ordinance violated the Fifth Amendment’s mandate that property only be taken for a “public use.” As Justice Kennedy clarified in Kelo v. City of New London (2005), “transfers intended to confer benefits on particular, favored private entities and with only incidental or pretextual public benefits, are forbidden by the Public Use Clause.”

The U.S. Court of Appeals for the Ninth Circuit, however, reversed the district court, holding that rent control generally, rather than the specific rent-control scheme at issue here, is “rationally related to a conceivable public purpose” and thus automatically meets the public-use requirement. MHC is now asking the Supreme Court to review that ruling and Cato has filed a supporting amicus brief, encouraging the Court to clarify the standard of review applied to pretextual takings claims and to confirm that the Takings Clause isn’t rendered inoperative when property is transferred.

The Ninth Circuit’s approach essentially bars future pretextual takings claims; any regulatory scheme viewed at its broadest theoretical level could have some “conceivable public purpose.” This evisceration of the Public Use Clause leaves the appropriate standard for determining if a government’s public-use justification is mere pretext in desperate need of Supreme Court clarification. The Ninth Circuit also undermined the Fifth Amendment by finding that no taking had even occurred because MHC had bought Contempo Marin after the rent- and vacancy-control provision had been enacted and therefore could have no investment-backed expectation as to the property value taken by the city. This decision directly conflicts with Palazzolo v. Rhode Island (2001), in which the Supreme Court held that buying property with knowledge of a regulation doesn’t preclude a takings challenge. The Ninth Circuit ignored the same precedent in Guggenheim v. City of Goleta in 2011—a case in which Cato also filed a brief supporting a petition for review—and the lower court’s continued misapplication of the law here reiterates the need for the Supreme Court to reaffirm that the Takings Clause has no “expiration date.” 

The Court will decide whether to take the case of MHC Financing LP v. City of San Rafael later this fall.

This blogpost was co-authored by Cato legal associate Lauren Barlow.

Building Housing That Some People Can’t Afford Isn’t Racist

“Disparate impact” theory holds someone liable for discrimination for a race-neutral policy that statistically disadvantages a specific racial group — say, blacks score lower on a firefighter-promotion test than whites — even if that negative “impact” was neither foreseen nor intended. The application of this theory has been fraught with controversy, to say the least, but it comes up again and again, in contexts ranging from employment to education to voting.

While disparate impact claims have sometimes been sustained under the federal Fair Housing Act (which makes it unlawful to deny housing on the basis of race) since the 1970s, the Supreme Court has only recently agreed to decide whether these claims are lawful. Two years ago, the Court was about to hear such a case, Magner v. Gallagher, when the Justice Department, led by now-Labor Secretary Tom Perez, pressured the city of St. Paul, Minnesota to settle it. The same sort of political pressure is now being brought to bear on Mount Holly Township, New Jersey; supporters of disparate impact theory simply don’t think that it can survive legal scrutiny.

The current case involves a redevelopment plan for a blighted Mount Holly neighborhood (“the Gardens”) that would transform the neighborhood into mid-range single-family dwellings. (Thus far, the township has acquired 259 of 329 properties through various financial incentives, without yet resorting to eminent domain.) The Gardens’ residents sued, arguing that the redevelopment plan violated the FHA because a majority of them would not be able to afford the new homes.

The district court dismissed this argument, holding that the redevelopment plan affected Gardens residents equally, without regard to race, and was tied only to economic considerations. The court of appeals reversed that ruling, holding that the residents’ association had set out a case of discrimination under the theory of disparate impact because a majority of the affected residents were non-white.

Cato has now joined the Pacific Legal Foundation and four other public-interest organizations on an amicus brief arguing not only that disparate impact claims are impermissible under the text of the FHA, but that such claims force unconstitutional actions when applied to governments. Before putting race-neutral policies into effect, government agencies would have to determine whether a particular racial group would be disproportionately impacted and take steps to remedy that difference. By mandating an equality of ends — as opposed to an equality of opportunity — disparate impact liability encourages the adoption of discriminatory quota systems.

Eminent Domain for a Soccer Stadium?

Taxpayers in the District of Columbia have agreed – well, their agreement has been attested to by the mayor – to pony up $150 million to build a new stadium for D.C. United, the Major League Soccer team owned by Indonesian media magnate Erick Thohir. And just in case money isn’t enough to get the job done, the city administrator has made clear that the mayor has other tools in his kit:

A top District official reiterated Wednesday that the city is prepared to seize land in court to build a new soccer stadium after questions emerged over the ownership of a key plot needed for the project backed by Mayor Vincent C. Gray and D.C. United’s owners.

City Administrator Allen Y. Lew said the District was ready to exercise eminent domain should it be unable to come to terms with the current owners of the proposed site. “That’s always out there, that the mayor has the power to do that,” he said at a news conference Wednesday. “We’d like to work this out in an amicable way.”

Eminent domain. That is, taking land by force. For a soccer stadium. 

I am reminded of Justice Sandra Day O’Connor’s scathing dissent in the case of Kelo v. New London:

Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded–i.e., given to an owner who will use it in a way that the legislature deems more beneficial to the public–in the process….

The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory….

Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more. The Founders cannot have intended this perverse result.

The Founders may well not have intended this perverse result. But alas, O’Connor was writing in dissent. Five justices of the Supreme Court upheld the taking of Susette Kelo’s home to give it to Pfizer. And now, the owners of the Super Salvage scrap yard know that “nothing is to prevent the State” from taking their property to benefit “citizens with disproportionate influence and power in the political process.”

It’s one thing to argue that the Founders intended to give the government the power to take private property “for public use,” such as a military installation, a road, or a school. But for a corporate office park? Or a soccer stadium? The Founders cannot have intended this perverse result.

Community Associations Have Property Rights Too

The U.S. housing market has seen a major shift in the past 30 years: the rise of the community association. In 1970, only 1 percent of U.S. homes were community association members; today, more than half of new housing is subject to association membership, including condominium buildings. These organizations provide substantial benefits, including community facilities, maintenance, and rules designed to preserve property values, in exchange for assessment fees.

Accordingly, Mariner’s Cove Townhomes Association v. United States affects the rights of the more than 60 million Americans currently living in these associations. This case arises from the federal government’s taking 14 of 58 townhouses from one development in the wake of Hurricane Katrina. Mariner’s Cove owned a right to collect dues that was appended to those 14 townhomes, and sued the government for extinguishing that valuable right without just compensation under the Fifth Amendment’s Takings Clause.

In contrast to most lower courts, however, the U.S. Court of Appeals for the Fifth Circuit held that “the right to collect assessments, or real covenants generally” are not subject to Takings Clause analysis. In other words, the government can take those rights without paying anything to the owners. Cato and a group of esteemed professors, including Richard Epstein, James W. Ely Jr., and Ilya Somin, has submitted an amicus brief supporting Mariner’s Cove and arguing that the Supreme Court should take the case to clarify whether community association fees are compensable property under the Fifth Amendment.

Without such clarification, these beneficial private communities will be undercut. Such associations often shoulder the burden of providing and maintaining infrastructure, services, and utilities, which allows for more diverse and customizable amenities for homeowners than if those decisions were left with remote municipal governments. Because of these benefits, and because they increase the tax base, local governments are increasingly requiring developers to structure developments as community associations.

The perverse implications of the Fifth Circuit’s ruling are clear: it would allow for local governments to require he creation of a community association, benefit from the resulting private delivery of services while collecting taxes from its members, and later take the property without even paying back the very fees that enabled the government’s benefit. And the Fifth Circuit’s holding affects more than simply community associations. The court’s reference to “real covenants generally” implicates conservation easements, for example, which restrict the development and use of land for preserving the land’s natural, historic, or ecological features. This precedent would make association land an attractive option for uncompensated government takings.

The ruling also clashes with the Supreme Court’s recent decision in Koontz v. St. John’s River Water Management District: that an income stream from real property is a compensable interest under the Fifth Amendment. For these reasons, we urge the Supreme Court to take the case and to recognize the compensable property rights of the Mariner’s Cove Townhomes Association and the millions of other Americans choosing—and paying—to live in a community association.