The concept of a regulatory taking first emerged over a century ago when the United States Supreme Court held that a taking occurs "if regulation goes too far" in Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922). Following the issuance of this case, a voluminous body of regulatory takings case law has developed.

Two categories of governmental regulatory actions are now firmly recognized by the United States Supreme Court as "per se" takings. The first category involves situations in which the governmental regulation "requires an owner to suffer a permanent physical invasion of her property- however minor." ^[70]The second category consists of "total regulatory takings" in which governmental action deprives a property owner of "all economically beneficial us[e] of her property."^[71]

Outside these two "relatively narrow" categories, regulatory challenges are governed under the standards set forth in Penn. Cent. Transp. Co. v. City of New York, 438 U.S. 104 (1978).^[72] As explained by the United States Supreme Court, the takings test requires an inquiry into whether the regulation denies the property owner the economically viable use of his or her property.^[73] This is a highly fact-specific inquiry that is not subject to a "set formula."^[74] Factors to be properly considered are the economic impact of the regulation on the claimant, the extent to which the regulation has interfered with the reasonable investment-backed expectations of the claimant, and the character of the government action.^[75] Whether the governmental regulation substantially advances a legitimate state interest, however, is not a factor to be considered.^[76]

Further, when applying the Penn Central factors, the focus must be on the parcel as a whole; "taking" jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated.^[77] Similarly, a claimant's fee interest is not to be severed into temporal dimensions when considering whether a regulatory taking has occurred. Accordingly, temporary moratoria on development are not subject to a "per se" taking rule; rather, the Penn Central factors apply.^[78]

When considering the Penn Central factor of the economic impact of the regulation on private property, the courts recognize that the mere diminution of property value, or the substantial reduction of the attractiveness of the property to potential purchasers, or the denial of the ability to exploit a property right the owner previously believed was available, will not suffice to establish a taking. ^[79] The inquiry must instead focus on the value of the remaining uses to which the property may be put, ^[80] including benefits received from the regulation,^[81] and a comparison of the owner’s investment or basis with the market value of the property subject to the regulation.^[82] And when considering the Penn Central factor of whether the regulation interferes with the owner’s investment-backed expectations, the court must determine that the expectations were reasonable, or at least consistent with the law in force at the time the expectation was formed.^[83]

Accordingly, courts applying these factors have found takings in instances where there was no value for the uses remaining for the property after the adoption of the regulation ^[84] and where there was a loss of a large percentage of the possible rate of return on an investment. ^[85] Courts have rejected takings claims where valuable uses of the property remained after the imposition of the regulation, even if those uses were not the most valuable uses. ^[86]

Finally, in light of the textual similarities between the federal Takings Clause and article I, section 21 of the Tennessee Constitution, the Tennessee Supreme Court has held that Tennessee's constitution encompasses regulatory takings to the same extent as the federal constitution.^[87]Consequently, inverse condemnation actions may be brought to address unconstitutional regulatory takings.^[88]

Notes:

^[70] Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (2005).

^[85] CCA Assocs. v. U.S., supra; Cienega Gardens v. U.S., supra.

^[86]   Penn Cent. Transp. Co. v. City of New York, supra; Midnight Sessions Ltd. v. City of Philadelphia, 945 F.2d 667 (3d Cir. 1991); Esposito v. South Carolina Coastal Council, supra; Moore v. City of Costa Mesa, supra; Baytree of Inverrary Realty Partners v. City of Lauderhill, supra; Ciampitti v. U.S., supra.; MC Properties, inc. v. City of Chattanooga, 994 S.W.2d 132 (Tenn. Ct. App. 1999).

^[87] Phillips v. Montgomery Cnty., 442 S.W.3d 233 (Tenn. 2014).

^[88] Phillips v. Montgomery Cnty., supra.