In a major legal case, the U.S. Supreme Court has ruled in a 5-4 decision that property owners may sue for compensation when environmental regulations reduce the value of their holdings.

"The Fifth Amendment," wrote Justice Sandra Day O'Connor in a concurring opinion, "forbids the taking of private property for public use without just compensation. We have recognized that this constitutional guarantee is designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."

The Fifth Amendment states that government cannot take private property for public use "without just compensation."

Writing for the majority, Justice Anthony Kennedy noted that "the clearest sort of taking occurs when the government encroaches upon or occupies private land for its own proposed use. Our cases establish that even a minimal 'permanent physical occupation of real property' requires compensation" under the Fifth Amendment's "taking clause."

In earlier decisions, said Kennedy, the Supreme Court had ruled "that a regulation which 'denies all economically beneficial or productive use of land' will require compensation under the Takings Clause."

But what about when property is not taken outright?

"Where a regulation places limitations on land that fall short of eliminating all economically beneficial use," wrote Kennedy, "a taking nonetheless may have occurred, depending on a complex of factors including the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investment-backed expectations, and the character of the government action."

The case, Palazzolo V. Rhode Island, concerned the efforts of Rhode Island resident Anthony Palazzolo to develop 18 acres of property. Palazzolo wanted to build 74 homes, but state rules said only one home could be built because of wetland restrictions.

The state argued that Palazzolo should be barred from developing the land because wetland regulations were in place before title to all the property was acquired. The Supreme Court, however, ruled that existing regulations could be challenged.

"Today's ruling by the U.S. Supreme Court sends a clear message to state and federal regulators across the country that, no matter how well-intentioned their environmental goals, they cannot simply put a freeze on the use of private property without giving the owner a fair price for it," said Pacific Legal Foundation attorney Jim Burling.

Also, said Burling, "An important achievement of the Court today is that it removed a bizarre roadblock that has stood in the way of landowners seeking payment for their property after government has regulated the value out of it. No longer can government require landowners to pursue meaningless permit applications purely for the purpose of delay and to drive up the litigation costs."

The Supreme Court's decision now sends the case back to the state court to determine whether Mr. Palazzolo is owed payment under the Fifth Amendment's guarantee of "just compensation" when private property is taken for public use.

Today's ruling will permit Mr. Palazzolo to pursue in separate judicial proceedings the fair market value of his property from the state of Rhode Island.

For additional information, see: www.aboutpalazzolo.com.

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Published: June 29, 2001

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .