The U.S. Supreme Court, reversing the South Carolina Supreme Court, said Monday that a landowner was entitled to compensation if environmental regulation prevented him from developing his land.
The decision is "absolutely excellent" from a lenders' perspective said Robert O. Wienke, a Chicago banking and environmental lawyer. The lower court's ruling had threatened to force banks to consider real estate collateral in sensitive zones "worthless until a building permit is issued."
Lenders face similar concerns in many coastal states and under a controversial federal Wetlands protection act, he said.
Provision in Fifth Amendment
The justices said that a state regulation that has the effect of eliminating the entire value of certain private real estate obligates the state to pay property owners for their loss. Generally, the Constitution's Fifth Amendment prohibits government from taking property without paying "just compensation" to the owner.
The question in this case was whether South Carolina's regulation of construction on its environmentally fragile coastline amounted to a taking of property rights from an individual who intended to build on beachfront real estate.
The high court clarified when such a regulation could amount to a taking. In this case, the plaintiff, David Lucas, paid $975,000 in 1986 for two beachfront lots. A state agency barred the construction under the environmental law, which took effect in 1988.
A state court awarded him $1.2 million for the "regulatory taking" of his property.
But the South Carolina Supreme Court reversed that decision, ruling that a restriction "enacted to prevent serious public harm" doesn't require a state to compensate land owners for their losses.
Today, the Supreme Court reversed the state court and sent the case back for further consideration.