The stakes could not be higher; would the property yield one or two waterfront building lots? On June 23, 2017, the Supreme Court of the United States decided a case that involved the merger of two parcels of property undersized for development purposes that had come into common ownership. In Murr v. Wisconsin, the Murr family who owned the property appealed a Wisconsin Court of Appeals case that upheld the merger of the lots and denied the Murr’s takings complaint. Ultimately, the decision by the Supreme Court upheld the Wisconsin Court of Appeals decision that the lots had merged and must be one lot for development purposes.
At issue were two waterfront parcels of property on the St. Croix River in the Town of Troy, County of St. Croix in the State of Wisconsin. Initially, the Murr’s parents purchased a parcel of property and constructed a cabin for recreational purposes for their family. Title to the property was taken in the name of the family business, William Murr Plumbing, Inc. Three years later, Mr. and Mrs. Murr purchased the adjoining lot as an investment. The lot was titled in the Murrs’ personal names and remained vacant.
Fast forward to 1994 when the Murr parents gifted the property with the cabin to their six children. One year later the Murr parents gifted the vacant lot to their six children. Two of the Murr children transferred their interests in the property to the four remaining siblings who are the Petitioners.
Meanwhile, in 1976, the State of Wisconsin through the Wisconsin Department of Natural Resources was busy developing regulations concerning the development of lots within the St. Croix River area. These regulations provided minimum lot size and area requirements within those lots after considering wetlands, rights-of-way, slopes, and floodplains. Acknowledging the takings issue, the Department included a “grandfather” clause that exempted lots from regulations if they were held in single and separate ownership. Wisconsin law then went a step further and determined that lots that did not meet the zoning requirements and were not single and separate merged by operation of law and resulted in a single building lot.
By transferring the property in 1994 to their children, the Murrs – at least under Wisconsin Law – stripped a vacant lot of its development rights and effectively merged the properties. To their dismay, the Murr children could not separately sell the property; the proceeds of which they intended to use to improve the cabin.
Upon learning of this possible merger the Murr children applied to the St. Croix County Board of Adjustment (“Board”). This application requested – among others – a variance to “sell or use two contiguous lots in common ownership as separate building sites”. After a public hearing, the Board denied the application in a written opinion.
Thereafter the Murrs appealed the Board’s decision to the Wisconsin Circuit Court. The Wisconsin Circuit Court upheld the Board’s decision to deny the request to treat the lots as single and separate but reversed the Board on the individual variance requests. Both parties appealed to the Wisconsin Supreme Court.
In upholding the Circuit Court, the Court of Appeals rejected the fairness argument advanced by the Murrs. Instead, the Court of Appeals adopted the State of Wisconsin’s argument that grandfathering clauses protected individuals with substandard lots from losing development rights but also protected the environment by merging contiguous properties that come into common ownership.
The Wisconsin Court of Appeals denied a Petition to Review.
After failing in their appeal of the denial of the variance requests the Murrs commenced an action alleging a taking of their property without just compensation.
State Takings Claim
Both Wisconsin State and St. Croix County law is consistent in that substandard abutting lots merge unless they are in separate ownership. Thus, the Murrs’ claim was based upon the theory that the State of Wisconsin and County of St. Croix had committed a regulatory taking when it adopted the law that specifically called for the merger of commonly owned undersized, contiguous property.
Relative to takings claims, Wisconsin law provides that “the property of no person shall be taken for public use without just compensation”. Specifically, the Murrs’asserted that applying Wisconsin law had deprived them of the beneficial use of Lot “E” – the unimproved lot. Because of the merger, the Murrs argued that Lot E was deprived of all beneficial use and all economic value.
In granting the summary judgment application of Wisconsin and St. Croix County, the Wisconsin Circuit Court found that the Murrs had retained a recreational and residential use of the property. Based on a professional appraisal, the court further concluded that the market value of the property had decreased less than 10%.
The Wisconsin Court of Appeals upheld the Circuit Court finding that Lots E and F must be considered as one lot because of the merger and no compensable taking had occurred.
Appeal to the Supreme Court
The Murr’s appealed the Decision to the Supreme Court.
Since 1922 the Supreme Court recognized that a compensable taking can occur where government regulation is so burdensome that it deprives a property owner of all beneficial or productive use of the property. See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922). In Murr, the issue raised on appeal was whether the Supreme Court should consider the Murr lots as merged or as single and separate lots. In other words should the Wisconsin Department of Natural Resources and St Croix County regulations dictating an automatic merger of substandard contiguous lots held in common ownership be upheld?
By upholding the Wisconsin Court of Appeals, the Supreme Court acknowledged that validity of the merger provision. The Court relied on three factors to uphold the merger provision… First, the Court found that the Wisconsin merger provision was adopted for a specific, legitimate purpose; to protect environmentally sensitive property. Second, the Court found that the Murrs should have expected heightened regulation because of the properties location in an environmentally sensitive area as well as the fact the properties shared a long contiguous border. Finally, the Court observed a lack of financial impact demonstrated by the fact that the property as combined retained 90% of its value.
In the Town of Southampton, the Murr decision should have little impact. Contrary to Wisconsin and St. Croix County, the Southampton Town Zoning Code has no automatic merger provision for substandard contiguous lots held in common ownership. Rather, the Code states that a substandard property is entitled to a building permit if it can demonstrate that it is single and separate from surrounding lots. Single and separate status can be proven through a title company analysis of surrounding lots or a determination of the Zoning Board of Appeals.
If a substandard lot is held in common ownership and contiguous, an application can be made to the Zoning Board in Southampton to determine if the lot is entitled to single and separate status. In an application for a determination of single and separate status, the Board will undertake an analysis to decide whether the lots maintained separate identities or if one lot was held to benefit another. Through a series of decisions, the Board has developed a test to analyze single and separate applications on a case by case basis.
For other jurisdictions, a property owner must look closely at the zoning law to determine how that jurisdiction treats substandard contiguous lots held in common ownership. Keen vigilance in this area of law is the only way to avoid the fate of the Murrs and lose the right to develop a waterfront lot.