Penn Central Transportation Company v. City of New York

Governments at all levels may impose limitations on land use without abridging the property rights of individuals and corporations as set forth in the Fifth and Fourteenth Amendments to the Constitution.

Many cities in the United States underwent extensive urban renewal programs in the early and mid-1960s. With construction of new commercial properties proceeding at a rapid pace, municipalities became concerned about losing historically or aesthetically outstanding buildings to the wrecking ball. As such, many cities, including New York City, passed ordinances allowing the city government to designate specific buildings and sites as protected landmarks. New York City's version was the Landmarks Preservation Law of 1965 (LPL), which created a Landmarks Preservation Commission (LPC) empowered to designate buildings, sites, and districts as being of historic interest. Such designation would allow the city to demand that a building's owner keep its exterior in "good repair," and forced building owners to secure LPC approval before making any alterations to their properties. Owners of designated buildings were allowed under the LPL to seek judicial review of the LPC's designation.

On 2 August 1967, the LPC declared the Grand Central Terminal, a building designed in the French beaux-arts style and opened in 1913, a designated historic building and the surrounding block a historic area. The building's owner, Penn Central Transportation Company, opposed the designation but failed to seek judicial review of the decision as it was entitled to do under the law. The LPC's designation was confirmed by the Board of Estimate on 21 September 1967.

Despite the designation of the Terminal and its surroundings as historically important, Penn Central entered into an agreement with UGP Properties, Inc., wherein UGP would construct a multistory office building above the existing terminal. Two plans for construction were presented to the LPC, one calling for the new building to be cantilevered over the terminal, and one calling for a partial demolition of the terminal to allow new construction. The LPC rejected both plans, ruling that in each case the original building would be so overshadowed by the new construction that its historical character would be lost. To compensate the companies, the city of New York offered to transfer the air rights to eight nearby parcels which could serve as alternative sites for the proposed building. The companies did not find these alternative sites suitable, however, and filed suit against the city of New York in the New York Supreme Court, claiming that the LPC could not prevent them from building lawfully on the site, and that the city's designation of the terminal as historical had constituted a "taking" of their property, for which compensation should be forthcoming. The state supreme court ruled in favor of the companies by affirming that the LPL was unconstitutional as applied to the terminal but refused to rule on the takings issue. The companies took their case to the U.S. Supreme Court, which agreed to hear the case. Arguments were presented on 17 April 1978.

Attorneys for Penn Central repeated their argument that the city of New York, in designating their terminal a historic landmark, had deprived the company of the gainful use of the air rights above the terminal, which would have accommodated the construction of the proposed UPC office building. They also held that the City's landmarks law effected a taking by reducing the value of their property and inhibiting its use. Furthermore, they stated that the city's landmarks law did not impose identical restrictions on all structures of a similar character, and therefore could not be fairly or consistently applied. Finally, they maintained that the city appropriated their property for a strictly governmental purpose that impaired the revenue potential of the property.

The Supreme Court affirmed the decision of the New York Court of Appeals and held that the designation of the terminal as a historic site did not constitute a "taking." The Court noted that the LPC did not prohibit any and all new construction to enhance the terminal, but rather would allow construction that would "harnize in scale, material and character with the terminal." It was also clear that the terminal could continue to be used as it always had been following its designation as a historic landmark. Furthermore, the Court observed that the city's transferable development rights program should have enabled Penn Central and UPC to receive compensation for whatever losses they incurred through the designation of the terminal as a historic landmark. Finally, the Court stated categorically that the LPL did not effect a "taking" of the appellants' property, and that such a law was constitutional when applied for the general welfare and enforced so as to allow for compensation for loss of revenue of owners of historic properties.

This decision opened the way for more effective protection of historically, culturally, and environmentally important areas for the common good.