The Supreme Court's 2017 multi-factor test for defining the relevant parcel in a regulatory takings case did not resolve the denominator problem — it made it more complex, context-dependent, and susceptible to strategic framing by counsel.
I. The Denominator as Outcome-Determinative Variable
Regulatory takings doctrine under Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978), requires courts to evaluate the "economic impact of the regulation on the claimant" by comparing what has been taken with what remains. That fraction — value lost over total original value — depends entirely on how one defines "total original value." The denominator of that fraction is the relevant parcel.
If a regulation renders ten acres of a twenty-acre parcel valueless but leaves the remaining ten acres unaffected, the economic impact is fifty percent — serious, but not a Lucas categorical taking. If the same regulation applies to a ten-acre parcel that is analyzed in isolation, economic impact may be one hundred percent — a Lucas categorical taking. The choice of parcel definition often determines whether a taking has occurred at all.
Murr v. Wisconsin, 582 U.S. 383 (2017), was the Supreme Court's first direct attempt to provide guidance on parcel definition. The Court rejected bright-line rules and adopted a three-factor test. The test is more principled than its predecessor's silence but provides no clean outcome rules — and that creates both a problem and an opportunity for practitioners.
II. The Facts and the Question in Murr
The Murr family owned two adjacent lots — Lot E and Lot F — on the St. Croix River in Troy, Wisconsin. The lots had originally been held separately: Lot F was purchased by the parents in the 1960s and had the family cabin on it; Lot E was purchased by a family business later and was essentially raw riverfront land. When the parents transferred the properties to their children, the lots came under common ownership.
Wisconsin's St. Croix River regulations — enacted after the original purchase — restricted development of substandard lots when they were held in common ownership with an adjacent lot meeting minimum size requirements. Because Lots E and F, in common ownership, together met the minimum, Lot E could not be separately developed or sold. The Murrs wanted to sell Lot E alone to fund renovations to the cabin on Lot F.
The question was: what is the relevant parcel for takings analysis? If Lot E alone is the parcel, the regulations substantially diminish or eliminate its value (the lot is worth approximately $40,000 with restrictions versus its unencumbered value as a buildable lot). If Lots E and F together are the parcel, the combined value under restriction ($698,300) is only marginally less than the unrestricted combined value, and no taking has occurred.
III. The Murr Three-Factor Test
Justice Kennedy, writing for a five-Justice majority, held that the parcel question cannot be resolved by any single test and requires courts to consider "a number of factors." The relevant inquiry is whether "reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts."
The three factors are:
Factor One: Treatment of the land under state and local law. Courts must examine whether state property law, local ordinances, or regulatory schemes treat the properties as merged or separate. In Murr, Wisconsin's merger regulation expressly consolidated the two lots under state law for regulatory purposes. This factor weighs in favor of aggregation where state law has merged common-ownership parcels, and in favor of separation where the lots have always been legally distinct.
Factor Two: Physical characteristics of the land. Courts must consider the physical relationship between the parcels — contiguity, topography, location within regulated areas, ecological characteristics, and whether the area is already subject to environmental or other regulation. Contiguous lots in a sensitive environmental zone are more likely to be treated as a single parcel. Non-contiguous lots, even in common ownership, are harder to aggregate.
Factor Three: Prospective value of the regulated land. Courts must examine whether the lots have a "special relationship" demonstrated through combined valuation — that is, whether the restricted lot enhances the value of the other lot such that they function as an economically integrated unit. In Murr, Lot E added substantial value to Lot F as additional privacy and waterfront space, supporting the "luxury lot" characterization and the combined valuation of $698,300.
Applying these three factors, the Court found that Lots E and F should be treated as a single parcel. The regulated lot's restrictions diminished the combined parcel's value by only approximately ten percent — far below the threshold for a Lucas categorical taking and insufficient for a Penn Central takings finding.
Chief Justice Roberts' Dissent
Chief Justice Roberts, joined by Justices Thomas and Alito in dissent, argued that the majority's test provides insufficient guidance and that the correct approach should use state law property boundaries as the baseline, with the denominator being the legally defined parcel as of the time of regulatory imposition. The dissent's framing — that courts should not "build in" regulatory merger into the denominator analysis — represents the competing approach that practitioners may invoke in jurisdictions where state law parcel definitions are more favorable.
IV. Strategic Framing of the Denominator
Murr's multi-factor test leaves room for strategic argumentation on both sides, and the outcome often turns on which factor is weighted most heavily.
Arguments for a smaller denominator (favorable to plaintiffs):
- Emphasize de facto functional separation: even if two lots are legally adjacent and commonly owned, argue that they serve distinct purposes, have separate use histories, and that an objective landowner would not expect them to be treated as economically unified.
- Document the lots' separate purchase history, separate valuations, and any prior separate financing.
- Where state law merger occurred only because of the challenged regulation itself, argue that using regulatory merger to define the parcel circular: the regulation both causes the merger and then uses the merger to defeat the taking claim.
- Invoke Roberts' dissent: argue that the relevant parcel should be defined by reference to state property law boundaries prior to the enactment of the challenged regulation, not as modified by that regulation.
Arguments for a larger denominator (favorable to defendants/governments):
- Emphasize common ownership, contiguity, and shared ecological characteristics.
- Show that the restricted parcel adds value to the adjacent parcel in ways that an arm's-length market would recognize.
- Invoke state merger regulations or zoning ordinances that treat commonly owned adjacent lots as a single development unit.
V. Application to Coastal Setback Regulations
Coastal setback regulations provide the most common real-world context for Murr analysis. These regulations typically prohibit or severely restrict development within a defined distance of the ocean, bay, or tidal wetlands. Their economic impact on beachfront or near-coast property can be severe.
The Murr analysis in coastal contexts typically breaks down as follows:
Factor One (state law): Most coastal states have comprehensive setback regulatory schemes (e.g., Florida's Coastal Construction Control Line, Fla. Stat. § 161.053; Alabama's Coastal Area Program, Ala. Code § 22-32-1 et seq.) that impose restrictions on entire coastal tracts. Where an owner holds a large parcel of which the coastal portion is restricted, the regulatory scheme typically treats the parcel as a whole — supporting a larger denominator.
Factor Two (physical characteristics): Coastal properties are already subject to federal and state wetlands regulation, FEMA flood zone restrictions, and other environmental controls that regulators will argue define the property's reasonable expectations. A beachfront lot purchased with awareness of coastal setback law has "reasonable expectations" already calibrated to the setback.
Factor Three (prospective value): This is where the plaintiff's strongest argument lies. Demonstrating that the restricted coastal portion (the setback area) has no value to the plaintiff regardless of the adjacent upland parcel — because it cannot be developed, leased, or meaningfully used — supports the argument that the restricted portion should be analyzed separately. Appraisal evidence showing that the restricted acres independently have development value (or did have such value prior to the setback imposition) is critical.
The regulatory timing argument. Where a coastal setback line was moved landward after the plaintiff's acquisition — as has occurred in multiple states following erosion-related line adjustments — the plaintiff can argue that investment-backed expectations were formed based on the pre-adjustment regulatory environment, and that the post-adjustment line constitutes a new taking. In that context, the relevant parcel for Murr analysis may be the restricted swath, not the entire coastal holding.
VI. Practice Notes
Commission a parcel-definition expert before filing. Determining the relevant parcel is a threshold legal and factual question that should be resolved before the complaint is drafted. Retain a real estate appraiser or land use consultant to document the economic relationship between potentially aggregated parcels, including separate valuations with and without the challenged restriction.
Develop the purchase history record. Document when each tract was acquired, under what ownership structure, whether each was separately financed, and what use was made of each. The "voluntary conduct" language in Murr — noting that the Murrs brought the lots into common ownership after the regulations were enacted — suggests that voluntary consolidation weakens the denominator argument.
Preserve evidence of pre-regulation value. The "before" value in the denominator fraction is the value of the parcel immediately before the regulation took effect. If the challenged regulation was imposed years ago, this may require historical appraisals, aerial photographs, prior listing data, or tax assessment records.
Argue factor one carefully where state law has merged. The Murr majority gave substantial weight to Wisconsin's merger regulation as evidence under Factor One that owners had reason to expect consolidated treatment. Where a state merger law is itself challenged as unconstitutional — where it was enacted specifically to prevent small-lot owners from selling individual parcels — the circularity argument is most powerful.
Talk to Yates Anderson
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Informational only. Not legal advice. No attorney-client relationship is created by reading this post. Consult a licensed attorney in your jurisdiction.