What are transferable development rights?

April 30, 2010 | By LUKE WAKE

We all know that the Fifth Amendment protects our right to use and enjoy our property. But, that doesn’t stop government regulators from trying to find innovative ways to get around the Fifth Amendment. In recent years land use planners have begun experimenting with “transferable development rights” as a way to avoid liability under the Fifth Amendment when they have restricted the permissible uses of a property.

Regulators open themselves up to lawsuits when they restrict the permissible uses of a property, but the case law makes it an uphill battle for the landowner who believes his property rights have been taken away. Under the Lucas test, a government regulation is a per se taking if it completely deprives a property of all economically viable use. This means that the government can’t completely prohibit all uses of a property without paying you for its value. Where the land still retains some economically viable use, the restriction might not be a taking. Under the Penn Central test, a court will determine whether a restriction amounts to a taking in consideration of a number of factors, including: (1) the economic impact of the regulation; (2) the extent to which the regulation has interfered with reasonable investment backed expectations; and (3) the character of the governmental action.

It is clearly much more difficult to prevail under the Penn Central test than under the Lucas test because Lucas is cut and dry: if the regulation completely deprives a property of all economically viable use, a taking has occurred and compensation is owed. But if the property still retains some value it may be said it has an economically viable use; in such a case the Penn Central’s complex balancing test applies, and government regulators will usually prevail. So its always in the government’s best interest to argue that the regulated property still retains some value (even if it is only a fraction of what it would otherwise be worth).

But how can the government say that a property retains value when it has denied the owner the right to use the property entirely? Well, some governments have tried experimenting with a novel idea; in order to avoid liability for the taking of a property, they “give” property owners “transferable development rights” when their property has been burdened by land use restrictions. A transferable development right is the right to develop another property. Here is how it works:

A City restricts the use of two properties: Black Acre and White Acre. The zoning laws provide that no house may be built on Black Acre, but its owner is entitled to transferable development rights which may be sold to the owner of White Acre. These transferable rights, if purchased by the owner of White Acre, would allow the owner of White Acre to develop that property in a way that would otherwise be impermissible under the City’s zoning laws.

So in essence, a transferable development right is simply the right to develop someone else’s property. The government takes away the right to develop White Acre and “gives” that right to the owner of Black Acre. Of course the right to develop White Acre is worthless to the owner of Black Acre, unless the owner of White Acre is willing to purchase that right. So in theory these transferable development rights have value, but who is to say that the owner of White Acre (or anyone else) is going to want to buy Black Acre’s transferable development rights?

It is not clear what, if any, economic value transferable development rights have. But it is clear that any economic value they might have is determined completely by the government’s manipulation of the free market, and its artificial redistribution of property rights. In order to make the transferable development rights scheme work, the government must establish zoning laws that are more restrictive than necessary. In arbitrarily establishing overly restrictive zoning laws, the government has taken away development rights from property owners. The government then turns around and seeks to “give” those development rights to a landowner who’s property is burdened by even more restrictive regulations, and tells that landowner that he can sell those “development rights” back to the original property owners.

This scheme is outrageous because it allows the government to get away with the taking of private property. Government could completely deny a property owner all use of a property, but argue that the property still has value because the property owner is entitled to transferable development rights, which hypothetically have value. Yet the “transferable development rights” that the government has offered are nothing more than the negated rights of other property owners. So when the government offers you a transferable development right, it is merely seeking to use the bounty of what it has already stolen from other landowners to avoid takings liability in your case.

The whole concept of transferable development rights is based on the faulty notion that government is the source of all rights and that it can give and take our rights as it pleases. But the Constitution is clearly predicated upon the opposite assumption; the Constitution protects our natural rights, which antedate government. The government is not the source of our property rights, those rights exist independent of government, and the Fifth Amendment clearly protects them.

For more reading on this topic, I recommend the following article:

Radford, R. S., Takings and Transferable Development Rights in the Supreme Court: The Constitutional Status of TDRs in the Aftermath of Suitum, 28 Stetson Law Review 685-698 (1999).