Aug 22, 2017

US Supreme Court Upholds Land Use Doctrine of Merger of Lots

The Pennsylvania Law Weekly, August 22, 2017

By: Marc D. Jonas, Esq.

Land use cases do not often wind their way to the U.S. Supreme Court. When they do, the decision is bound to have a ripple effect throughout the land.

In 1926, in Village of Euclid v. Ambler Realty, 47 S.Ct. 114 (1926), the Supreme Court upheld what is known today as Euclidean zoning–use-based zoning districts regulating residential and nonresidential uses, together with their area and bulk standards. At issue in Village of Euclid was the exercise of the police power—were the land use regulations reasonable? Did they evince a substantial relation to the public health, safety, morals or general welfare?

The right to use and enjoy one’s property is not unlimited. When local regulations go too far, as in a local ordinance which is unreasonable, arbitrary or even confiscatory, that municipal exercise may be deemed an unconstitutional regulatory taking.

When does a local government’s attempted exercise of its zoning function run afoul of constitutional protections?

Fast forward to 2017 and the Supreme Court’s examination of the doctrine of merger (merger of lots), a doctrine well known to Pennsylvania land use practitioners, developers and landowners. In the world of zoning, this doctrine obliterates lawfully recorded property lines and compels the consolidation of abutting and separately deeded parcels where those parcels are in common ownership, regardless of whether they were acquired at the same time or years apart.

The doctrine of merger is not a creature of common law, nor, for that matter is it contained in the state’s land use enabling legislation, the Pennsylvania Municipalities Planning Code (MPC), which applies everywhere in the commonwealth with the exception of Philadelphia and Pittsburgh. The doctrine of merger is instead the subject of municipal regulation which can, and does vary from city, to borough, to township, to home rule community. In Pennsylvania, the language of the regulation may differ, but often it focuses on whether the abutting parcels are held in what is defined as “single and separate ownership.”

As one court stated: “In sum, analysis by the courts of the effect of merger provisions adopted by local governing bodies on adjoining lots held in common ownership when one of the lots is rendered nonconforming by a subsequent zoning ordinance has given rise to a merger of lots doctrine. However, this body of law has no application in the absence of merger of lots provision in the zoning ordinance adopted by the local governing body in the jurisdiction where the lots are located. The common law may not be employed to restrict the use of nonconforming lots; any restriction is purely statutory and is a matter committed to the legislative discretion of local governing bodies by the MPC,” as in Loughran v. Valley View Developers, 145 A.3d 815, 823 (Pa. Cmwlth. 2016). The ordinance language in that case was as follows: “Where two or more adjacent lots, one or more of which is nonconforming, are owned by the same owner, and the ownership of the lots is concurrent, such lots shall be combined to create conforming lots, or to lessen the non-conformity if it is not possible to create all conforming lots.”

In a 1998 decision of the Commonwealth Court, the court discussed the requirement that a “physical merger” be established. The burden of proving that physical merger was on the municipality. The physical merger doctrine was an effort to recognize and protect the investment of the landowner, interjecting intention into the mix—whether, despite the common ownership, there was an intention to keep the lots separate and distinct.

Other cases have discussed the “presumption of merger,” as in West Goshen Township v. Crater, 538 A.2d 952 (Pa. Cmwlth. 1988). In Cottone v. Zoning Hearing Board of Polk Township, 954 A.2d 1271, 1277 (Pa. Cmwlth. 2008), the Commonwealth Court stated: “If those two lots later come into common ownership, the burden is upon the municipality to prove that the new owner intended to use the two lots as one integrated parcel. On the other hand, if the same two adjoining lots are under common ownership when a zoning ordinance is passed that renders each property undersized, then the two lots are presumed to have merged. The burden is on the landowner to rebut the presumption.”

In June of this year, the doctrine of merger was under the microscope of the U.S. Supreme Court in Murr v. Wisconsin, S.Ct. (2017).

In the town of Troy, Wisconsin, regulations required a one-acre minimum lot area to develop. Landowners in that state owned two abutting lots, each less than one developable acre. Although each lot was in excess of one gross acre in size, factors relating to the river resulted in a net lot area less than one acre, in this case, 0.98 acres. One lot had a cabin, and the other was vacant. The lots were acquired one year apart. The factual context included federal protection of the Lower St. Croix River on which these two lots were located.

In the suburbs of the Keystone State, a discrepancy of 0.02 acres would be considered an easy candidate for a de minimis dimensional variance, perhaps a proverbial walk in the park. Following a process similar to that in Pennsylvania, the landowners in the Badger State (aka America’s Dairyland) sought variances from the local board of adjustment. However, that request was denied and upheld in the state courts by application of the merger doctrine.

The underlying question before the U.S. Supreme Court was whether the merger doctrine took the police power too far, thereby invoking the takings clause of the Fifth Amendment of the U.S. Constitution: local government may not take private property “for public use, without just compensation.”

Notwithstanding the court’s recognition of the importance of property rights “necessary to preserve freedom,” the doctrine of merger prevailed.

The court undertook an analysis of whether the application of the merger doctrine constituted a regulatory taking. The discussion encompassed the characteristics of the land, the value of the land, and the reasonable expectations of property ownership. The court held that “the merger provision here is likewise a legitimate exercise of government power.” The reasons given in support included:

  • The legitimacy of minimum lot sizes.
  • The policy of eliminating undersized lots.
  • The availability of relief via a variance.

The record of evidence in the case interestingly showed a higher value for the consolidated lots when compared to the value of the individual lots. However, a different value might not have led to a different result, since the court noted the benefits of consolidated parcels—”increased privacy and recreational space, plus the optimal location of any improvements.”

The effect of the doctrine of merger did not deprive the landowners of “all economically beneficial use of their property.” Any claimed economic impact was not substantial. Thus, the doctrine of merger was deemed a valid land use regulation and a reasonable exercise of the police power inherent in zoning.

If indeed the merger doctrine is a creature of regulation, what are the implications of the Supreme Court’s decision in Murr? Are physical merger and the presumption of merger now history? Does the answer lie simply in the drafting of appropriate zoning regulations?

All is not lost, however. There may be some practical and sustainable workarounds derived from the tale of “movie lots.” These are small, undersized-under-current-zoning parcels of land handed out as door prizes by movie theaters in the distant past. In municipalities where these lots abound, certain developers have employed resourceful techniques to preserve the lawful status of the markedly undersized lots in the effort to leverage desired zoning results from the particular municipality. When acquiring the movie lots, the purchasers ensure that no two abutting lots are conveyed to the same grantee. One story told of the creation of corporate grantee names derived from a random selection of surnames from the white pages of the phone book. (Yes, a phone book.) To be sure, this entails some creativity and state corporation bureau expense by forming enough different business entities to avoid the impact of the merger doctrine. But it may provide guidance when clients acquire abutting lots, one or more of which do not meet current minimum lot size or lot width regulations.

Reprinted with permission from the August 22, 2017 issue of The Pennsylvania Law Weekly. (c) 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

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