The definition of what constitutes a taking is critical to any discussion of the protection afforded private property rights. If a property owner cannot establish that a taking has occurred, the governmental action is immune from scrutiny under the other components of the clause. Several Michigan court decisions have contributed to setting an extremely high standard for establishing a taking, making it difficult for property owners to gain compensation for the harm caused them by government actions.

It has remained well established that a taking occurs when the state physically occupies, invades, or condemns property.[6] If a governmental action results in a "permanent physical occupation" of property, a taking is found regardless of the level of economic impact on the owner or whether it achieves an important public benefit.[7] As limitations on property uses grow with increases in the regulatory state, however, it is clear that the standard of "physical occupation" should not be the determinant factor for determining whether a taking occurs.

Prior to Justice Oliver Wendell Holmes’ 1922 opinion in Pennsylvania Coal Co. v. Mahon, takings were generally thought to occur by the courts only when there were direct appropriations of property or their functional equivalent.[8] Holmes recognized that protecting the principles of private property meant that the government’s ability to redefine the range of interests in the ownership of property must also be constitutionally limited. Holmes stated that, "while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." Just what is meant by "too far" has never been clearly defined. Nevertheless, Mahon illustrated that regulatory takings were within the ambit of Fifth Amendment protection.

For seven decades, the U. S. Supreme Court consistently refused to set any standards for making a determination on the meaning of "too far," preferring instead to "engage in . . . essentially ad hoc, factual inquiries."[9] In the 1992 case of Lucas v. South Carolina Coastal Council,[10] however, the Court established the rule that government action which left private property totally valueless or which physically encroached upon private property always constituted a taking. When non-physical invasion or less than a complete reduction in value occurs, the analysis reverts back into an ad hoc inquiry. From takings decisions by the Michigan and federal courts, the level of protections currently granted under this system can be analyzed.

Recent U.S. Supreme Court decisions have addressed some regulatory taking concerns. The Michigan Supreme Court, in such cases as Electro-Tech, Inc. v. City of Westland,[11] has followed the holdings of these decisions. Attempts to coerce individuals into ceding property rights through permit conditions or requirements is one key area that has fallen under scrutiny. Nollan v. California Coastal Commission held that conditions which advance the same purpose as is served by the permitting process itself are not considered takings.[12] When an essential nexus does not exist between the permit condition and the state interest, however, the required exaction of property is considered a compensable taking. The U.S. Supreme Court extended this interpretation in Dolan v. City of Tigard.[13] It is assumed that the exaction of property through an easement or designation not roughly proportional to the permit’s purpose should be treated like a taking exercised under the formal power of eminent domain and condemnation.

Moreover, the government must confine its exercise of eminent domain to that of necessity. In City of Troy v. Barnard, for instance, the Michigan Court of Appeals held that the municipality abused its discretion in taking property in excess of what it needed for laying a sidewalk.[14]

Land use regulations which deny an owner all use of his property, even if only temporarily, are considered analogous to physical appropriations and therefore require compensation.[15] "Normal delays in obtaining building permits, changes in zoning ordinances, variances, and the like" are, however, exempted from this rule.[16] In contrast, a land use regulation is not categorically considered a taking if it "substantially [advances] legitimate state interests" and does not "[deny] an owner economically viable use of his land."[17] Elimination of all use is a taking, but elimination of only some uses is not.[18]

Herein lie the more difficult cases, arising out of inverse condemnation, where the state does not actually take physical possession of property but does affect the rights of possession attached to it — a decline in value or deprivation of use directly resulting from a governmental action. Falling into this category are challenges to such things as regulatory programs and permit schemes which limit or condition the legal uses of property.

When a regulation restricts certain uses of property, it not only prevents individuals from using their property in a way they desire, but it often has the effect of essentially stealing the worth of one’s property. After imposition of a regulation, it is often economically impossible for an owner to sell his land and move elsewhere to use another property in the way that satisfies his needs. When fair market value is affected by a governmental action, selling means imposing a financial loss on the property owner.

The courts in Michigan have not fully recognized these deleterious effects on property as "takings." The primary test is whether an owner is deprived of all economically viable use of his property.[19] Land use regulations only amount to takings in extreme circumstances. Although recognizing that the economic impact of a regulation should be considered in determining whether an action results in a taking, deprivation of the most profitable or preferable uses of property are not considered takings under the interpretation of the term in Michigan court decisions.[20] Several cases illustrate this all-or-nothing approach to a takings determination.

In Bevan v. Township of Brandon, the Michigan Supreme Court addressed these limitations.[21] The Bevans were restricted from building two or more houses on their six-acre property unless access was made available over a road with a right of way. Due to the restriction in use created by this zoning ordinance, the Bevans contended an unconstitutional taking had occurred. The court restated the limited scope of compensable takings when it held:

Because the access regulation in question serves a legitimate governmental interest and does not deny the owners economically viable use of their land, we conclude that enforcement does not effect an unconstitutional taking of plaintiffs’ property.[22]

The court cited the U. S. Supreme Court justifying the all-or-nothing definitional scope of the takings clause on the premise that such an interpretation is necessary for effective functioning of government. Under the unusual notion that government efficiency justifies the infringement of constitutionally protected rights, the Court stated, "Government could hardly go on if to some extent values incident to property could not be diminished without paying for every such change in the general law."[23]

The Bevan decision articulated a two factor test for determining whether zoning affects a taking: "The owner must show that the property is either unsuitable for use as zoned or unmarketable as zoned."[24] Again, an owner must show complete destruction of its property’s use or value. No gradations of loss are allowable to prove a taking, for "a showing of confiscation will not be justified by showing a disparity in value between uses."[25]

Fortunately, the court does argue that zoning laws cannot "oust the property owner of his vested right" to continue a non-conforming use that was previously lawful. It does, however, require that the non-conforming use be already occurring at the time the new zoning ordinance is passed, or that "work of a substantial character" has been accomplished toward the non-conforming use. Intentions or contemplations will not allow a property owner to escape application of new zoning laws to his property.[26]

In Blue Water Isles Company v. Department of Natural Resources, the Michigan Court of Appeals upheld a denial of a permit application to dredge and fill 442 acres of marsh lands.[27] In the 1988 case, the court found that the denial of Blue Water Isles permit application did not constitute a taking, for it was "reasonably necessary to the effectuation of a substantial public purpose" in preserving the state’s natural resources and the protection of the public trust in inland lakes and streams.[28] The court acknowledged that takings can occur when "the value of the property is destroyed . . . or where the owner is excluded from use or enjoyment of his property or from any of the appurtenances thereto"[29] but then argued that there was not a substantial reduction in the plaintiff’s property value and alternative uses for the property remained, thereby no taking was found.

In the 1989 case of Bond v. Department of Natural Resources, the Michigan Court of Appeals overturned a compensation award to a property owner denied a permit to develop land according to the original development scheme he envisioned when purchasing the property.[30] A drainage permit for creating a system of canals was denied because the Department of Natural Resources (DNR) considered the majority of his 170 acre parcel either wetlands or shorelands. The court held that they would not assume that the denial of one development application was conclusive evidence that all alternative development plans would be denied by the DNR in the future. DNR representatives testified that they could not tell if any alternative permit applications would be accepted for this land, but the court still found that the plaintiff had not met the burden of showing that all beneficial use was destroyed by the regulations.

The court stated, "[E]ven if plaintiff suffered a diminution in the value of his property as a result of the designations [as wetlands] and even though his application for a permit to dredge a drainage ditch was denied, a taking did not occur."[31] It is clear from this holding that the courts do not recognize decreases in value or restrictions on use of property as compensable takings. The 1991 case of Carabell v. DNR involved similar facts and affirmed the trial court’s holding that a property owner must "exhaust all ends in determining whether there was any use whatsoever for [the] land."[32] Plaintiff property owners are faced with an incredibly high burden of proving that no valuable uses of their property remain. So long as some economically viable use of an affected property exists or could exist, no part of the property is considered to have been taken, and no compensation is due.

This is all in sharp contrast to the meaning attributed to a "taking" intended at Michigan’s founding. Thomas M. Cooley, former Justice of the Michigan Supreme Court, provided valuable guidance as to the true scope of takings protections. Writing during the infancy of the state of Michigan, Justice Cooley argues that takings occur when governmental actions infringe, completely or partially, on uses of property. In discussing the jurisprudence of eminent domain in his Treatise on Constitutional Limitations, Cooley states:

"[A]ny injury to the property of an individual which deprives the owner of the ordinary use of it is equivalent to a taking, and entitles him to compensation....So a partial destruction or diminution of value of property by an act of the government which directly and not merely incidentally affects it, is to that extent an appropriation."[33]

Takings protections clearly should extend to more than actions which eliminate all uses of property. Cooley’s analysis indicates that those actions which infringe on ordinary uses or deflate the value of property should, and did at one time, fall into the category of compensable takings.

Furthermore, Justice Cooley argues that the level of interest interfered with by a governmental action, such as requiring an easement for a private road, is immaterial to the calculus of whether a taking has occurred. "Nor would it be material to inquire what quantum of interest would pass from him: it would be sufficient that some interest, the appropriation of which detracted from his right and authority, and interfered with his exclusive possession as owner, had been taken against his will."[34] The level of diminution should therefore be irrelevant to the determination of a taking, though it clearly should play into the calculation of compensation.