Nuance and Complexity in Regulatory Takings Law

Presented at the 2004 Brigham-Kanner Property Rights Conference

What Will China Do When Land Use Rights Begin to Expire?

China does not permit the private ownership of land. Instead, private parties may obtain the right to use property for up to seventy years. These parties own the structures on the land but not the underlying real estate. China\u27s recent economic boom hinges on the success of its real estate market, but the government has not yet addressed three critical questions it must answer soon: Does the holder of a land use right have the ability to renew that right when it expires? If the holder has this ability, must it pay to renew the right? And, if the holder must pay, how much? While it is always perilous to guess how the Chinese government will act, it is instructive to examine how the government has behaved in similar situations in the past. To begin with, the Chinese government expends great effort to avoid social unrest and upheaval. In addition, the government frequently sidesteps new problems and waits to see how the private market responds, later endorsing and officially implementing the most successful outcomes. Finally, both government bodies and individual government officials are heavily invested in the real estate market and thus care personally about the answers to these renewability questions. By keeping these facts in mind, it becomes somewhat less hazardous to forecast how China will act as the first land use rights approach their expiration dates. This Article addresses the renewability of Chinese land use rights. Part II describes the different paths the government might follow as land use rights begin to expire. Part III assesses how the government has acted in the past in an effort to predict which of these different options the government is mostly likely to choose. Part IV pulls back and seeks to locate the resolution of these important questions in the broader context of China\u27s uncertain movement toward the rule of law

Reverse Exactions

When an owner applies for a permit to use property in a certain way, the government body with jurisdiction can either deny the permit, grant the permit outright, or grant the permit subject to conditions. These conditions—known as “exactions”—must meet two constitutional thresholds. First, there must be a close linkage between a problem the owner’s project will create or exacerbate, such as increased traffic caused by a proposed new shopping mall, and the exaction the government proposes, such as the dedication of land for a new right-turn lane. Second, the condition the government suggests must be proportional in magnitude to the problem. The exaction must meet this two-part test even if the applicant rejects the government’s proposal and decides not to proceed. The Supreme Court’s goal in adopting these rules was to ensure that the government does not obtain for free property rights that it otherwise would have to pay for. In other words, the test presupposes that the government is obtaining a benefit from imposing the exaction. That presupposition is wrong for two reasons. First, a properly designed exaction does not create a benefit for anyone. Instead, it mitigates the negative effects the applicant is imposing on its neighbors. Second, the mitigating effects of the exaction inure to those neighbors and not to the government itself: the government typically gains nothing, because the government is not acting in an enterprise capacity. Rather, the government is serving as a referee, mediating between the competing property rights of an applicant that seeks to develop its land and members of the broader community who do not want their own property rights impaired by a neighbor’s intensified use. If a government agency fears takings liability under this stringent test and decides to grant the permit unconditionally or to impose conditions that are too weak, it is striking an unfair balance between these competing property rights and allowing the applicant to impose external costs on its neighbors. The current test, in short, tips the scales in favor of applicants by pushing government bodies toward proposing weak or no conditions. This Article argues that members of the broader community should be permitted to counter this inequity by bringing reverse exaction claims, challenging particular government impositions as insufficient to offset the negative effects of an applicant’s proposed development. Like traditional exaction claims brought by permit applicants, these reverse claims would succeed or fail based on the Court’s two existing criteria, namely (1) the degree of linkage between the problem and the condition the government exacted and (2) the magnitude of the condition. This claim, however, would be viewed from the opposite perspective. The neighbors would argue that the government’s granting of consent with inadequate conditions attached effects a compensable taking of their own property rights. In a traditional exaction claim, the wronged landowner receives compensation that is ultimately paid by the beneficiaries of the government’s over-exaction, typically taxpayers; here, the wronged neighbors would be compensated from funds the government would raise from the applicant that received a permit without initially paying the full cost of its own externalities

The Scope of the Borrower\u27s Liability in a Nonrecourse Real Estate Loan

The nonrecourse real estate lender agrees to seek satisfaction solely from the mortgaged property and not from the borrower or any of its equity holders personally. The lender presumably receives consideration for its relinquishment of this important remedy, and it would be unfair for a court later to award the lender a personal judgment against the borrower solely because the foreclosure sale proceeds were insufficient to satisfy the debt. Because the nonrecourse lender cannot reach the borrower\u27s personal assets, the location of the dividing line between the mortgaged property and the borrower\u27s personal assets turns out to be far more significant in the nonrecourse loan than in the full recourse loan. Unfortunately, the legal definition of the mortgaged property may be unsettled at its edges, and borrowers possess the ability to shield assets from nonrecourse lenders by transforming real estate into personal property. Borrowers and lenders that believe nonrecourse loans are just like other loans except for the waiver of a significant remedy soon may discover that nonrecourse borrowers have a greater tendency to allow or cause the condition and value of the property to deteriorate once foreclosure appears inevitable. This Article proposes a standard that will encourage nonrecourse borrowers in distress to act as they would if they were personally liable while also preventing lenders from enjoying the benefits of a remedy they agreed to forego

Regulatory Takings and Ripeness in the Federal Courts

The Supreme Court held in 1987 that compensation is required automatically whenever a municipality takes property by regulation. The Court has also held repeatedly that federal courts cannot even hear such claims until the landowner meets a demanding ripeness test. Landowners are often unable to survive the protracted ripening period even though their claims might ultimately have proved to be valid. And the occasional municipality that loses a takings case may be liable for a huge award that reflects the lengthy ripening period. Federal courts have persistently refused to acknowledge this tension between takings law and takings procedure. This Article seeks to harmonize these two doctrines. After attempting to identify precisely when a regulatory taking becomes effective-a striking deficiency in federal case law-and precisely when it ripens, it examines why there is often a prolonged gap between these two times. The Article proceeds to offer a series of resolutions to this doctrinal conflict. Because much of the problem lies in the municipal permitting process, the Article concludes that the most effective solution may be found in procedural due process law

The Impact of Autonomous Vehicles on Urban Land Use Patterns

Autonomous vehicles are coming. The only questions are how quickly they will arrive, how we will manage the years when they share the road with conventional vehicles, and how the legal system will address the issues they raise. This Article examines the impact the autonomous vehicle revolution will have on urban land use patterns. Autonomous vehicles will transform the use of land and the law governing that valuable land. Automobiles will drop passengers off and then drive themselves to remote parking areas, reducing the need for downtown parking. These vehicles will create the need for substantial changes in roadway design. Driverless cars are more likely to be shared, and fleets may supplant individual ownership. At the same time, people may be willing to endure longer commutes, working while their car transports them. These dramatic changes will require corresponding adaptations in real estate and land use law. Zoning laws, building codes, and homeowners\u27association rules will have to be updated to reflect shifting needs for parking. Longer commutes may create a need for stricter environmental controls. Moreover, jurisdictions will have to address these changes while operating under considerable uncertainty, as we all wait to see which technologies catch on, which fall by the wayside, and how quickly this revolution arrives. This Article examines the legal changes that are likely to be needed in the near future. It concludes by recommending that government bodies engage in scenario planning so they can act under conditions of ambiguity while reducing the risk of poor decisions.

Will Ticket Scalpers Meet the Same Fate As Spinal Tap Drummers? The Sale and Resale of Concert and Sports Tickets

Some people purchase concert or sports tickets for their own entertainment and then are unable to use their tickets. They may have a scheduling conflict, or their favorite team may be underperforming. Other people buy tickets with the intention of giving them as gifts. Still others purchase with the goal of reselling the tickets at a profit. This Article examines the transferability of tickets to performances and sporting events. What, exactly, is a “ticket”? What property and contract rights does the initial ticket holder acquire? Does the holder have the legal power to transfer these rights? To what extent can the initial ticket seller limit that transferability? Does it matter whether the initial purchaser planned to sell at a profit all along? If there is a profit to be made, who is entitled to keep the resale premium? More generally, what are the economics of the market in ticket sales and resales? Part I of this Article asks what legal rights a ticket creates under contract and property law and whether the party who acquires a ticket is legally empowered to reconvey it. Part II looks more globally at the economics of the market in sales and resales of tickets. Part III examines and compares the roles of the private market and the government in transactions involving the sale and resale of event tickets. Finally, Part IV looks to the future, suggesting some directions the ticket resale market may and should take as technology and the law continue to evolve and as the political process functions

Private and Public Construction in Modern China

During the past three decades, real estate development in China has proceeded at an astonishing pace, with much development occurring before China\u27s 2007 adoption of its first modern law of property. Investors thus spent hundreds of billions of dollars in the real estate market of a nation that, during most of this period, had not formal property law. How can a huge nation modernize so rapidly and dramatically when its legal system furnishes such uncertainty? And how can this happen in a nation that still purports to subscribe to socialist ideology? I set out to answer these questions by interviewing dozens of Chinese and Western real estate developers, bankers, government officials, lawyers, judges, economist, brokers, professors, and consultants. My goal was to learn how real estate development was actually proceeding on the ground and how these actors functioned in a world of significant legal ambiguity. Given the rapid evolution of China\u27s modern real estate market, a complete understanding of this market requires more than just a thorough knowledge of published statutes and cases. My earlier field research examined the Chinese land use right--which serves as a surrogate for property ownership in a nation in which private citizens may not own land--and then focused on real estate finance. This Article continues the analysis of how China\u27s real estate market functions by turning to public and private construction in China. It examines the commercial construction process, the sale of residential units, and the construction of infrastructure in China

Mortgage Law in China: Comparing Theory and Practice

This Article examines Chinese mortgage law as it actually operates in the field, focusing on both legal and business issues. During the summer of 2005, I interviewed dozens of Chinese and Western lawyers, bankers, real estate developers, government officials, judges, economists, real estate consultants, law professors, business professors, real estate agents, law students, and recent homebuyers. Their comments offer reliable insights into how China\u27s real estate markets truly function. The discussion that follows draws on these conversations to examine China\u27s budding mortgage law practices, including how they developed, how they comport with or differ from written laws, and what questions they leave unanswered