Alerts

Does a Governmental Order Requiring that Businesses Close to Prevent the Further Spread of COVID-19 Amount to a Regulatory Taking of Property that Entitles a Commercial Tenant to Relief?

Alerts / April 2, 2020

As governmental agencies issue mandates regarding COVID-19, many commercial tenants have been forced to shut down. To obtain relief, such as a rent abatement, a tenant could potentially argue that such governmental action amounts to a regulatory taking because the governmental action deprives the tenant of use of the property and the action was for a public purpose. In the event of condemnation or a temporary taking by a governmental agency, commercial leases often provide relief to a tenant, including rent abatement, a termination right or the ability to file its own condemnation action against the government. The provision may be narrowly drafted so that relief is available only where the governmental agency acquires or actually possesses some or all of the property, or the provision may contain broader language that entitles the tenant to relief where the governmental action precludes the tenant’s use of the property. However, the argument that COVID-19 governmental actions constitute regulatory takings is likely to face many hurdles.

A regulatory taking deprives a property owner “of all or substantially all economically beneficial use of its property, whether temporarily or permanently.”[1] If this standard is met, the government must provide just compensation under the Fifth or Fourteenth amendment to the U.S. Constitution in exchange for the applicable loss of property or loss of use of the property.[2] The deprivation of use must be substantial, and even egregious facts may not be enough to establish a regulatory taking.[3] To demonstrate a regulatory taking, courts have typically required “physical occupation of the property by the government, complete elimination of use of the property, or elimination of access to the property.”[4] In response to this narrow interpretation, states have enacted their own private property protection statutes.[5] These state-specific statutes may provide for a broader definition of regulatory taking. Regardless of which law applies, however, the long-standing view is that a governmental action to protect public health and safety (i.e., the governmental exercise of the police power) is not a taking.[6]

Many state and local authorities have ordered businesses to shut down to prevent further spread of COVID-19. A tenant could argue that the governmental action deprived the tenant of all or substantially all economically beneficial use of its property for a temporary period of time. However, a tenant would need to demonstrate that there has been complete elimination of use of the property. Depending on the governmental action and the business, some tenants may have difficulty meeting this standard. For example, if the governmental action precludes the public from dining in at a restaurant but still allows a restaurant tenant to offer take out, it is unlikely that the deprivation of use will rise to the level required to establish a regulatory taking. Even if a tenant can show that there has been complete elimination of the property or that the governmental action meets a lower standard under a state-specific statute, the governmental action is likely to be considered an exercise of the government’s police power to protect public health and safety during an epidemic rather than a regulatory taking. Additionally, it appears that the government itself is not actually receiving any usage benefit that would require the government to pay just compensation. Rather, the general public receives the benefit of the governmental action restricting usage and thereby seeking to limit the transmission of COVID-19.

Authorship Credit: Samanta Franchim, Joel Roberts and John Melicharek

[1] Susan L. Trevarthen, Advising the Client Regarding Protection of Property Rights: Harris Act and Inverse Condemnation Claims (July/August 2004), available at https://www.floridabar.org/the-florida-bar-journal/advising-the-client-regarding-protection-of-property-rights-harris-act-and-inverse-condemnation-claims/.
[2] Id.
[3] Id.
[4] Id. (citing Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302 (2002) and City of North Miami Beach v. Reed, 749 So. 2d 1275 (Fla. 3d D.C.A. 2000)).
[5] Florida, in particular, enacted the Bert J. Harris, Jr., Private Property Rights Protection Act in 1995, which entitles a property owner to relief “when a specific action of a governmental entity has inordinately burdened an existing use of real property or a vested right to a specific use of real property.” Fla. Stat. § 70.001(2).
[6] Miller v. Schoene, 276 U.S. 272 (1928).

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