Pennsylvania Limits Exercise of Eminent Domain in the Wake of Kelo v. City of New London

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1 May 2006 ALBANY AMSTERDAM ATLANTA BOCA RATON BOSTON CHICAGO DALLAS DELAWARE DENVER FORT LAUDERDALE HOUSTON LAS VEGAS LOS ANGELES MIAMI NEW JERSEY NEW YORK ORANGE COUNTY ORLANDO PHILADELPHIA PHOENIX SACRAMENTO SILICON VALLEY TALLAHASSEE TOKYO TYSONS CORNER WASHINGTON, D.C. WEST PALM BEACH ZURICH Strategic Alliances with Independent Law Firms* BRUSSELS LONDON MILAN ROME TOKYO in the Wake of Kelo v. City of New London The Pennsylvania General Assembly recently enacted legislation, signed on May 4, 2006 by Governor Rendell, which limits the use of eminent domain in Pennsylvania and specifically prohibits the use of eminent domain for developments undertaken by private enterprises, except under certain limited circumstances.the changes to Pennsylvania s Urban Redevelopment Law (the Act of May 24, 1945, Public Law 991, codified at 35 P.S et. seq.), were made by the General Assembly in light of the United States Supreme Court s decision last June in Kelo vs. City of New London, 125 S. Ct (2005), which was seen as expanding the reach of eminent domain to include projects for purely economic benefit. The changes to Pennsylvania s Urban Redevelopment Law were contained in Senate Bill 881 as well as a related bill known as House Bill 2054, which also made significant changes to Pennsylvania s Eminent Domain Code.Those two bills were passed unanimously by both the Pennsylvania Senate and House and were enacted into law as Acts 34 and 35 of The changes to the Urban Redevelopment Law and Eminent Domain Code both take effect 120 days after May 4, 2006, i.e. September 2, Under the Kelo decision, the United States Supreme Court held, in a divided 5 to 4 opinion, that the City of New London, Connecticut could proceed with eminent domain to condemn privately-owned property for use by the City as part of a redevelopment plan whereby the property was to be conveyed by the City to a private developer who would then construct a mixeduse project on the City s waterfront. The project was expected to generate hundreds of jobs and several hundred thousand dollars of property tax revenue for the City. Though the City of New London had attempted to acquire all of the parcels needed for the redevelopment on a voluntary basis, it decided to proceed with eminent domain as a method of acquisition when 15 property owners objected to the City acquiring their properties. In upholding the use of eminent domain against a challenge by the property owners that the takings did not comport with the Fifth Amendment to the United States Constitution because the takings were not for a public use, the United States Supreme Court, relying on prior decisions such as Hawaii Housing the provisions of the Act will serve to limit the ability of governmental authorities to condemn land for redevelopment by private entities. However, the exceptions to the Act s prohibitions appear to allow some flexibility by government entities to allow them to proceed with many of the proposed redevelopments that are generally seen throughout Pennsylvania. Authority vs. Midkiff, held that the taking was proper and consistent with the Fifth Amendment. Under the Court s rationale, the public use requirement of the Fifth Amendment does not require that the condemned property be put to use directly by the public but rather serve only a public purpose. The Supreme Court relied on the fact that the City had created a detailed redevelopment plan which had been carefully considered and which was created pursuant to a state statute that specifically authorized government entities in Connecticut to utilize eminent domain to promote economic development. The Supreme Court held that the promotion of economic development, even without a finding of blight, was a traditional government function and

2 therefore constituted a public purpose under the Fifth Amendment s Takings Clause. As a result, the Supreme Court upheld New London s use of eminent domain in a ruling that has been interpreted to establish a principle that the provision of economic development in and of itself, without requiring a finding of blight, is a permissible use of eminent domain, so long as there is a state statute providing for such condemnation. The new Pennsylvania legislation, known as the Property Rights Protection Act, specifically provides that the exercise by a condemning authority to take privately-owned property by eminent domain for use by private enterprises is prohibited, except for certain limited exceptions. Private Enterprise is defined as a for-profit or non-profit entity or organization, but specifically excludes any entity that meets the definition of an Institution of Purely Public Charity under Pennsylvania s Institutions of Purely Public Charity Act. The Property Rights Protection Act also excludes certain takings by quasi-governmental entities, such as for the Pennsylvania Public Utility Commission. The Act provides a significant exception for the Pittsburgh, Philadelphia, Delaware County and takings by Bucks, Delaware and Montgomery counties in home rule municipalities within those counties, to allow the exercise of eminent domain in areas that were certified as blighted by those cities and counties under the Urban Redevelopment Law on or before the effective date of the Act (which is September 2, 2006) under this exception, the Declaration of Taking for those condemnation actions must be filed on or before December 31, The Act does provide several exceptions to the exercise of eminent domain for ultimate use by Private Enterprises. One such exception is if the party whose property is being condemned either consents to the use of the property by the Private Enterprise or does not file or does not prevail on Preliminary Objections filed to the Declaration of Taking; the companion House Bill 2054 requires that such Preliminary Objections challenging the power or right to have the property taken must be filed by the condemnee within 30 days after it is served with written notice of the filing of the Declaration of Taking. Another significant exception is that the prohibition on use of property by Private Enterprise does not apply to a private entity which occupies an incidental area within a public project, such as retail space, office space, or a restaurant or food service facility; as a result, the involvement by a Private Enterprise in a de minimis portion of a project developed using eminent domain would be allowed.yet another exception is the taking of property which is to be used for any road, street, highway, the parking of vehicles or to provide access to a public thoroughfare for a property which would otherwise be inaccessible as a result of the use of the eminent domain. Additionally, the prohibition on the use of property taken by a Private Enterprise also does not apply to a property that is considered to be a threat to public safety or health, such as a property that is a public nuisance or involves the removal of a structure that is beyond repair or unfit for human occupancy or use. In a victory for affordable housing advocates, the Act contains a significant exception for most affordable housing developments. The Act specifically excepts from its prohibition on the use of property by Private Enterprises property that is acquired for the development of low income and mixed income housing projects pursuant to the Pennsylvania Housing Authorities Law or property that is to be developed using financial incentives available for the development of low income or mixed income housing projects involving certain financing sources specified in the Act, such as the Low Income Housing Tax Credit, the Community Development Act of 1974 (which created the Community Development Block Program), the Cranston Gonzalez National Affordable Housing Act (which created the Federal Home Investment Partnerships Program), 53 Pa.C.S. in the Wake of Kelo v. City of New London Page 2

3 Chapter 60 (formerly Act 137, which is Pennsylvania s Affordable Housing Trust Fund statute), the Pennsylvania Department of Community and Economic Development s Brownsfield for Housing and Redevelopment Assistance Programs, the Homeownership Choice Program and PennHOMES program of the Pennsylvania Housing Finance Agency, and any successor program to one of those specific programs. This exception for affordable housing projects was brought about in part by the advocacy of a group of affordable housing professionals, including the author of this article, and a receptive audience by the members of Pennsylvania s General Assembly given the critical need in Pennsylvania for more low and moderate income housing development. Almost all affordable housing development, whether for-sale or rental housing, will utilize at least one, if not more, of the funding sources specifically enumerated in the Act. The Act still permits takings to be done pursuant to Section 12.1 of the Urban Redevelopment Law (35 P.S ), which is the removal of blighted property, and such property once taken may be used by Private Enterprises. However, the Act does change the definition of blight under the Urban Redevelopment Law. Under the Act, as was the case under the Urban Redevelopment Law prior to the enactment of the Act, a property can be found to be blighted only if (i) due to its physical condition or use the property is regarded as a public nuisance or is declared a public nuisance, (ii) a property is considered an attractive nuisance to children such as abandoned property, a well, or an excavation, (iii) a property has been determined by the applicable government entity as unfit for human habitation, (iv) a structure that is determined to be a fire hazard or otherwise dangerous to the safety of persons or property, (v) a structure from which the utilities, plumbing, heating, sewage and other facilities have been discontinued or rendered ineffective so as to render the property unfit for its intended use, (vi) properties that are vacant or unimproved in a predominately built-up neighborhood which has become a place for accumulation of trash and debris or a place for rodents or other vermin, (vii) any unoccupied property which has been tax delinquent for a period of two years, or (viii) a property that is vacant and has not been rehabilitated within one year of the receipt of notice to rehabilitate from the appropriate government entity. The Act also retained the prior rule under the Urban Redevelopment Law regarding abandoned property by providing that an abandoned property may be considered to be blighted if the property is either (a) a vacant or unimproved lot or parcel on which a municipal lien for the cost of demolition of the structure located on the property is not for paid for a period of six months, (b) is a vacant or unimproved lot on which the total of municipal liens on the property for taxes and other types of municipal claims is in excess of 150% of the fair market value of the property as established by the taxing body in that municipality, or (c) the property has been declared abandoned by the owner. In addition to those definitions of blight that are described above, which existed under the prior Urban Redevelopment Law, the Act created several additional categories of blight. One such category is that blighted property also includes property which has defective or unusual conditions of title or no known owners such that title is determined to be unmarketable, while another is a property which has environmentally hazardous conditions, solid waste pollution or contamination which poses a direct and immediate threat to the health, safety and welfare of the community. A significant expansion of the definition of blight is created by the Act s provisions under Section 205(b)(12) whereby a property can be determined to be blighted if it has three or more of the following characteristics even if it does not meet any of the other standards for blight : (1) has unsafe or in the Wake of Kelo v. City of New London Page 3

4 hazardous conditions that do not meet current use, occupancy or fire codes, (2) has unsafe external and internal access ways, (3) is being served by an unsafe public street or right of way, (4) violates the applicable property maintenance code adopted by the municipality and is an immediate threat to public health and safety, (5) is vacant, or (6) is located in a redevelopment area with a density of at least 1,000 people per square mile or a redevelopment area where more than 90% of the units of property are nonresidential, or in a municipality with a density of at least 2,500 people per square mile. With respect to condemnation of multiple properties, the Act imposes a limitation not contained in the prior Urban Redevelopment Law by requiring that such condemnation is permitted only if either a majority of the parcels being acquired meets the definition of blight or properties which represent a majority of the geographical area meet at least one of the requirements of blight and at least onethird of the properties also either meet at least two of the requirements of blight or in the alternative satisfy three or more conditions for a blighted property under the test set forth in Section 205(b)(12) (discussed in the prior paragraph). It should be noted that properties which are actually owned by the condemning authority within the geographic area may be included in the calculation of whether the total amount of properties being acquired constitute a majority of the geographic area. In addition, the Act provides that a building containing multiple condominium units shall be treated as one unit of property for purposes of those exceptions. Note that the approval by the Pennsylvania Agricultural Lands Condemnation Approval Board is required prior to any government entity exercising eminent domain powers over any agricultural land. Such approval must be obtained pursuant to Pennsylvania s Agricultural Area Security Law. The Act has a significant effective date grandfather clause which provides that the Act does not apply to units of property which are identified in a Redevelopment Proposal as being blighted and which Redevelopment Proposal has been approved by a governing body of a City or County prior to the effective date of the Act. However, the Act does impose a new limitation by providing that a declaration that a property is blighted expires after 20 years; under the prior Urban Redevelopment Law, such findings of blight did not expire (see for example the case of In Re 1839 North 8th Street decided recently by the Pennsylvania Commonwealth Court whereby the City of Philadelphia initiated a taking of a property in 2003 based on a finding of blight that had been issued in 1968). The companion House Bill 2054 has the effect of rewriting the Pennsylvania Eminent Domain Code and among its many provisions modified the procedures for determining just compensation, expanded the requirements to provide relocation and other benefits to those whose properties are taken by eminent domain, and the changed the procedure and timing for appeals relating to the determination of just compensation.the revised Eminent Domain Code also now requires that the condemning authority file the Declaration of Taking within one year of that authority s action authorizing the filing of a Declaration of Taking.The condemning authority is required to provide written notice of the filing of the Declaration of Taking to the condemnee and any lienholder and mortgagee of record within 30 days after the filing of the Declaration of Taking. Preliminary Objections, which serve as the only means for the condemnee to challenge the power or right of the condemning authority to take the condemnee s property, must be filed within 30 days after the condemnee s receipt of notice of the filing of the Declaration of Taking; the failure to file such Preliminary Objections within that 30 day period, constitutes a waiver by the condemnee of its right to challenge the Declaration of Taking and the exercise of eminent domain over its property (but does in the Wake of Kelo v. City of New London Page 4

5 not constitute a waiver of the right to challenge the just compensation to be received for the property). If the condemnee s Preliminary Objections are sustained and the condemnation is terminated, then the condemning authority is required to reimburse the condemnee for the condemnee s reasonable appraisal, attorney and engineering fees and other costs incurred by the condemnee as a result of the condemnation proceedings. As seen above, the provisions of the Act will serve to limit the ability of governmental authorities to condemn land for redevelopment by private entities. However, the exceptions to the Act s prohibitions appear to allow some flexibility by government entities to allow them to proceed with many of the proposed redevelopments that are generally seen throughout Pennsylvania. In addition, the significant exception for affordable housing projects, given that just about every affordable housing project will utilize at least one, if not more, of the funding sources that are specifically identified in the Act, will serve to allow government authorities and developers to build the much-needed affordable housing in Pennsylvania. in the Wake of Kelo v. City of New London Page 5

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