To what extent can the government restrict the ability of property owners with lakefront and riverfront property from developing their land before those restrictions go “too far”? A recent U.S. Supreme Court ruling may change the threshold. In a decision that may have substantial impacts on property rights throughout the state and the region, the U.S. Supreme Court recently ruled 5-3 in a decision that sided with governmental regulators and environmentalists.

In Murr v. Wisconsin, four siblings challenged a state law that prohibited the development of two adjacent lots on the St. Croix River, the border between Minnesota and Wisconsin. The lots were acquired separately by the siblings’ parents in the 1960’s and conveyed to the siblings in 1994 and 1995. The siblings sought to sell one parcel to fund the improvement of the other parcel but were precluded from doing so under a state law requiring the “merger” of two adjacent commonly owned parcels if the parcels consisted of less than one acre of developable land.

The St. Croix River is a designated Wild and Scenic River under the Wild and Scenic Rivers Act of 1972 (the “Act”). The Act required the state to develop a management and development program for land along the river in order to preserve the nature of the river corridor. The merger provision at issue in the case is similar to widely-used provisions that affect many of the waterfront properties in Minnesota and Wisconsin. By requiring adjacent substandard lots to merge into one, the siblings argued that the merger constituted a regulatory taking under the Fifth Amendment of the U.S. Constitution, which prohibits the taking of private property for public use without just compensation.

The court considered the “ultimate determination” as to whether a regulatory determination has occurred: “What is the proper unit of property against which to assess the effect of the challenged governmental action?” Because a regulatory taking is determined by comparing the value taken from the property with the value that remains in the property, defining the “property” is the most critical consideration.

The court’s opinion described a new three-factor test for making the ultimate determination of the property to be considered: 1) the treatment of the land under state and local law; 2) the physical characteristics of the land; and 3) the prospective value of the regulated land. The third factor, the court stated, should give special attention to the effect of burdened land on the value of other holdings.

In applying these factors, the court ultimately held that the two parcels should be treated as a single property for the regulatory takings analysis. The court’s decision was based on: the fact that the merger provision had long applied to the property; the physical conditions of the property; and the fact that the lots were more valuable as a single parcel.

This ruling may have significant implications for properties on the combined 30,000 plus lakes and rivers in Minnesota and Wisconsin. As both states and most communities have merger provisions for shoreland lots, this case will likely form the basis for broader efforts to limit the development along protected bodies of water. Environmental groups will likely see the establishment of a new rule as an opportunity to push for broader land use protections in shoreland areas, with the rule giving expanded cover to local governments to expand regulation.