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Pennsylvania Supreme Court Finds Extremely Limited Access to Commercial Property Was De Facto Taking

June 16, 2008

McElwee & Son, Inc. v. Southeastern Pa. Transp. Auth.

In a recent decision, the Pennsylvania Supreme Court held that a property owner who presented "substantial undisputed evidence" of extremely limited access to his commercial property throughout a three-year period of construction, which severely curtailed productivity, led to the loss of clients and eventually caused his business to fail, suffered a de facto taking of his property. McElwee & Son, Inc. v. Southeastern Pa. Transp. Auth., 2008 Pa. LEXIS 779, *49 (Pa. June 2, 2008). According to the court, the totality of factors supported the conclusion that the Southeastern Pennsylvania Transportation Authority ("SEPTA") had substantially deprived the property owner of the beneficial use and enjoyment of his property within the meaning of Pennsylvania law, and therefore, a taking had occurred.

In McElwee & Son, Inc., a Philadelphia print shop brought a case against SEPTA asserting a de facto condemnation of its property. The case arose when SEPTA engaged in extensive construction activity to reconstruct Philadelphia's Market Street elevated commuter line, beginning in January 2000. The construction severely limited access to the print shop, resulting in a loss of trade and ultimately closure of the business.

The property owner asserted that the construction activity blocked the entrance to the print shop's driveway during business hours and that the construction delayed, and at times prevented, deliveries to and from the print shop. Unable to pick up supplies on time, the property owner had to postpone numerous printing jobs, which led to customer dissatisfaction and loss of business. Further, although the print shop derived 20 percent of its revenue from walk-in trade prior to the commencement of the construction, walk-in business became almost nonexistent once the construction began. Print shop employees made many attempts to contact the SEPTA official in charge of handling complaints, but SEPTA was generally unresponsive. Together with the construction materials, equipment and trash that littered the street during critical business hours, these problems eventually led to the demise of the print shop.

The print shop's financial statements confirmed the property owner's assertions. Despite turning a profit in 1999 before the construction began, the business suffered losses in each of the following four years while construction was ongoing. In May 2003, the property owner closed the business due to insolvency and could not afford to have the heavy printing equipment removed from the premises.

Asserting that SEPTA's construction activities substantially obstructed access to the print shop's driveway, the property owner petitioned a Philadelphia trial court for a board of viewers, a proceeding before a panel to determine if a property owner has suffered compensable injury. The trial court determined that SEPTA did not unreasonably interfere with access to the print shop, nor did it substantially deprive the property owner of the use and enjoyment of the property, and it dismissed the property owner's petition. The appellate court reversed the trial court's order and determined that SEPTA had engaged in a de facto taking of the property owner's property.

The Supreme Court of Pennsylvania recently reviewed the case and held that the property owner presented a prima facie case that SEPTA substantially deprived it of the use of its property, meaning that it had established enough evidence of a de facto taking to justify appointment of a board of viewers to determine condemnation damages. The court relied on section 502(e) of the Pennsylvania Eminent Domain Code, which provides that a de facto taking of property occurs when an entity, such as SEPTA, which has the power of eminent domain, substantially deprives an owner of the use and enjoyment of its property. The court noted that the right of access to one's property includes the right to reasonable ingress and egress.

Referring to an earlier Pennsylvania Supreme Court case which held that temporary interference with road access did not constitute a de facto taking and instead fell under the "noncompensable exercise of the police power necessary to effectuate public improvement," the court determined that the exception to that rule occurs when the alleged interference with access is unduly prolonged or accomplished in an arbitrary or unreasonable manner. According to the court, the inconvenience and damage that a property owner suffers from these temporary obstructions are incident to city life and must be endured. "The law gives landowners the right to relief in those situations, recognizing that they recoup their damage in the benefit which they share with the general public in the ultimate improvement which is being made."

On the other hand, the rule against compensation for temporary interference does not lend itself to absolute application because an obstruction that is nominally temporary may ultimately become, for all intents and purposes, the equivalent of a permanent denial of access if it is sufficiently protracted. Thus, the rule against compensation for temporary interference is moderated by the recognition that a de facto taking could arise if the public construction project was unreasonably prolonged.

The court found the record did not suggest that an alternate means of construction or staging was available to SEPTA or that McElwee's access was blocked for vindictive or otherwise arbitrary reasons. However, the court found that the obstruction of the property owner's driveway, which was its "lifeline," over a three-year period leads to the conclusion that SEPTA substantially deprived the property owner of the beneficial use and enjoyment of his property to such an extent that a de facto taking had occurred.

Owners of commercial property in Pennsylvania should be encouraged by the Supreme Court of Pennsylvania's decision in McElwee & Son, Inc. While it continues to be true that a temporary interference with road access in most cases is a noncompensable exercise of the police power, there appear to be limits to what the government can do in the interest of public health and safety without having to pay compensation to those affected. If a business operated on a property is destroyed as a result of temporary interference with property access, the interference can be considered permanent by the courts.

For Further Information

If you have any questions about this Alert or would like to learn more about eminent domain and redevelopment laws, please contact Drew K. Kapur or any of the other attorneys in our Eminent Domain and Land Valuation Practice Group.

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