The Supreme Court’s decision in Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978), remains the foundational authority on the Penn Central Takings Clause question: when does a land-use restriction amount to a compensable taking under the Fifth Amendment? The case began on 20 September 1968, when the New York City Landmarks Preservation Commission denied Penn Central Transportation Co. a certificate of no exterior effect in respect of Grand Central Terminal.
From Grand Central to the Supreme Court
Penn Central had not simply applied on a whim. The company had entered into a renewable 50-year lease of the airspace above Grand Central Terminal with UGP Properties, Inc., under which UGP agreed to construct a multistorey office building on top of the terminal. Penn Central expected the arrangement to generate millions of dollars in additional annual income.
After the initial certificate was refused, Penn Central did not abandon the project. The company submitted two separate building proposals to the Commission and applied for a certificate of appropriateness. Over four days of hearings, more than 80 witnesses testified. The Commission rejected both designs.
One of the two proposals came from architect Marcel Breuer. The Landmarks Preservation Commission’s rejection, recorded as occurring on 26 August 1969, was blunt: the Commission characterised the Breuer design as ‘nothing more than an aesthetic joke.’
Penn Central then brought proceedings, arguing that the Landmarks Law effected an unconstitutional taking of its property without just compensation. The litigation proceeded through the New York courts before reaching the Supreme Court of the United States.
Penn Central Takings Clause Analysis: The Supreme Court’s Framework
The Supreme Court ruled 6-3 in favour of New York City, affirming the decision of the New York Court of Appeals. Writing for the majority, the court held that the city had not violated the Takings Clause. Justices Harry Blackmun, William Brennan, Thurgood Marshall, Lewis Powell, Potter Stewart, and Byron White formed the majority. Justices Warren Burger, William Rehnquist, and John Paul Stevens dissented.
The majority declined to apply a single test for takings in the regulatory context. Instead, it identified a set of factors: the economic impact of the regulation on the claimant, the extent to which the regulation interfered with investment-backed expectations, and the character of the government action. The court also pointed to the Landmarks Law’s provision permitting owners of landmark sites to transfer development rights from a landmark parcel to proximate lots, treating that mechanism as a relevant part of the regulatory package available to Penn Central.
Penn Central had retained the right to use the terminal as it had always been used, and the court found that the restrictions imposed did not prevent it from obtaining a reasonable return on its investment in the property as a whole.
The decision was the first occasion on which the Supreme Court had ruled on a matter of historic preservation law, and it upheld the constitutionality of New York City’s Landmarks Preservation Act itself. The three-factor balancing framework articulated by the majority has since been applied across a wide range of regulatory takings disputes, extending well beyond the preservation context in which it originated.
Aftermath: Bankruptcy and a Terminal That Endured
The victory in the Supreme Court did not rescue Penn Central’s finances. The company subsequently filed for bankruptcy, and Grand Central Terminal has changed hands multiple times since the ruling. The terminal itself, the physical subject of the litigation, still stands on 42nd Street and continues to operate.
The ruling’s procedural journey from the Commission’s refusal in September 1968 to the Supreme Court’s judgment in 1978 spanned a decade. For practitioners advising clients on regulatory takings claims today, the Penn Central Takings Clause factors remain the starting point for any analysis outside the narrow categories of per se takings established in later decisions. Whether those factors adequately protect property owners from overreaching land-use regulation remains an open question before the courts, with petitioners periodically inviting the Supreme Court to revisit or refine the balancing approach the majority set out in 1978.
