The Texas Supreme Court has cleared the way for a property owner to pursue a regulatory takings claim against the City of Houston for blocking a residential development on Lake Houston.
The Commons of Lake Houston, Ltd. v. City of Houston, Texas (No. 23-0474; March 21, 2025) arose from changes to Houston city ordinances in the aftermath of Hurricane Harvey in 2017. The following year, the city amended its ordinances to require that foundation slabs be constructed at an election of at least two feet above the 500-year floodplain. The Commons, a 3,300-acre residential community near Lake Houston that commenced development in 1993, includes a 300-acre called The Crossing. This section contains the development’s most valuable lakefront and lake view lots, but they sit in the 100- and 500-year floodplains. When homes were built in The Crossing, city ordinance required the foundation slabs to be one-foot above the 100-year flood plain. Houston’s amended ordinance doubling the slab elevation had a dramatic effect on The Crossing, raising slab elevations by an average of 5.5 feet and rendering 557 or 669 lots undevelopable. Consequently, The Commons alleged that it canceled development and sales contracts at a cost of $4.4 million in revenue and $18 million in bond reimbursements. It sued the city on the basis that the ordinance caused a regulatory taking requiring reasonable compensation. The city filed a plea to the jurisdiction, asserting that because it had not yet denied a permit and The Commons had not tried to get a variance, the claim was unripe. The city further asserted government immunity. The trial court denied the city’s plea to the jurisdiction. The court of appeals reversed, holding that the ordinance was a valid exercise of its police power. SCOTX granted review.
In an opinion by Justice Boyd, SCOTX reversed and remanded to the trial court for further proceedings. First, the court determined that The Commons asserted a valid takings claim, which waived the city’s immunity. To win an inverse condemnation case, a property owner “must plead and prove that (1) the government engaged in affirmative conduct (2) that proximately caused (3) the taking, damaging, destroying, or applying (4) of specific private property (5) for a public use (6) without paying the owner adequate compensation (7) and did so intentionally or with knowledge that the result was substantially certain to occur.” The parties disputed only one element of the test: that the amended ordinance caused a taking, damaging, destroying, or applying The Commons’s property. Justice Boyd reviewed a line of SCOTX authority that recognizes a regulatory taking when “a law or ordinance (1) requires an owner to suffer a permanent physical loss (sometimes called a Loretto taking), (2) completely deprives an owner of all economically beneficial use of its property (sometimes called a Lucas taking), or (3) unreasonably interferes with the owner’s right to use and enjoy its property (often called a Penn taking’” (citations omitted). Justice Boyd added that a Penn taking requires the Court “to engage in an ‘ad hoc’ and ‘situation-specific’ factual inquiry” with several factors.
Here The Commons argued both a Lucas and a Penn raking. The Court declined to conduct a Penn analysis at this stage because no one asked it to. Instead, the City focused on its police power assertion to deny that The Commons had a valid takings claim to begin with. The Court rejected this argument. First, while government certainly has authority to interfere at some level with private property rights, such as to enforce zoning laws or abate a public nuisance, that power is far from absolute. Be that as it may, however, “whether a regulation constitutes a valid exercise of the police power—or promotes any other important public policy, purpose, or interest—is simply irrelevant to whether the regulation causes a compensable taking. … Simply put, any attempt to create a dichotomy between takings and police-power regulations ‘has not proved helpful in determining when private citizens affected by governmental actions must be compensated’” (citations omitted).
The question became whether the city’s ordinance caused “an unreasonable interference,” as Penn put it. As Justice Boyd reiterated, the Court has held that “a regulation can cause a compensable Texas taking even if it results from a valid exercise of the government’s police power” (the court of appeals had strayed somewhat from this principle). Rejecting the city’s reliance on a U.S. Fifth Circuit decision, in which that court dismissed Louisiana property owners’ class action challenging a FEMA program making federally subsidized insurance available if a local government elected to join the program, the Court observed that the Fifth Circuit held that the parish’s voluntary election to join the program did not on its face constitute a federal government taking. By contrast, in the present case The Commons mounted an “as applied” challenge to the ordinance. “Whether it can prevail on that claim,” Justice Boyd wrote, “depends on whether it can support its allegation that the ordinance deprives it of all economic benefit under Lucas or unreasonably interferes with its use and enjoyment of the property (or causes ‘damage’) under Penn Central …” That question remains to be answered in this case.
Turning to the City’s ripeness argument, the Court observed that “the property owner generally must submit at least one application for the permitted use and seek a variance if the application is denied.” Nevertheless, that standard does not require a property owner to make “futile variance requests of re-applications” if the government “has made it clear that the owner cannot obtain approval for its desired use, that its request for a permit has been ‘definitively rejected,’ or that any subsequent request would ‘make no difference’” (citations omitted). The court of appeals agreed with the city because The Commons sued before the ordinance went into effect and because it had not sought a variance. Not so, ruled the Court. The Commons did submit a request for approval of slab elevations at the original level, but the city never responded to the request. Instead, it told The Commons that it didn’t have a process for permitting a flood plain development. When The Commons tried to apply for one anyway, the city rejected it. It continued trying to engage the City after that but to no avail. In late 2020, The Commons submitted a development plan significantly shrinking the number of acres and lots and swearing off the most valuable lakefront property. The city approved that plan but didn’t act on any permit application for the proposed structures. To get the city’s attention, The Commons had to file a second lawsuit. The city responsed by asserting that The Commons, “as a developer, ‘has no right to obtain the permit.’ Tellingly,” the Court stated, “the City argues in this Court that The Commons’s regulatory-takings claim ‘is not ripe on any questions presented and cannot ever ripen.’”
The Court clearly didn’t like this position one bit. It took the city to task for creating “a paper trial down which it dragged The Commons for months, if not years, with no suggestion of compromise or a final determination.” Thwarted in its ripeness argument, the city tried one more tactic by arguing for the first time in SCOTX that The Commons lacked standing to sue. The Court rejected this approach as well, holding that The Commons “indisputably possess[ed] a vested interest in the property at issue.” The Court then held that The Common’s taking claim was redressable “because, if the amended ordinance has caused a compensable taking, damages awarded requiring such compensation ‘will remedy the alleged injury’” (citations omitted).
This is a terrific opinion for property owners who are given the runaround in local permitting processes. The unfortunate side of the matter is that a property owner who has tried for years to come to some accommodation with the city has to bring a lawsuit that takes years to resolve, during which its valuable asset sits wasting. There has to be a better way, and perhaps this case will get cities’ attention and influence them to be a little more reasonable, efficient, and responsive. That and the Legislature’s actions this session to rein in overreaching zoning limitations on residential and multi-use development. If cities get their wings clipped—and it looks they will—they have only themselves to blame.
