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Phillip C. Querin
Partner - Portland, Oregon Office

philquerin@dwt.com
(503) 241-2300

Measure 37 – The Devil's in the Details
[January 2005]

Introduction

On November 2, 2004, Oregon voters passed Ballot Measure 37. On November 3, 2004 they were left to consider what it all meant. Over the next several months, the state and local governments, courts, and Oregon Legislature, will try to sort out exactly how the law will be interpreted and applied.

What follows is a discussion of what the new law says – based primarily upon the language of the Ballot Measure itself – and an initial analysis of some of the questions that will need to be addressed and sorted out over time. Given the fact that the law is so new, this analysis is preliminary only…food for thought, if you will. Above all else, Realtors® confronted with clients who have Measure 37 questions should steer clear of rendering anything that even remotely resembles an “opinion,” and instead, recommend that the client seek competent information from a lawyer, land use consultant, or other professional.

Summary and Analysis

Coverage. Measure 37 provides that if a public entity, defined to include the state, a metropolitan service district, a city, or a county (1) enacts or enforces a new land use regulation (i.e. one arising on or after the effective date, which is December 2, 2004) or (2) enforces a land use regulation enacted prior to December 2, 2004, that restricts the use of private real property or any interest therein and thereby has the effect of reducing the fair market value of the property, or any interest therein, then (a) the owner of the property shall either be paid just compensation or (b) the government shall waive or modify the regulation, or allow the owner to use the property for the use permitted at the time the owner acquired the property.

An “owner” is simply defined as “the present owner of the property, or any interest therein.” Nowhere in the text of the Act does it suggest that the benefits accrue to the owner’s successors. This could mean that if the public entity waived or modified the objectionable land use regulation for the owner who filed the claim, these concessions would not benefit the owner’s transferees.
Note that it is not enough that the objectionable regulation restricts one’s use of their property – it must also reduce the fair market value of that property.
While the Measure applies to local and state governments, it does not address those situations in which the contested regulation is a result of requirements imposed by more than one entity, e.g. farm and forest laws imposed by the state but enforced by the county. In such cases, it may be necessary to actually apply for relief from both regulatory entities.
Under Measure 37, the definition of a land use regulation includes (a) Any statute regulating the use of land or any interest therein; (b) Administrative rules and goals of the Land Conservation and Development Commission; (c) Local government comprehensive plans, zoning ordinances, land division ordinances, and transportation ordinances; (d) Metropolitan service district regional framework plans, functional plans, planning goals and objectives; and (e) Statutes and administrative rules regulating farming and forest practices. This definition of land use regulations is actually more restrictive than Oregon’s statutory definition, meaning that some regulations which historically have been regarded as land use regulations may not be covered under Measure 37.
Measure 37 applies to restrictions on “any interest” in private real property that result in a reduction of the fair market value. However, the Measure does not define what constitutes an “interest in real property.” Is an option to purchase agreement such an interest? What about leasehold estates? What if the present owner has a life estate in the property, and the remainder will automatically transfer to another party upon the death of the life tenant? Do both have a claim for compensation – or just one?

Measuring the Amount of Compensation. The amount of compensation required to be paid is measured by the loss in fair market value of the affected property resulting from the contested regulation as of the date the owner makes written demand for the compensation.

This suggests that in order to arrive at the amount of compensation, an appraiser will be expected to compare the value of the property with the regulation, to other similar properties without the regulation as of the time the claim is submitted. However, the appraisal business is not an exact science. Reasonable minds may differ, especially between the claimant’s appraiser and the government’s appraiser. There is a high likelihood that if a governmental entity agrees or is required to pay compensation, but they cannot agree on the amount, there will be a “battle of experts” over the fair market value, in much the same manner as in condemnation cases.
Some critics might question the propriety of allowing compensation to applicants using today’s comparative valuations and today’s dollars based upon the imposition of a restrictive regulation on that applicant’s ancestor’s land, particularly after it had remained in the family for generations without objection following the regulation’s enactment.

Exclusions. There are five types of land use regulations to which Measure 37 does not apply, i.e. the government is not required to pay compensation or waive or modify a land use regulation that relates to the following:

(1)	Regulations that restrict or prohibit activities “commonly and historically recognized as public nuisances” under common law. Public nuisances, as distinguished from private nuisances, are those that, because of the breadth of their impact, affect the public in general. Examples of public nuisances that are currently recognized under Oregon statutory law include places of illegal gambling, prostitution or drug activity. However, the ambiguity of other public nuisances that are “commonly and historically recognized” invites disputes. Measure 37 provides that “(t)his subsection shall be construed narrowly in favor of a finding of compensation under this act.” Because of the “narrow construction” limitation in favor of finding compensation, in order to successfully oppose an applicant’s claim for compensation under this exception, a heavy burden of proof will likely fall on the governmental entity to prove that the offending regulation is, in fact, a nuisance. If in doubt, and risk legal action and the payment of attorney fees, governments may have to compromise on close cases.
(2)	Regulations that have been enacted for the protection of public health and safety, such as fire and building codes, health and sanitation regulations, solid or hazardous waste regulations, and pollution control regulations. However, almost all zoning regulations are directly or indirectly based upon some form of public health and safety. The breadth of this exception could invite governments to deny claims that have some, albeit limited, health and safety features. It is noteworthy that this and the remaining exemptions do not contain the “narrow construction” language found in the public nuisance exemption. Does this imply that they may be more liberally construed, i.e. that the government opposing a claimant may use a broader interpretation of the exception?
(3)	Regulations required to comply with federal law, such as the Clean Water Act, the Endangered Species Act, etc. However, whether the contested regulation is actually “required” to comply, or has been adopted in furtherance of or in addition to the federal law, will also invite potential litigation should the government deny claims under this exception.
(4)	Regulations restricting or prohibiting the use of property for the purpose of selling pornography or performing nude dancing. Based upon existing Oregon case law, there is some reason to believe that this exemption may violate Oregon’s constitutional protection of free expression. Ironically, even though this exception was important to voters who supported Measure 37, the text of Act seems to have anticipated possible constitutional attack, by providing that “Nothing in this (exemption) however, is intended to affect or alter rights provided by the Oregon or United States Constitutions.”
(5)	Regulations enacted prior to the date of acquisition of the property by the owner or a family member of the owner who owned the subject property prior to acquisition or inheritance by the owner, whichever occurred first. This exception may prove to be the most problematic. An “owner” is defined to mean “the present owner of the property, or any interest therein.” A “family member” includes the owner’s “wife, husband, son, daughter, mother, father, brother, brother-in-law, sister, sister-in-law, son-in-law, daughter-in-law, mother-in-law, father-in-law, aunt, uncle, niece, nephew, stepparent, stepchild, grandparent, or grandchild, an estate of any of the foregoing family members, or a legal entity owned by any one or combination of these family members or the owner of the property.” This exception seems to say that claims may not be brought by the owner if the objectionable regulation was enacted before the owner or their family member acquired the property. By reverse implication, this exception also suggests that an owner may bring a claim so long as they or their family member acquired the property before the objectionable regulation was adopted. However, the text of Measure 37 makes no reference to whether the chain of ownership, i.e. from the family member to the present owner, must be uninterrupted. Is it sufficient if the family member once owned the property before the regulation was imposed, even though it was transferred out of the family before coming back to the present owner? Nor does this exception say whether the “legal entity owned by any one or combination of these family members or the owner of the property” must be wholly owned. What if the present owner was a corporation consisting of a family member owning 1% interest, with the remaining 99% having no family relationship whatsoever with the owner? Some commentators have questioned whether this provision, which benefits only those with a familial relationship to the original person owning the property prior to imposition of the objectionable regulation, violates Oregon’s constitutional requirement of equal privileges and immunities (i.e. the equivalent of the equal protection clause guaranteed in the federal constitution) since it benefits one class of people and not another.

Applicable Time Periods. Compensation is due if the land use regulation continues to be enforced against the property 180 days after the owner of the property makes written demand for compensation to the public entity enacting or enforcing the land use regulation. This means that from the date of application, the governmental entity will have 180 days within which to decide how to proceed. During that time they may either waive or modify the objectionable regulation, pay compensation, or do nothing. If agreement cannot be reached with the 180 days following the filing of a claim, the applicant will have the right to file suit and to recover reasonable attorney fees, expenses, costs, and other disbursements reasonably incurred to collect the compensation.

For Regulations Enacted Before December 2, 2004. Written demand for compensation must be made within two years after December 2, 2004 or the date the governmental entity applies the objectionable land use regulation as an approval criteria to an application submitted by the owner of the property, whichever is later. Thus, while there is a two year period of limitations for claims based upon pre-December 2, 2004 regulations, it will only commence on the later of December 2, 2004 or the date the regulation is sought to be imposed upon the owner.

For Regulations Enacted After December 2, 2004. Written demand for compensation must be made within two years of enactment, or the date the owner of the property submits a land use application in which the land use regulation is an approval criteria, whichever is later. Again, the two-year period of limitations “floats.”

If a claim has not been paid within two years from the date on which it accrues, the owner will be allowed to use the property as permitted at the time the owner acquired it. Thus, if the public entity agrees or is otherwise required to pay, but does not do so, the objectionable restriction will no longer be enforceable.

Procedures for Processing Claims. The governmental entity is permitted to adopt or apply procedures for the processing of claims under Measure 37, but the Act provides that “…in no event shall these procedures act as a prerequisite to the filing of a compensation claim *** nor shall the failure of an owner of property to file an application for a land use permit… serve as grounds for dismissal, abatement, or delay of a compensation claim ….”

This provision sends a mixed message: On the one hand it contemplates that governments may impose procedures, presumably including the imposition of fees to cover the cost of the process, on the other hand it suggests that applicants may be free to submit their own claim forms and avoid payment of any filing fees. This provision is likely to be tested as soon as an applicant is rejected for failure to complete the required forms and payment of the locally-imposed fees. The downside for the government, whenever an application is rejected, either for failure to file the necessary paperwork or fees, or based upon a government-claimed exclusion, is that the cost to the government if they are wrong is payment of the claimant’s fees and costs. Some commentators have suggested that it may be safer to simply impose a processing fee only upon those applicants whose claims are deemed to be invalid.
Unquestionably, substantial costs will be incurred in research by someone, the applicant or the governmental entity, or both, to establish the chain of title going back generations, and to determine when the objectionable regulation was adopted.
Currently, the procedural requirements and filing fees imposed by various governmental entities vary greatly.

Conclusion

In January, 2005 the Oregon Legislature will convene. They may make substantial – or minimal – modifications to the Act. Given the substantial plurality of voters in favor of Measure 37, it is likely that they will not attempt to completely upset the current statutory scheme, but rather opt for addressing some of the questions left unanswered by the ballot measure itself. The Act contains a “savings clause,” providing that if any portion is declared invalid by the court, the balance will remain in full force and effect. Undoubtedly, there will be some unexpected consequences to the new law. One currently looming is whether neighbors will have legal claims against a successful Measure 37 applicant whose changed use results in a reduction in their own adjoining property. Only time will tell the full impact of Measure 37.

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