A Subject Matter Summary for "Economic Hardship (Generally)"

The Historic Landmark and Historic District Protection Act of 1978 ("the Act") provides that no demolition "…permit shall be issued unless the Mayor finds that issuance of the permit is necessary in the public interest, or that failure to issue a permit will result in an unreasonable economic hardship to the owner." {1}

Section 6-1102 of the D.C. Code defines "unreasonable economic hardship" as occurring when "failure to issue a permit would amount to a taking of the owner’s property without just compensation." {2} The D.C. Council, thus, when designing the economic hardship provision of the Act, simply incorporated the federal regulatory takings standard as set forth by the Supreme Court in the landmark Penn Central {3} takings case decided earlier that same year. By closely following the standard established by the Supreme Court in Penn Central and any subsequent cases the D.C. Council has successfully avoided successful constitutional takings challenges against its demolition provision.

While the economic hardship is closely related to regulatory takings law, it functions rather differently than a regulatory taking. In an economic hardship case, the proper remedy is for the Mayor’s Agent (or the D.C. Court of Appeals, if the Mayor’s Agent decision is being appealed {4}) to issue the requested alteration or demolition permit. On the other hand, a regulatory takings challenge to an alteration or demolition permit denial must be filed as an original action in the D.C. Superior Court or in the United States District Court for the District of Columbia. The proper remedy in a takings challenge is just compensation for the property "taken" by the government. {5}

In an economic hardship case, the applicant shoulders the burden of proving that there are no reasonable alternative economic uses for the property. The mere fact that historic preservation imposes significant costs or precludes more lucrative uses does not by itself constitute an economic hardship. In 900 G Street Associates v. Department of Housing and Community Development , {6} the Mayor’s Agent denied a developer’s permit to demolish the Old Masonic Temple, an individually designated landmark, for failing to show that the denial would preclude any reasonable use of its property or return on its investment. {7} On appeal, the D.C. Court of Appeals rejected the applicant’s unreasonable economic hardship arguments, concluding: "…if there is a reasonable alternative economic use for the property after the imposition of the restriction on that property, there is no taking, and hence no unreasonable economic hardship to the owners, no matter how diminished the property may be in cash value and no matter if ‘higher’ or ‘more beneficial’ uses of the property have been proscribed." {8}

In order for the Mayor’s Agent to determine the economic effect of the preservation laws on a property, the Act requires the applicant to submit relevant information, such as attempts to sell or rent the property for other profitable adaptive uses. {9} Based on this information, the Mayor’s Agent determines whether reasonable economic use remains. In Third Street Church of God, HPA No. 12-023, the Mayor’s Agent determined that the church had not met the standard to show that an approximately $77,000 cost to stabilize several rowhouses in the Capitol Hill Historic District constituted an economic hardship. {10} The Mayor’s Agent concluded that the church could avoid the expense by selling the properties for four times what it paid for the properties and that the cost was but a fraction of its $4 million in assets or the $1.5 million the church had earmarked for its expansion plans. {11}

Many other local communities have enacted economic hardship provisions to avoid takings claims to their preservation ordinances, but the District of Columbia may be unique in providing a separate, more flexible economic hardship standard for its low-income property owners. Under this provision, "low-income owners" suffer unreasonable economic hardship if, in the opinion of the Mayor, a permit denial imposes an "onerous and excessive financial burden" upon them. {12} A person is considered low-income under the regulations if his or her household income is eighty percent (80%) or less of the median household income for the Washington Metropolitan Area. {13} This provision provides low-income individuals with a heightened level of protection for their property. However, neither the Mayor’s Agent nor a court has yet to issue a permit under this low-income provision. For a longer discussion on economic hardship, see Johnson, Jeffrey T., "Economic Hardship and Regulatory Takings in the DC Historic Landmark and Historic District Protection Act" (2004). Georgetown Law Historic Preservation Papers Series . Paper 10.

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{1} D.C. Code §6-1104.

{2} §6-1102(14).

{3} Penn Central Transp.Co. v. City of New York, 438 U.S. 104 (1978). If a property retains any value, the court engages in "essentially ad hoc, factual inquiries" that examine the economic impact of the regulation, the regulation’s interference with distinct, investment-backed expectations; and the nature of the governmental action. Id. at 124.

{4} D.C. Code § 1-1510(a) ("Any person suffering a legal wrong, or adversely affected or aggrieved, by an order or decision of the Mayor or an agency in a contested case, is entitled to a judicial review thereof in accordance with this subchapter upon filing in the District of Columbia Court of Appeals a written petition for review.")

{5} See First English Evangelical Lutheran Church of Glendale v. County of Los Angeles , 482 U.S. 304, 314-15 (1987) ("This basic understanding of the Amendment makes clear that it is designed not to limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amounting to a taking.")

{6} 900 G Street Associates, HPA No. 79-310 (December 21, 1979); 900 G Street Associates v. Dep’t. of Housing and Community Development , 430 A.2d 1387 (D.C. 1981).

{7} HPA No. 79-310 at 11.

{8} Id. at 1390.

{9} See In the Matter of House of God, Inc., HPA No. 11-488, (October 19, 2012) at 2-3 (citing D.C. Code §1104(g)(1)(A)(vi) & (vii) and 10C D.C.M.R. §402.7.

{10} In the Matter of Third Street Church of God, HPA No. 12-023 (Oct. 31, 2012).

{11} Id. at 3-4.

{12} Supra?§6-1102(14).

{13} 10 D.C.M.R. §2599.1.

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