Embassy Real Estate Holdings, LLC v. Mayor’s Agent for Historic Preservation

• Title: Embassy Real Estate Holdings, LLC v. Mayor’s Agent for Historic Preservation
• Citation: No. 06-AA-1083 (D.C. Mar. 20, 2008)
• Decided Date: 20-Mar-08

Summary:

The D.C. Court of Appeals (the “Court”) upheld the decision of the D.C. Mayor’s Agent for Historic Preservation to void permits that would have allowed partial demolition of the former Italian Embassy (the “Property”) and construction of a seventy-nine unit, ninety-foot tall condominium tower.

Embassy Real Estate Holdings, LLC (the “Developer” or the “Petitioner”) had purchased the Property at a time when the Property was not landmarked (nor was it located in a historic district). Pursuant to D.C. Code §§ 6-1104 – 6-1108 and 10 DCMR 209.5, if a landmark application is filed while new construction and/or alteration permit applications are pending before the D.C. Department of Consumer and Regulatory Affairs (“DCRA”), the landmark application freezes the permit requests, and the D.C. Historic Preservation Review Board (“HPRB”) has 90 days from the date the landmark application is filed to act on the landmark application.

The Developer negotiated privately with the D.C. Preservation League (“DCPL”), and the DCPL agreed not to apply for landmark status so long as the Developer preserved certain interior portions of the embassy mansion. However, the D.C. Historic Preservation Office (the “HPO”) filed a landmark application after certain “pre-construction” permits had been issued (subdivision, construction staging, sidewalk usage), but while construction permits for excavation, sheeting, shoring, alteration/renovation and new construction were still pending before DCRA. These construction permits were mistakenly issued before the HPRB voted to approve the application for landmark status. The Mayor’s Agent voided the permits and the Developer appealed.

The Petitioner alleged that the construction permit applications were not subject to review because they were filed before the landmark application, the Mayor’s Agent was arbitrary in determining that the permits were not “necessary in the public interest,” and the Mayor’s Agent erred in determining that denial of the permits did not constitute “unreasonable economic hardship.” The Court disagreed.

Jurisdiction:

The Court noted that a building which is the subject of a pending application for landmark status is immediately protected under the D.C. Historic Preservation Act, stating that “the application for landmark designation brought the property within the purview of the Act, and HPRB acted to designate the property an historic landmark within the 90 day period prescribed in the regulation, [so] the Mayor's Agent and the HPRB had jurisdiction to review petitioner's construction permits for consistency with the purposes of the Act.” The Mayor’s Agent and HPRB have jurisdiction to review a landmark application, even though construction permits were pending with DCRA at the time the landmark application was filed, because the Act defines historic landmark as a “building…and its site…for which an application [for historic landmark designation] is pending” with HPRB. D.C. Code § 6-1102(6)(B).

Estoppel:

The Court rejected the Petitioner’s argument that, because the landmark application was filed after design for the project was underway and after the Developer thought it had received a green light from the HPO staff, the doctrine of laches and estoppel should preclude denial of the construction permits. The Court stated that such doctrines are to be narrowly applied against the government and could not be applied against the Mayor’s Agent in this case because the Mayor’s Agent only had limited authority to review permit applications under the standards of the Act, not authority to review the timing of HPRB’s decision to landmark. Specifically, the Court said, “Petitioner’s argument for the application of laches is more appropriately directed against the HPRB’s designation of the property as an historic landmark, but, as noted, petitioner participated in that proceeding and did not contest the property’s historic value, nor did petitioner challenge the HPRB’s action on the basis of untimeliness by seeking judicial review in Superior Court.”

Consistent with the Purposes of the Act:

The Court deferred to the Mayor’s Agent, who had noted that the demolition of a “significant” portion of an historic property is fundamentally inconsistent with the goal of historic preservation. (In this case, the Mayor’s Agent found that at least ten percent of the Property would be demolished if the project proceeded.)

Special Merit – Social or Other Benefits Having a High Priority for Community Services:

The Developer failed to convince the Court that the project could go forward as one of special merit. Specifically, the Court found that there was substantial evidence to support the Mayor’s Agent’s finding that there would be no significant social benefit from the condominium development, quoting the Mayor’s Agent: “[P]roposed production of 79 ‘high end’ condominium housing units... to a few citizens, even though possibly providing some potential minimum general benefits to the public as a whole, [is] hardly sufficiently ‘special’ enough to warrant a ‘special merit’ status.”

Special Merit – Exemplary Architecture:

The project was also not one of “exemplary architecture;” the Court extensively quoted from HPO staff member David Maloney’s testimony, stating, e.g., that “[the] project was not characterized by an extremely high level of finish, design or detail that would make it exemplary” and that “[the] project is not of the same exceptional quality as the original landmark.”

Unreasonable Economic Hardship:

The Court stressed that the Petitioner’s sunk costs (e.g., an estimated Twelve Million Dollars in re-design, re-zoning and other fees) were not the proper basis to gauge adverse economic impact. In the absence of a lack of reasonable use, no taking had been effected. The building retained value, and a condominium project could be designed and built to satisfy HPRB’s concerns. The Court quoted the leading U.S. Supreme Court case on regulatory takings, Penn Central Transportation Co. v. New York City, 438 U.S. 104, 130 (1978): “[T]he submission that [a property owner] may establish a ‘taking’ simply by showing that [he has] been denied the ability to exploit a property interest that [he] heretofore had believed was available for development is quite simply untenable.”

Reasonable Expectations:

Because the Developer knew there would be some risk that the Property could be landmarked despite the Developer’s agreement with a preservation group to prevent the landmarking, the Developer’s “expectations [to develop the Property and avoid the preservation process] were not reasonable.” The Court declared that the Developer was still “well aware that under the Act the HPO was entitled to initiate designation proceedings, and that [the Developer’s] agreement with DCPL did not preclude the HPO from doing so.” The Court further concluded that the Developer “took a calculated (and, as it turned out, unwise,) risk and commenced the project in the face of Mr. Maloney’s expressed concerns without either returning to the HPO to obtain a firm assurance that it would not seek to designate petitioner’s property as an historic landmark or petitioner, itself, initiating the application process in order to dispel any uncertainty.”

Procedural - Standard of Review:

• Citing Reneau v. District of Columbia, 676 A.2d 913, 917 (D.C. 1996), the Court’s review of the Mayor’s Agent’s decision is “limited and narrow.”

• Citing Kalorama Heights Ltd. Partnership v. D.C. Dep’t of Consumer & Regulatory Affairs, 655 A.2d 865, 868 (D.C. 1995), the Court noted that it “must uphold the Mayor’s Agent’s decision if the findings of fact are supported by substantial evidence in the record considered as a whole and the conclusions of law flow rationally from these findings.”

• Citing Hotel Tabard Inn v. D.C. Dep’t of Consumer & Regulatory Affairs, 747 A.2d 1168, 1175 (D.C. 2000), the Court deferred to the expertise of the Mayor’s Agent (and HPRB) as to what constitutes “special merit.”

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