May 21st, 2025 — By — In Articles
Texas Supreme Court holds that even a valid exercise of police power can result in a compensable taking
Charles B. McFarland. Attorney & Principal, McFarland PLLC, Houston, Texas
In an appellate victory for Charles McFarland of McFarland PLLC, Owners Counsel’s Texas member, a unanimous Texas Supreme Court issued its opinion March 21st, 2025, in The Commons of Lake Houston, Ltd. v. City of Houston, a case centered around regulatory takings law.
The Commons is the developer of a 3,300-acre master-planned residential community located on Lake Houston. Following Hurricane Harvey in 2017, the City amended its floodplain ordinance to increase the area of the regulated floodplain and raise the minimum slab elevation for new homes constructed within the regulated floodplain. The Commons sued the City for a regulatory taking, alleging that the amended ordinance substantially damaged the market value of its development. The City argued that the amendment was a valid exercise of its police power, defeating liability, that The Commons’ claims were not ripe because the City had not made a final decision on the extent of development that would be permitted under the amended ordinance, and that The Commons, as a land developer and not the home builder, lacked standing to complain about the minimum slab elevations that would be applied to homes it would not be building.
The trial court overruled the City’s plea, and the City appealed. The intermediate court of appeals reversed, holding that The Commons’ claims were barred by governmental immunity because the amended floodplain ordinance was a valid exercise of the City’s police power and therefore could not constitute a taking. Mr. McFarland believed that the appellate Court had erred, explaining the impact of the City’s action on his client as follows: “The City’s amended floodplain ordinance expanded the regulated area by thousands of acres without any provision for compensation to impacted landowners. The Commons was 25 years into a 3300-acre, master planned development when the ordinance took effect. The discrepancy in slab elevations for new homes required by the new ordinance was more than five feet in some instances. A developer simply can’t adjust to that kind of change once key infrastructure is in place. It was a devastating impact, and fortunately the Texas Constitution recognizes a right to compensation when property is damaged to this extent, even if it isn’t “taken.”
The Texas Supreme Court agreed, holding in its decision that a regulation can cause a compensable taking in Texas even if it results from a valid exercise of the government’s police power. The Court further rejected the City’s argument that a claim is not ripe in the absence of the final decision where the municipality had imposed repetitive and unfair land-use procedures in order to avoid a final decision. Finally, the Court recognized that a land developer has standing to challenge a regulation impacting what can be built on property even if it will not be the ultimate builder of the improvements. The case was remanded to the trial court for further proceedings.
This is a significant victory, as government entities frequently claim that their actions are not compensable because the actions are taken under the “police powers” doctrine (for health and safety) and not via the power of eminent domain (which would require compensation to be paid). Many government entities also try to prevent landowners from having their day in court by continually moving the regulatory finish line in order to prevent a claim from ever being “final” and thus ripe for adjudication. No doubt every member of Owners Counsel of America has faced these arguments in their own states as they have represented the rights of property owners across the country. Hopefully the Texas Court’s reasoning can help courts in other states navigate this issue as well. Congratulations to Mr. McFarland for fighting this battle, and best wishes as the case makes its way through the lower courts to address the amount of compensation owed!
