The Constitution of Historic Districts

At a recent forum hosted by the Ann Arbor city Democratic party for candidates of the 52nd and 53rd District state House races, the topic of the state’s constitution arose in the form of an audience question. Did the candidates favor holding a convention to rework the state’s document of basic law?

The state’s constitution also came up in a recent letter conveyed to the city of Ann Arbor by an attorney for Alex de Parry, the developer of a proposed project called Heritage Row along Fifth Avenue south of William Street. The project was voted down at the Ann Arbor city council’s June 21 meeting on a 7-4 vote in favor, thus failing to meet the eight-vote majority required. [Chronicle coverage of that meeting is forthcoming.]

The main focus of the letter, sent to the city by de Parry’s legal counsel the same day as the council met to vote on Heritage Row, is not that project per se, but rather the historic district that the council may decide to establish at its next meeting on July 6. The recommended historic district, which includes the parcels that were to be used to build Heritage Row, received its initial consideration by the council at their June 21 meeting.

While its more customary for councilmembers to vote for a proposal at its first reading, even if they’re against it, three councilmembers at the June 21 meeting chose to oppose the establishment of the district already at its first reading. Tony Derezinski (Ward 2), Stephen Rapundalo (Ward 2) and Marcia Higgins (Ward 2 Ward 4) all voted against the historic district.

None of the three cited the specific issues raised in the letter from de Parry’s legal counsel as reasons for voting against the district – Derezinski had voted at the council’s Aug. 6, 2009 meeting against establishing a committee to study the question. And Rapundalo had supported a postponement of that vote.

But for the final vote on July 6, the points raised in the letter from de Parry’s legal counsel may well factor explicitly into the council’s deliberations. The legal reasoning in the letter leads to the conclusion that the way local historic districts are set up in Michigan potentially violates the state’s constitution. And if the reasoning in the letter stands legal scrutiny, it could change the way any future historic districts in the state of Michigan are established.

The Letter’s Main Points

The letter, written by Peter Webster, an attorney with Dickinson Wright PLLC, includes four basic points concerning the proposed historic district. The first two are general in nature, and relate to any historic district. The second two concern specific issues related to the proposed district in Ann Arbor along Fourth and Fifth avenues south of William Street.

1. Establishment of a historic district results in an unconstitutional “taking.”
2. The city council does not have the authority to adopt a historic district because a majority of the property owners within the proposed historic district have not signed a written petition in support of the district.
3. The study report submitted by the study committee does not justify the establishment of a historic district.
4. The study committee had a member with a conflict of interest.

We consider the letter’s points in reverse order.

Letter: Contention of Conflict of Interest

On Dec. 15, 2008, the city council considered but rejected establishing a committee to study an area south of William Street, continuing south of Packard Street to Madison Street to determine whether it would be appropriate to establish a historic district there.  Then at its Aug. 6, 2009 meeting, the council established a study committee for a smaller area along Fourth and Fifth avenues south of William Street and north of Packard Street. [Previous Chronicle coverage: "S. Fifth Avenue: Historic District, Development"]

The establishment of the study committee came when a “matter of right” version of a previously rejected development by Alex de Parry, called City Place, was moving through the city’s approval process. On the night of Aug. 6, 2009, the deliberations by councilmembers included references to the establishment of the study committee – and an associated moratorium on construction in the area – as a “tool in the tool box” and an option in the city council’s “arsenal.”

The council subsequently appointed members to the study committee: Ina Hanel-Gerdenich, Susan Wineberg, Sarah Shotwell Wallace, Patrick McCauley, Rebecca Lopez Kriss, Tom Whitaker and Kristi Gilbert.

Webster’s letter contends that Tom Whitaker’s membership on the historic district study committee posed a possible conflict of interest. From the letter [Fifth Avenue Limited Partnership is de Parry's development company]:

Mr. Whitaker wanted to buy the property owned by Fifth Avenue Limited Partnership for a cheap price. To that end, he created a limited liability company called Limited Resources, LLC on January 16, 2009. On January 17, 2009, he entered into a confidentiality and non-disclosure agreement with Fifth Avenue Limited Partnership, and on January 30, 2009 provided a non-binding letter of intent as to basic terms for the purchase of the property under land contract.

Mr. Whitaker established a deadline for Fifth Avenue Limited Partnership to accept his offers after which he communicated that he would withdraw his offers and put his focus fully on the efforts of the Germantown Neighborhood Association which is to prevent the development of the property. After Fifth Avenue Limited Partnership rejected Mr. Whitaker’s offers and submitted redevelopment plans, Mr. Whitaker continued his efforts to advocate a moratorium against any redevelopment of the site, the establishment of a historic district, and sought to be appointed to the Historic District Study Committee which would have the practical effect of destroying Mr. DeParry’s redevelopment plans and reduce its market value. Perhaps it was, and still remains, Mr. Whitaker’s desire to buy the property at a depressed value after the establishment of a historic district.

In a telephone interview with The Chronicle, Whitaker declined to discuss details, citing the confidentiality and non-disclosure agreement he’d signed. He did confirm the formation of Limited Resources, LLC, but noted that the entity was not formed solely to explore the possible purchase of properties owned by de Parry. For example, Whitaker had used Limited Resources to purchase the house next door to his own house, he said.

Whitaker also characterized the negotiations as cordial, but said they did not ultimately converge to agreement with respect to a mechanism for the financial transaction or the dollar amounts involved. Responding to the characterization in the letter of his desire to purchase the properties at “a cheap price,” Whitaker said his was not a “low-ball” offer. Whitaker also noted his personal belief was that historic districts stabilize or increase the value of property, as opposed to lowering its value – which, Whitaker said, would be counter to the goal that Webster’s letter contends Whitaker had.

Letter: Justification in the Study Committee Report

Webster’s June 21 letter also contends that the study committee’s final report does not justify the establishment of the district. Without a great deal of elaboration about the specifics that are included in the report, the June 21 letter ticks through various requirements, concluding for each that they are not met.

• The preliminary report must address at a minimum the historic district or districts studied [MCL 399.203(1)(d)].
• The study committee must inventory all resources in the proposed district and express the percentage of historic to non-historic as required by the Local Historic Districts Act [MCL 399.201 - 399.215].
• The study committee was required to [d]etermine the total number of historic and nonhistoric resources within a proposed historic district and the percentage of historic resources of that total [MCL 399.203(1)(c)].

A previous letter sent by Webster on May 5, 2010 lays out in more detail some of the issues surrounding the identification and enumeration of all the resources in the district.  For example, the preliminary report created by the committee included the following description of previous studies of the area:

Portions of the district were surveyed as part of larger surveys by the city of Ann Arbor in 1973, 1975, 1976, 1978, 1982, 1988 and 1990. Copies of the survey forms and photographs are located at the City of Ann Arbor in the offices of the Community Services Area, Planning and Development Services Unit.

The May 5 letter from Webster criticizes that section of the preliminary report as follows:

The Report acknowledges that portions of the study area were part of other “surveys” in the following years 1973, 1975, 1976, 1978, 1982, 1988, and in 1990. In fact, the entire City of Ann Arbor had been exhaustively studied over the years to determine historic resources and proposed historic districts. Beyond the literal one sentence about these prior studies, nothing was addressed, and consequently, the Report fails to meet the legal requirements in this regard.

And in the final report approved by the committee, the section on previous surveys is expanded, essentially to explain why those previous surveys did not factor more prominently in the report [new material in italics]:

Portions of the proposed district were surveyed as part of larger formal and informal “windshield” surveys by the city of Ann Arbor in 1973, 1975, 1976, 1978, 1982, 1988 and 1990. These surveys consist only of a photo inventory and covered many different areas of the city. The inventories do not have associated survey reports and do not make evaluations or conclusions about potential historic properties or districts. The surveys do not contain any historic research and were of little value to the Committee’s work. Copies of all the survey data are located at the City of Ann Arbor in the offices of the Community Services Area, Planning and Development Services Unit.

In another example, the preliminary study committee report describes fencing in the recommended district:

Seven properties have mature (possibly lilac) bushes in the front and/or side or rear yards. The historic fencing in the district consists of a wrought iron fence shared by two properties and one example of a wood frame fence with a middle section of metal chicken wire. The latter is unique in that it includes one section topped with old wrought iron cresting. Both fences have associated gates.

Webster’s May 5 letter critiques that section, which was not modified in the final report, as follows:

… the Report must define essential features that must be present for the property to be considered historic. There is no explanation of why claimed features are historic. For example, there is no explanation of why a chicken wire fence is significant to German immigrants. Was chicken wire (apparently a historic feature), a symbol or especially important to such residents? Or was it run of the mill that is just old.

The central point from Webster’s June 21 letter about the justification of the district is a critique of three themes identified in the report as helping to justify the establishment of the district:

The Fourth and Fifth Avenue district is located at the intersection of three key elements of Ann Arbor’s settlement history: early settlement, German ethnic settlement, and settlement associated with the University of Michigan.

In the June 21 letter, Webster writes:

Recognition of historic significance does not justify the concocted “period of significance” and use of three different and separate “themes” to justify inclusion of virtually every single building in the area as being historic. Under this rationale, which knows no bounds, the City of Ann Arbor could claim the “theme” is the “history of development in Ann Arbor” with a “period of significance” from its inception to present and claim the entire City as a historic district.

Webster’s May 5 letter also contends that there is no principled basis for the proposed boundary of the district. That is a point of possible agreement among residents living south of Packard along Fourth and Fifth avenues, and whose property is not recommended for inclusion in the district.

At the city council’s June 21 meeting, several residents addressed the council, objecting to  the recommended southern boundary at Packard Street, arguing that the proposed district should extend southward to Madison. An argument for a larger district is based partly on residents’ contention that the block of Fifth Avenue south of Packard is actually the center of the historic resources in the area – it’s the only completely intact streetscape in the neighborhood. It’s also based on the historical significance of specific people who lived in the houses.

Letter: Is a Supporting Petition Required?

While two of the four points raised in Webster’s June 21 letter are specific to the establishment of a historic district on Fourth and Fifth avenues, the other two also bear in a general way on the interpretation of Michigan statutes.

One of those points is a single sentence of the Local Historic Districts Act concerning time frames and petitions [MCL 399.203(3)(b)]:

A local unit shall not pass an ordinance establishing a contiguous historic district less than 60 days after a majority of the property owners within the proposed historic district, as listed on the tax rolls of the local unit, have approved the establishment of the historic district pursuant to a written petition.

Webster’s letter contends that this sentence requires a petition to be signed by a majority of the property owners within a proposed district in order for a local government to establish an historic district. That’s counter to a state attorney general opinion on the question, which Webster acknowledges in his letter, but argues against, citing the legislative intent of the language.

The attorney general’s opinion from 1997, written by then-attorney general Frank Kelley, gives deference to the interpretation provided by  The Michigan Historical Center, which is the state agency charged with administering the Local Historic Districts Act. The attorney general’s opinion cites the center’s interpretation as summarized in Michigan Historic Preservation Network’s publication, “A Guide to Michigan’s Local Historic Districts Act”:

The last sentence of 3(3), included in P.A. 96 by amendment, must be carefully read. It provides that if a petition of support, signed by more than 50% of the property owners in a proposed contiguous historic district, is presented to the local legislative body, then the local legislative body must wait sixty days before adopting an ordinance of designation for that district. Note that no petition is required; note also that the section does not address the issue of petitions in opposition, which do not trigger the waiting period. If a support petition is presented, the sixty day wait must be observed. After that time, the local legislative body is free to adopt, reject, or otherwise handle the proposed ordinance as if there had been no petition.

Webster’s letter, on the other hand, contends that the legislative intent of the language was to protect property rights, and was intended to preclude the enactment of an ordinance until 60 days after a majority petition has approved of the establishment of the historic district.

Webster’s letter also alludes to the petition requirement arising from a “plain reading” of the statute. The Chronicle sought to compare the language in the Local Historic Districts Act to grammatically similar language in other contexts, and identified the following parallel construction in a regulation on human resources policies in Latvia:

The dismissal process cannot be commenced less than 60 days after the employer has submitted a formal notification to the State Employment Service and the appropriate municipality.

Here, on a plain reading interpretation, it seems apparent enough that a dismissal process requires the submission of a formal notification to the State Employment Service.

Not discussed in Webster’s letter, but also relevant to the interpretation of the Local Historic Districts Act, is a basic tenet of statutory interpretation that a legislative body did not intend an absurd result with its legislative language.

The result of the attorney general’s opinion is that someone who is interested in supporting the establishment of an historic district – and who demonstrates that support by circulating a petition that succeeds in garnering a majority of resident signatures – succeeds in only in delaying the establishment of the district upon submission of that supporting petition. A reasonable contention, then, is that this is an absurd result, and therefore could not have been the intent of the legislators.

The point of Webster’s letter with respect to the historic district currently being weighed by the Ann Arbor city council is that no supporting petition has been submitted.

At least some councilmembers might apply the requirement of majority support before voting for the district – independently of whether that support is shown through a written petition. For example, in a 2006 interview with Stephen Kunselman (Ward 3), he stated:

My very first comment regarding historic districts is I don’t think that it’s the government’s role to impose something of that nature, unless the majority of the people in the neighborhood want it.

Letter: The Constitutional Argument

Of the four points made in Webster’s letter, the one with potential for broadest impact is the contention that Michigan’s statutes have a combined effect that a formation of a local historic district results in an unconstitutional de facto taking of property.

Regulatory Taking

It’s worth first considering a different kind of infringement of property rights, which Webster does not focus on in his letter – but also explicitly reserves the right to claim. From Webster’s letter [emphasis added]:

Without waiving or discussing traditional arguments that the City’s exercise of the police power to establish a historic district is an unconstitutional regulatory taking, I wanted to identify that under Michigan statutes, the establishment of a historic district is not merely a regulatory taking, but a de facto taking and a conveyance of a real property interest without due process or just compensation and violates the Michigan Constitution.

While Webster’s letter does not discuss regulatory taking, it’s still worth understanding what it is, in order to understand how it contrasts with a de facto taking.

It’s generally accepted that certain regulations on how land is used contribute to the public good, even though those regulations impinge to some extent on the rights of property owners to use that property in any way they see fit. Zoning is an example of a broad category of land use regulation that is generally accepted to contribute to the public good. For example, it prevents people from setting up iron ore mining and smelting operations in their residentially zoned Ann Arbor backyards.

While it might not be possible to reap whatever economic benefit might come from trying to mine and smelt iron ore in a typical Ann Arbor backyard, it’s still possible to use a residentially zoned parcel for something reasonable – living there.

It’s possible to conceive of a hypothetical situation, though, where zoning regulations might result in a situation where it’s not possible to use a piece of land for anything reasonable. By way of a simplistic example, suppose a 100-foot square parcel is subject to zoning that requires a 40-foot setback on every side, which results in a buildable area of 400 square feet in the center of the parcel.

Suppose further the zoning regulations are imposed that require a minimum 500 square foot building footprint. In that situation, the zoning regulations interact to result in an unbuildable lot. The owner of such a lot might reasonably claim that this amounts to an unfair regulatory taking and argue that the imposition of such zoning requires just compensation.

Requirements of historic districts regulate what property owners within a district can do with their property. So it’s conceivable that this regulation might be seen as an unfair burden on property owners and that a situation might arise where a property owner contends that the regulations of a historic district amount to a regulatory taking.

However, in the 1978 case Penn Central Transportation Co. v. New York City, the U.S. Supreme Court ruled against Penn Central’s contention that the city’s Landmarks Law, which prevented Penn Central from constructing a multi-story office building above Grand Central Station, was a regulatory taking. The court thus denied Penn Central’s claim that it was entitled to just compensation, saying that Penn Central was still able to use the property in essentially the same manner it had up to that point.

While not waiving a possible claim for regulatory taking, Webster’s letter focuses on a different kind of taking: de facto.

De Facto Taking, Easements

The de facto taking of a property involves a governmental action that appropriates private property for public use. When the government exercises its power of eminent domain to transfer private property to public ownership, for example, then it must provide just compensation to the owner of the property. In Michigan, eminent domain is covered in the Uniform Condemnation Procedures Act.

Webster’s argument is that the enactment of a local historic district involves the transfer of private property to public ownership – not all of it, but just part. The idea that rights to parts of real estate can be assigned to various parties is consistent with the commonly-used analogy of a bundle of sticks to characterize property rights. Any one stick can be separated from the bundle and treated separately.

One familiar way that a single stick can be separated out from the bundle is through an easement. For example, if one parcel is located behind another, the owner of the front property might sell an easement to the owner of the rear property so that the rear property can be easily accessed by its owner.

Easements are not just about access to property. They include the notion of restricting use of property. For example, in The Chronicle’s coverage of the city’s greenbelt advisory commission (GAC), one of the frequently encountered concepts is that of a “conservation easement.” A conservation easement on a property can require, for example, that the property not be developed. Easements are sticks in the bundle of property rights associated with land – sticks that can be bought and sold.

So why does Webster think that a local historic district amounts to an easement on the properties within a district? It’s not a matter of interpretation, but rather what Webster calls in his letter “the operation of law.”

Local Historic Districts as Easements

When a local historic district is enacted, the operation of law applying to the district includes the language of the Natural Resources and Environmental Protection Act [emphasis added]:

“Historic preservation easement” means an interest in land that provides a limitation on the use of a structure or site that is listed as a national historic landmark under chapter 593, 49 Stat. 593, 16 U.S.C. 461 to 467, [...] or is recognized under a locally established historic district created pursuant to the local historic districts act, Act No. 169 of the Public Acts of 1970, being sections 399.201 to 399.215 of the Michigan Compiled Laws,

And the effect of a local historic district that creates an easement is, as Webster’s letter points out, reflected in the Michigan Historical Commission Act 271 of 1913. The act requires that the local government record the historic district ordinance with the Register of Deeds – the office that maintains records of easements on properties.

Webster continues, pointing out that the Natural Resources and Environmental Protection Act also states [emphasis added]:

A historic preservation easement is an interest in real estate, and a document creating 1 of those easements shall be considered a conveyance of real estate and shall be recorded in accord with Act No. 103 of the Public Acts of 1937, being sections 565.201 to 565.203 of the Michigan Compiled Laws, in relation to the execution and recording of instruments.

In his letter, Webster then points that “Michigan statutes require such interests in land be acquired in the same manner as a governmental unit acquires an interest in land (i.e. conveyance or condemnation under the Uniform Condemnation Procedures Act (UCPA) MCL 213.51 et seq.).”

Webster concludes that the enactment of a local historic district in Michigan requires a local government to purchase the easement through voluntary agreement of the property owner, or else to provide the due process of condemnation stipulated in the UCPA.

Failure to purchase the easement through voluntary agreement or through condemnation would, Webster writes, amount to a violation of Michigan’s constitution.  The constitution of the state of Michigan reads in relevant part:

ARTICLE X PROPERTY

§ 2 Eminent domain; compensation.

Sec. 2. Private property shall not be taken for public use without just compensation therefore being first made or secured in a manner prescribed by law. If private property consisting of an individual’s principal residence is taken for public use, the amount of compensation made and determined for that taking shall be not less than 125% of that property’s fair market value, in addition to any other reimbursement allowed by law. Compensation shall be determined in proceedings in a court of record.

“Public use” does not include the taking of private property for transfer to a private entity for the purpose of economic development or enhancement of tax revenues. Private property otherwise may be taken for reasons of public use as that term is understood on the effective date of the amendment to this constitution that added this paragraph.

Implications for Historic Districts: Generally, Specifically

There is nothing peculiar to the recommended Ann Arbor Fourth/Fifth Avenue historic district in this constitutional argument. If the argument were to be used successfully to contest the establishment of that historic district, it would mean that any local historic district enacted under Michigan’s statutes would need to provide for compensation to property owners in the district.

If the city council does not establish the historic district at its July 6 meeting or some subsequent meeting before the construction moratorium ends on Aug. 6, then there are various possibilities for the future of South Fifth Street.

One possibility is that the “matter of right” City Place project could be built, which would demolish the seven houses. Another possibility is that a councilmember who voted against the Heritage Row project on June 21 could bring a motion to reconsider it at the council’s July 6 meeting and the Heritage Row project could be approved. Those voting against Heritage Row were Sabra Briere (Ward 1), Stephen Kunselman (Ward 3), Carsten Hohnke (Ward 5) and Mike Anglin (Ward 5).