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Inverse condemnation is based on the legal theory that the government has taken private property for a public purpose without fulfilling its fundamental constitutional obligation of paying just compensation as required by the fifth amendment to the Constitution. The plain language of the fifth amendment requires the payment of compensation whenever the government acquires private property for a public purpose, whether the acquisition is a result of a condemnation proceeding, physical appropriation, or a regulation depriving the owner of its substantial investment-backed expectations.
There are generally three classifications of inverse condemnation. First is a "per se" taking which occurs when a government, through the adoption or application of a regulation, deprives an owner of all economically beneficial uses of his/her land. A regulatory case wherein the government's action results in a denial of all economically viable use of the property is considered a "per se" taking, and the only question thereafter to be decided is the amount of compensation to which the property owner is entitled. Another "per se" taking occurs if the government encroaches or invades private property rights, such as placing a public improvement on private property. In the event this should occur, the only issue to be determined by the Court is the amount of compensation that is due to the property owner.
The second class of inverse condemnation relates to exaction cases when the government seeks to require a property owner to grant a property right, such as an easement or right-of-way in exchange for a governmental permit or approval. In these exactions cases, a taking exists if the Court finds that there is a lack of essential nexus or rough proportionality between the government's actions and its stated objectives (i.e., is there a nexus or connection between the effect of the regulation the governmental and the interest sought to be achieved, and if such nexus does exist, the government is required to demonstrate a rough proportionality between the government's alleged interest and the permit conditions sought to be imposed. Under the law, there is no precise mathematical calculation that is required. However, the government must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.
The final classification of inverse condemnation involves a government regulation that imposes such a severe restriction on the property owner's use of his/her property that produces nearly the same result as direct taking by government. In this situation, a regulation will constitute a taking when either: 1) it does not substantially advance a legitimate government interest; or 2) it denies a property owner economically viable use of his/her land.
When the government physically takes possession of an interest in property for some public purpose, it has a categorical duty to compensate the former owner, regardless of whether the interest that is taken constitutes an entire parcel or merely a part of the parcel. A regulatory taking may occur on either a temporary or a permanent bases. The determination of whether a regulation has effected a temporary taking requires careful examination and weighing of all the relevant circumstances. In the landmark case of Pennsylvania Cole Company v. Mahon, 260 U.S. 393 (1922), Justice Holmes gave birth to the U.S. Supreme Court's regulatory takings jurisprudence. In this case, Justice Holmes observed that if "regulation goes too far, it will be recognized as a taking." In the decades following Justice Holmes' decision, the Courts have not adopted any specific formula for determining how far is too far, however, they have engaged in essentially an ad hoc factual inquiry relating to each individual case. In these cases, the primary test that the Court applies is whether the government has caused interference with the investment-backed expectation of the property owner. Once a Court has determined that a police power regulation has effected a taking, the governmental entity must pay just compensation for the period commencing on the date the regulation first effected the taking, and ending on the date the government entity chooses to rescind or otherwise amend the regulation.
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