Bill tipping scales toward Tennessee property owners carries unknown cost to local governments

Property owners would be entitled to a check from the local government if new land use regulations decrease their property value, according to a bill moving through Tennessee’s legislature.

The bill’s supporters say it protects private property rights from overzealous regulation. 

Its opponents say that it would effectively strip local governments of the ability to enact zoning and plan for growth without facing incalculable costs.

Governments use zoning codes to steer growth by controlling what can be built on a piece of property. Zoning might dictate how close an industrial plant can be to a residential neighborhood, for example, how many homes can be built on a piece of property, or where short-term rental properties are allowed to operate.

Roughly half of Tennessee’s 95 counties have countywide zoning codes.

The “Tennessee Private Property Vesting Rights of 2026” would allow property owners to submit a written demand for compensation to any governing body that enacts a new land use regulation that decreases the value of their property.

The property owner must own the property prior to the regulation being passed, and must submit the written demand within three years. The governing body would then have a choice: pay the property owner, or roll back the regulation. 

If the regulation remains in place without compensating the property owner within 90 days, the property owner could then sue the government for the money, in addition to attorney fees and other court expenses.

Rep. Tim Hicks, a Republican serving part of Washington County, is one of the bill’s sponsors.

“At its core, this legislation reinforces the foundational principles: If government action takes value, the government bears the cost, not the individual property owner,” Hicks said during a House judiciary committee meeting.

The bill has backing from representatives for The Beacon Center, a free market-focused Tennessee think tank, as well as the Home Builders Association of Tennessee. They say it would encourage responsible regulation and level the playing field between government regulators and property owners.

Micah Wood, president of Tennessee Chapter of the American Planning Association, disagrees.

“This bill would function as an immediate freeze on zoning, land use, growth management and farmland protection regulations across Tennessee,” Wood said. “If every land use update carries a risk of financial liabilities, most communities will simply not make those updates, even when they serve the public’s best interest.”

The bill could result in unpredictable increases in costs to the state and local governments, according to its fiscal note.

This would “fundamentally make responsible planning for the future financially impossible for local governments,” Wood said.

David Connor, executive director of the Tennessee County Services Association, said bills like this one arise in the legislature from time to time, generally backed by the development community. He similarly warned that the legislation could make it cost-prohibitive for growing counties to create new regulations.

If local governments must choose between court or paying the property owner, “some of them may just cut a check because they’re afraid of having to deal with the lawsuits,” Connor said. “Either way, the taxpayers are paying the bills for all of this.”

The bill will be heard in both the House and Senate judiciary committees on March 23.

A balancing act

Connor said zoning is not as common in less-concentrated rural areas, but when development increases, community members start to think more about where they want commercial and industrial areas, and where more infrastructure is needed to support growth. It’s a delicate balance between private property rights and communities’ desire to control growth.

“A lot of times, in the legislature, I feel like this gets portrayed as, ‘Well, it’s the local government trying to stop people from doing what they want to do with their property,’” Connor said. “Really, it’s more a matter of, we don’t see zoning in counties in Tennessee until the citizens start to demand it.”

The U.S. Constitution’s Fifth Amendment states that the government cannot take private property for public use without “just compensation.” Property owners have sought relief from regulatory takings through the court, and a U.S. Supreme Court case has established a test to determine whether a regulation does, in fact, constitute a “taking.”

Ben Storms, an attorney for The Beacon Center, said the test is “very pro-government” and has been criticized for not actually protecting property rights.

Landowners, Storms said, “aren’t committed to suing” whenever land use regulations change.

“It’s usually when they had an investment plan and then the government came in and changed their use,” he said.

But bringing disputes outside of court also poses risks, Connor said.

“Part of our worry about this is someone’s going to show up claiming economic damages, so the county has a choice: do you want to back off your land use regulations, or do you want to pay? There’s no involvement of proof,” Connor said. “There’s no judge involved overseeing everything, so it creates a potential for corruption.”

Carve-outs and court risks

Amendments to the bill state that it wouldn’t apply to health and safety laws, including fire and building codes and solid and hazardous waste regulations.

Should it pass, the law would go into effect on July 1, 2027, and would only apply to new land regulations made after that date. It also wouldn’t apply to a property owner’s request to downzone their own property, or voluntarily restrict what can be built on the parcel.

An amendment also carves out regulations “restricting or prohibiting activities commonly and historically recognized as public nuisances under common law.” But the legislation notes that this exception must be “construed narrowly” in favor of compensating a property owner.

These exceptions don’t prevent property owners from demanding compensation, however, and the government would have the burden of showing that the law does not apply in these cases.

George Nolan, director of the Southern Environmental Law Center’s Tennessee Office, pointed to short-term rentals as an example. If an out-of-town company purchases several residential homes to use as short-term rentals and local residents don’t like it, this bill could diminish local governments’ ability to regulate where these rentals are allowed to operate.

“They’ll be sued if they adopt a land use restriction that these out-of-town companies object to,” Nolan said.

Jack Powers, vice president of policy and advocacy at The Beacon Center, said the bill is not designed to increase lawsuits, offering other remedies before moving to court.

Jordan Clark, a representative from the Home Builders Association of Tennessee, said the bill doesn’t apply to public nuisances, referring to Nolan’s short-term rental example. 

Whether short-term rentals would fit within the bill’s narrow carveout is unclear.

Connor describes the bill as a Catch-22.

Regarding short-term rentals, Connor said communities looking to impose new limitations could face a “lose-lose situation.”

“That’s definitely something where a person could say, ‘Well, you’ve taken away my ability to make a bunch of money off of this property I own,’” Connor said. “But then if you grant those short-term rental permits, you may have next-door neighbors … saying, ‘I can’t sell my home now for as much as I used to be able to, because you’ve allowed short-term rentals to come next door.’”