Fifth Amendment Application to Sign Control

The Fifth Amendment applies to the states through the Fourteenth Amendment. It contains two guarantees:

  1. The “due process” clause, as in the Fourteenth Amendment, protects citizens from government action that arbitrarily deprives them of a fundamental right without due process of law, and it applies to both the act itself and the procedures incidental to the act;
  2. The “takings” clause is designed to prevent the government from forcing individuals alone to bear public burdens without just compensation.

While the Supreme Court has long held it permissible for local governments to divide a jurisdiction into zones, even if the act results in adverse economic consequences for the impacted landowner, if the regulation substantially diminishes the value of the land, or the regulation serves no valid public purpose, a compensable “takings” has occurred. The amount of compensation depends upon the extent of the loss of value and a weighing of the various factors and interest, on a case-by-case basis.

Signage affected by a “takings” is generally the result of a change in law or regulation (i.e., a “regulatory takings”) that makes a previously legal and conforming sign suddenly illegal. Again, courts have generally agreed that local governments may require owners of signs not in conformance with new law to bring their signs into conformance upon the happening of prescribed events. Such events may be a request to expand the sign, or to rebuild it after substantial destruction, or to replace or repair more than 50% of it as a part of ongoing maintenance. In many states, the mere passage of time will trigger a government demand to either conform or remove the sign, or suffer a penalty, usually fines. The passage-of-time triggering event is referred to in codes as the expiration of an “amortization period”, during which the sign owner is supposed to have recouped the initial cost of the sign. Under “amortization” theory, the actual value of the sign to the business it advertises is ignored.

Off-premise signage, or outdoor advertising, has long enjoyed considerable protection from noncompensable takings by federal legislation. On the other hand, on-premise business signage has not yet been afforded federal legislative protection, and the rules regarding compensation have been left to the states. However, here the Supreme Court’s expanded protection of commercial speech may be changing how lower federal and state courts view certain attempts to require conformance, or avoid monetary compensation through “amortization periods.”

CASE: Kevin Gray-East Coast Auto Body v. Village of Nyack, 566 N.Y.S.2d (N.Y. App. Div. 1991)
In this case, a local business change hands, and the new owner wanted to reflect this with a new name for the business; a village ordinance deemed this a change of copy sufficient to require the nonconforming sign to conform before the copy change would be allowed.
HELD: The Court found that the sign could remain in place after the new owner changed the copy to reflect his ownership, holding:

Generally, absent a showing that the predominant purpose of an ordinance is not to control the content of the message . . . such truthful commercial speech may not be prohibited on the basis of its content alone.

COMMENT: This case, although decided on the basis of the First Amendment, casts doubt on any regulation that prohibits changing the copy of a nonconforming sign. In these cases, the general rule is that the amortization period must allow the owner of the sign a reasonable amount of time to recoup his investment. State and federal decisions have upheld statutes or ordinances with amortization periods ranging from 10 months to 10 years. To determine the reasonableness of the period, courts have looked to several factors, including:

  1. The amount of initial capital investment;
  2. The amount of investment recouped at the effective date of the ordinance;
  3. The life expectancy of the investment;
  4. The existence of a lease obligation, as well as contingency clauses that permit termination of such leases;
  5. The salvage value of the sign, if any; and
  6. The extent of depreciation of the asset for tax and accounting purposes.

In most cases, courts have not required governments to produce an economic analysis to prove that the owner’s investment has been fully recouped over the amortization period. Caveat: In a growing number of cases, courts have required local governments to present evidence that addresses economic value, in order to determine whether an amortization period proves reasonable compensation by allowing the owner to recoup his investment.

Review also the recent decision made in Alabama Supreme Court in Budget Inn of Daphne, Inc. v. City of Daphne, 2000 WL 184245 (Ala.).

CASE: Naegele Outdoor Advertising, Inc. v. City of Durham, 803 F.Supp 1068 (M.D.N.C. 1992) aff’d 19 F.3d 11 (4th Cir), cert. den. 513 U.S. 928 (1994)
HELD: After the federal district court undertook a detailed factual inquiry of the city’s virtually complete ban on commercial billboards, the court held a 5.5-year amortization period did not deny Naegele the economically viable use of its property.
COMMENT: It is important to note that decisions that favor amortization as a form of compensation should not be taken or interpreted as affording local government unquestioned authority to enact an amortization provision, or choose a period equal to the one in Naegele, above. The reasonableness of an amortization provision is decided on a case-by-case basis. Just because a particular amortization provisions was found to be justified, based on the evidence presented in a given case, doesn’t mean similar provisions couldn’t be found unreasonable under different circumstances. Proof of the true economic value of a sign, as evidenced by the business it generates, may defeat an attempt to impose amortization as payment in lieu of monetary compensation.

A partial list of states that permit, by statute or ordinance, amortization of signs in lieu of compensation are: Arkansas, Connecticut, Delaware, Florida, Illinois, Maine, Michigan, New York (with opportunities for extension), North Carolina, North Dakota, Ohio, Texas and Vermont.

A partial list of states that reject amortization of signs are: California (state law), Colorado (state law), Georgia, Indiana (state law), Maryland (state law), Minnesota (state law), New Hampshire, New Mexico (state law), and Tennessee (state law).

Photo by Chris Potter

Wade Swormstedt

Wade Swormstedt

Wade is Executive Director of the Foundation for the Advancement of the Sign Industry. Formerly he was Editor and Publisher of Signs of the Times magazine.

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Posted in Amoritzation, Outdoor Advertising, Sign Codes, Signs' Advertising Value, Small Business Administration, Supreme Court.