Considerations Before and After the Government Comes Knocking (or Preparing for Condemnation)

The status of infrastructure throughout the United States, and the need to expand and rebuild facilities, is often in the news. Funding these improvements remains a challenge, but when funding is identified, the government often has to acquire private property. If the government and the property owner are unable to reach agreement, the acquisition may result in the use of the government’s eminent domain power.

The use of eminent domain requires that the government pay fair market value. Case law has developed, however, holding that some damages are not compensable. In many cases, for example, a taking may adversely impact access, but compensation for that element of injury will not be available. For impacts such as these, participation at the project design phase is the property owner’s best course. And, even where damages are compensable, being proactive both before and after the government comes knocking may simplify the process and minimize business disruption. Suggested steps include:

• Reviewing Any Leases

Both property owners and tenants may be entitled to government compensation when property is acquired for a public project. To the extent compensation is owed, lease condemnation clauses are the first place the parties will go to determine who gets what. In the best case, the lease makes clear how any compensation is to be distributed. If the lease is silent or unclear, the tenant is entitled to participate in any condemnation proceedings. In Oregon, for example, the court will distribute the money awarded in a manner it determines is just and reasonable. Addressing in the lease how those dollars will be shared, if at all, may avoid a costly dispute down the road. The parties may also want to consider identifying with specificity in the lease the owner- versus tenant-owned fixtures.

• Ground-Checking Any Cost-to-Cure Numbers

In many cases a condemnation action does not acquire the entire property but rather takes a strip of property for a road expansion or a utility easement. In a partial take, the just compensation paid by the government will include the fair market value of that strip of land or easement. If the taking reduces the value of the property the landowner will retain, the compensation owed includes severance damages, the difference in the value of the property before and after the take. If, however, it is possible to remedy the severance damages with a physical fix, the compensation owed is the lesser of the severance damages or the cost to cure. If the government offer includes a cost to cure, it is often a worthwhile investment to consult with engineers, land use planners and other relevant experts on the feasibility of the fix and to ensure that the government’s cost estimate includes all the items likely to be required by permitting agencies.

• Developing a Relocation Strategy

In many instances, relocation benefits are available to reimburse some of the cost associated with being displaced by a public project. Displacement may mean the move of personal property off a strip of land being acquired. If, for example, the strip of property being acquired is used as storage for nursery plants, the owner of the plants likely has a claim for the reimbursement of certain costs associated with moving those plants out of the path of the public project.

Displacement may mean the relocation of an entire business from a site because the entire property is taken by the government. Moving an entire business is a time-consuming enterprise. In addition to finding a new site, the business may, while endeavoring to meet the government’s move deadline, have to navigate a local land use permitting process for the new site. Certain permit-related costs are reimbursable as relocation expenses.

The relocation regulations include caps on reimbursement of certain types of expenses, documentation requirements and claim deadlines. Not all costs associated with having to move—whether it be a few plants or an entire business—are reimbursable. Understanding

• how to document a claim
• how to optimally structure a move and claims and
• how to evaluate whether to even move personal property as opposed to utilizing benefits to help finance replacing that property in the new location

can all help to substantially reduce costs often associated with a condemnation but not addressed within the condemnation proceeding or related negotiations. Relocation benefits also receive beneficial tax treatment.

Laws may vary by state but these are generally applicable rules. Understanding what is and is not compensable and who will be compensated, ensuring that mitigation proposed by the government is feasible and the cost accurately estimated, and understanding the relocation benefit options available will help minimize business disruption and best position the business to succeed post-project.

View this on Ahead of Schedule, the Development, Design and Construction Law Blog.