Real Estate Law

Eminent Domain and Condemnation Basics

It is usually a surprise to most private citizens that there is a constitutional provision providing that the government maintains the right to take a private citizen’s real property. While the government is required to compensate citizens in exchange, it really doesn’t seem equitable given that real property can have sentimental value that can’t be properly compensated. While there is little that can be done to completely avoid eminent domain, the government must comply with the provisions set under the Fifth Amendment (the “Takings Clause”) and undergo certain procedures that comport with citizens’ “due process” rights under the Fourteenth Amendment.

In this article, we will discuss eminent domain, what it means, what is required under the “Takings Clause,” explain what constitutes a “legitimate public use” under the Takings Clause, contrast eminent domain with condemnation, inverse condemnations, what compensation is required, the eminent domain litigation process, what damages a private citizen can receive when they’re property has been taken under eminent domain, and what options private citizens have when their property is taken under eminent domain.

Eminent Domain

Under the “Takings Clause” under the Fifth Amendment of the Constitution, the government can take private property to be utilized for public use so long as the government pays “just compensation.” This is also known as “eminent domain.” Put simply, eminent domain is a government taking of private property, usually over the objection of the property owner. The government must provide “just compensation,” which can usually be expressed as the property’s “fair market value,” however, other payment may be considered, too (income potential on a rental property, etc., which will be discussed below). The most prominent language in the Takings Clause (that has led to much debate through the years) is the term “legitimate public use.” Under the Clause, the taking must be shown to help implement a “legitimate public use.”  This means that the government can’t take your property simply because they want to. 

Condemnation

Where eminent domain provides the government the right to take the property, the condemnation can be considered the actual “taking,” or the step that will make what was your property into property that can be used pursuant to the government’s purpose in taking it.

Who is the “Government”?

The government can be a state government or the federal government. Most states have their own constitutions that permit eminent domain. However, the state’s constitution on this matter must comport with the U.S. Constitution.

“Legitimate Public Use”

Under eminent domain law, “public purpose,” “public use,” “public necessity,” and “public good” can all be described as a use which will serve the people who reside, visit, and/or work in the area. Ultimately, the government has the right to obtain a private citizen’s property if it is decided that the intended government use outweighs the current purpose the property is serving. This is generally not a hard standard to meet. Some examples that constitute a legitimate public use are public parks and nature reserves, water treatment plants, bridges, roads, and railways. However, do not be deceived, a legitimate public use does not necessarily mean that the use must be implemented by a public entity or government agency. The government can obtain the property and sell it to a private entity who intends to use it to benefit the public. For example, it is still a public use even when the property is sold to a private developer. A developer or private company that intends to use the property to develop a facility or manufacturing plant, etc. that will create more employment opportunities and subsequently bring more tax revenue to the area is still considered a “legitimate public use.”

Inverse Condemnation

Like regular eminent domain and condemnation actions, an inverse condemnation action is brought by the property owner rather than the government. The property owner will allege that a taking has already occurred, and the property owner has not received the required compensation to permit the government’s use. A taking under inverse condemnation is broader an act than “regular” eminent domain; it can be brought due to a physical taking or a “legitimate public use.” However, it can also be brought when there is a physical invasion rather than a taking, caused by a public entity. For example, escaping sewage, impaired access to the property, and excessive noise. An inverse condemnation action can also be brought due to a “regulatory taking.” This could include the unreasonable denial of building permits, over-restrictive zoning ordinances, and overburdensome development regulations.

Eminent Domain and Condemnation: The Process

Although the process can vary by state (subject to the conditions contained in the U.S. Constitution), there are some general procedures that you can generally expect no matter what state you reside in. Here’s what you can expect during the eminent domain process.

Prior to eminent domain (or a condemnation) action occurring, there must be a public hearing, conducted by the ‘condemnor’ (an agent representing the government), where a “resolution of necessity” must be adopted to have the eminent domain action proceed. The resolution can only be adopted when the property owner(s) have been given adequate notice and a reasonable opportunity to be heard on the issue. To have the resolution adopted, the ‘condemnor’ also obtains an appraisal and presents it to the property owners. Once the resolution has been adopted, an action must be brought by the ‘condemnor’ in the appropriate court (usually within six months once the resolution is adopted).

Eminent Domain and Condemnation Litigation

Once the action has been brought in court by the ‘condemnor’ against the property owners, or those who have an interest in the property (known as “the condemnees”), the ‘condemnor’ can apply with the court to obtain possession over the property prior to litigation being completed. However, the ‘condemnor’ will be required to deposit the appraised value in exchange and give the ‘condemnees’ adequate notice that the ‘condemnor’ intends to take possession. At that point, a ‘condemnee’ will usually have between 30 to 90 days to vacate the property. However, the ‘condemnee’ can request that possession not be granted to the ‘condemnor’. Or, the ‘condemnee’ can request the court permit the ‘condemnee’ to withdraw the appraisal value (all or some) that was deposited by the ‘condemnor’ without waiving their right to seek additional compensation. Like all other legal matters, many eminent domain and condemnation cases will be resolved without having to go to trial via mediation or a settlement agreement. Many times, a settlement can be reached to resolve issues surrounding the property and compensation.

Should the proceeding go to trial, the litigated issues will likely be reduced to the compensation the ‘condemnee’ is entitled to receive. The ‘condemnee’ is entitled to receive a trial with a jury, who will ultimately decide whether the ‘condemnor’ is paying a price that is consistent with the market value. Both the ‘condemnee’ and ‘condemnor’ can be represented by attorneys who will present evidence via opinion testimony by appraisers and other experts. Although the jury will be charged with determining whether the compensation is appropriate, the court is the one who determines the legal issues: whether the intended use constitutes a “public use” or “public necessity” and the parties’ other interests. One general advantage eminent domain and condemnation matters have is their priority over other legal matters. In this sense, eminent domain matters can be resolved more expeditiously than a typical legal matter would.

What is Considered when Determining the Property’s Value?

Fixtures and Improvements

Included in the market value of the property are any improvements that the ‘condemnees’ made to the property. This includes any equipment, machinery, or something similar that is “affixed” to the property, or is connected to the property, that cannot be removed without damaging the property or creating a substantial economic loss. It should be noted that a building on the property, alone, is not considered as an improvement, as it is already calculated into the base appraisal value.

 Damages under Eminent Domain and Condemnation

Business Goodwill

A ‘condemnee’ who uses their property as a business may be able to obtain additional damages. When a business is required to close or relocate due to imminent domain and condemnation, the business lost could result in damages. Damages as to the loss of business goodwill consist of the privileges that a business had based on its location, reputation, skill, and its patronship, among other considerations. However, to be entitled to business goodwill damages, the business owner must have made “reasonably prudent” attempts to relocate their business. Generally, a business owner/’condemnee’ will be required to prove certain elements to be entitled to damages: (1) the existence of goodwill; (2) the loss was caused by the condemnation; (3) the goodwill cannot be reasonably maintained by relocation (or the other reasonably prudent steps the ‘condmnee’ is required to take; and (4) the loss cannot be appropriately compensated by other compensation to be awarded. Receiving these damages is not easy and will usually require an expert business appraiser to prove the necessary elements.

A Note on Inventory Damages

Although courts have usually rejected damages on the premise that a business has lost their inventory due to relocation, there is some recent case law granting inventory damages to ‘condemnees’ who, upon taking reasonable steps to relocate, were unable to and lost their inventory as a result. In this circumstance, the ‘condemnor’ may be liable as to the lost inventory’s total value.

Severance Damages

In some cases, the government may only seek to use a portion of property. However, the ‘condemnor’ is still required to pay the market value as to that portion. Using only a portion of the property can result in the entire property becoming unusable or diminish the remaining property’s value. In this circumstance, the ‘condemnee’ is entitled to severance damages.

Severance damages are generally measured by any decrease in the property’s fair market caused by any damage to the remaining portion. Severance damages can also be measured by the cost it would take to restore the severed property to the condition it was in prior to the condemnation. However, if the remaining property will receive any advantage by the public use, severance damages can be reduced by the monetary value of the advantage received.

Pre-condemnation Damages

When a condemnation is excessively delayed due to unreasonable conduct by the ‘condemnor’, the ‘condemnee’ can be entitled to pre-condemnation damages. These damages can include lost rental income when the property has been used as a rental and any increased amount in the property’s overall value since the date the property was valued. These damages are known as “Klopping Damages,” based on the case Klopping v. City of Whittier.

Can Eminent Domain be Avoided?

Many people bear the misconception that there is nothing that they can do about a government taking under eminent domain. While it is true that you can’t really avoid the taking altogether, whether the compensation is adequate can be contested (as established above). When it comes to eminent domain, a healthy distrust of the government is likely warranted, as the government will usually not make a reasonable attempt to compensate the property owner. Like any purchaser, the goal is to get more at a lesser cost. For this reason, it is important to act with due diligence prior to accepting what the government claims they owe. To that end, you aren’t required to accept the government’s initial offer if you don’t believe it is in line with the compensation they are required to provide you.

Because eminent domain is such a nuanced area in the law, it is best to speak to an attorney who has experience with constitutional matters. Much goes into the eminent domain and condemnation process. For this reason, it is best to obtain legal advice to ensure that all steps in the process are complied with.