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Condemnation Blight?

It is not uncommon for property owners to believe that government actions have taken or significantly decreased their property values to the extent the actions constitute a “taking” of the property, i.e. “inverse condemnation.”  In some cases this condition may be the result of “condemnation blight.”  What isn’t common is for a court to agree. 

The seminal case in Oregon is Lincoln Loan Co. v State Hwy Comm’n, 274 Or 49 (1976), where the Oregon Supreme Court determined the plaintiff had at least pled sufficient allegations to claim condemnation blight.  The allegations included the State having sent letters to neighbors and tenants of its intent to take the property, the State condemning and destroying nearby properties, giving the plaintiff’s tenants notice they would have to move and filing condemnation actions.  Given all this, the Court concluded the plaintiff had pled sufficient allegations to constitute condemnation blight.

In a recent case in Linn County, Hall v. State of Oregon by and through the Oregon Department of Transportation, 252 Or App 649 (Oct. 10, 2012), a property owner claimed ODOT had committed condemnation blight.  The property owner plaintiff in Hall owned land near an I-5 interchange that was in the preliminary planning phase by ODOT. It is common, and in this case was required, that the government set out options as part of the planning process.  One of the potential options of ODOT was to close the interchange, thereby landlocking the property.  In accordance with federal planning requirements, ODOT informed the plaintiff owner, the general public and affected governments of all of its potential options for the interchange, including the option to close it.  ODOT held public meetings in furtherance of the planning process, and when the closure option was shown as being unpopular, ODOT revised the closure option with a more delayed process.  Notwithstanding, the plaintiff sued ODOT, claiming its actions constituted an inverse taking because of the “blight” it caused to plaintiff’s property.

The plaintiff’s claim was that ODOT’s identifying a potential option of interchange closure was sufficient to constitute condemnation blight.  The jury determined plaintiff’s property had a fair market value of $4,000,000 and that the value was reduced by $3,378,750 as a result of ODOT’s “unreasonable interference” with plaintiff’s property.  The plaintiff was awarded the reduced amount, along with $466,222 in attorney fees.

But as the Court of Appeals concluded on the appeal of the verdict, the jury got it wrong.  Oregon law is clear that an inverse taking by a government enactment – e.g., engaging in a planning process, does not occur unless it deprives the property owner of “all substantial beneficial use of its property” Fifth Avenue Corp. v. Washington co. 282 Or., 591, 609 (1978).  Clearly, if the property has a remaining value of $621,250 by the jury’s reckoning, it has not been deprived of all substantial beneficial use.  The plaintiff agreed with the importance of the Fifth Ave case on appeal, but argued that this case was not about ODOT planning a project, but, rather, was about ODOT being motivated by malice directed toward the property owner. 

On review the Court of Appeals pointed out the fallacy of the malice theory by noting the plaintiff did not include such a theory in his Complaint (though the Court noted – for some inexplicable reason – that plaintiff was allowed to present a lot of testimony in support of the malice theory).  Further, however, and of more significance, was that if you are going to claim that government actions constitute an inverse taking of property, the complained of action must be “done with the intent to take the property for a public use.” citing Gearin v. Marion County, 110 OR 390 (1924).  The plaintiff’s claim on appeal of ODOT’s motivation by malice – rather than motivated to take the plaintiff’s property for a public use – was self defeating.

 What are the lessons of Hall v. State?  1) it confirms that government may take actions which impact the value of property without constituting a taking unless the action deprives the owner of all substantial beneficial use of the property; 2) it confirms that if a property owner is going to make a claim of an inverse taking by government actions, then the intent of those actions must be to acquire the property for a public use – and not because of a dislike of the owner.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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