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Condemnation – It Isn't So Much What is Taken, But What is Left

From time to time governments need to take property for a public purpose. Both the federal and state constitutions allow this, provided the government pays “just compensation.” If the government can’t reach an agreement with the property owner, it can take the property under its eminent domain authority – condemnation – by filing a lawsuit naming the property owner (and any other party having an interest in the property to be taken). The issue in a condemnation lawsuit is: what is the amount of just compensation owed?

Oregon condemnation law requires the condemner to make an offer prior to filing the condemnation lawsuit, and if the just compensation is more than $20,000, the condemner is required to provide the owner with an appraisal supporting the amount. Just compensation is determined as of a specific date – the earlier of the condemner taking possession or the filing of the condemnation complaint. Often the condemning authority may simply leave it up to the appraiser to determine the just compensation. However, this appraisal and pre-filing offer is something the condemner is going to have to live with as it proceeds with the litigation.

Where there is only a partial “taking” – i.e., the condemner takes less than the entire property – the bar is raised on just compensation, as not only must the just compensation pay for the property being taken, but the owner is also entitled to just compensation for damage to the remainder property resulting from the taking. Because of the importance of the condemner’s pre-filing appraisal in the condemnation process, it is important in partial taking cases that the condemner is clear about not only what is being taken, but also what is being left. For example, if the condemner is taking an easement for an underground pipe, such as a sewer or water line, it should be clear what rights the owner will be retaining in this area, such as parking, landscaping or some limited development. Condemners may believe that it is “just known” what remaining rights the owner may have in such a situation, but a lack of certainty about rights often negatively impacts the remaining property’s value – increasing the just compensation owed.

The condemner may simply provide assurance to the owner that they will be allowed to do certain things on the remaining property. However, Oregon condemnation case law has found that just because someone in the government says you retain certain rights in the remaining property isn’t enough, following the old rubrics “the check is in the mail” or “we’re from the government and we’re here to help you.” Therefore, the condemner and the owner are better served if the remaining property’s rights are spelled out as part of the taking.

To determine just compensation, you look to what you had on a specific date, and generally the price a willing buyer would pay to a willing seller. In regard to valuing real property, uncertainty generally equates to lesser value. If there is uncertainty about what can be done with the remaining property, it is likely the remaining property is worth less – and if it is worth less, there is damage to the remainder and the owner is entitled to receive that reduction in value as part of its just compensation.

In a recent case where we represented the property owner in a partial taking, the condemner proceeded as if everyone “understood” what rights remained with the property. In this case, the condemner’s appraisal failed to address the impact of the taking – perhaps because the appraiser assumed that the condemner was going to do certain things. The condemner erred by not spelling out in the taking what rights remained and how the property would be accommodated, and the condemner’s appraiser erred by not addressing the impacts and how they would be addressed.

The condemner may have thought that by the time the matter proceeded to trial the project would be finished and everything would be as the condemner may have wanted. However, condemnation valuation is based on a snapshot in time. In this case, the case settled the first day of trial with the condemner paying just compensation of nearly 17 times the initial offer. The condemner may have avoided this if it would have been clear about not only what it was taking, but also about what was being left. Without knowing there is uncertainty, and appraisers will generally advise that uncertainty has a negative impact on property valuation.

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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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