In a condemnation when only a portion of the property is taken, the property owner is entitled to just compensation based on the value of the property taken plus damages to the remaining property, if any. However, if the damage to the remaining property can be cured, the property owner is only entitled to the lesser of the damage to the remaining property or the cost to cure.
Impact on remaining property and the ability to “cure” damage is probably the most subjective area in any condemnation appraisal. The ODOT ROW Manual instructs the appraiser to first determine if the remaining property is damaged and to quantify that damage. Only after the appraiser has determined there has been damage and the extent or amount of the damage is the appraiser to consider if the damage can be “cured” and, if so, the “cost of the cure.” Often, however, an appraiser will go directly to the cure and its costs, bypassing any quantification of the amount of the damages. The “cure” and “cost of cure” are often the significant issue in partial takings with the condemner and owner positions challenging each other as to what would constitute a cure and its costs.
In two recent condemnation trials, the State of Oregon has sought to exclude evidence and testimony about potential “cures” considered by the property owner’s appraiser in concluding the just compensation for a partial taking. In both cases, the State’s appraiser presented evidence that the damage to the property owner’s remaining property could be cured, and measured the damages to the remaining property using the “cost-to-cure” valuation methodology. In each case, the property owner’s appraiser considered and rejected potential cures as not resulting in a cure or the cost was more than the damage. The owner’s appraiser determined the damage to the remainder, i.e., its diminution in the value, based on a change in the highest and best use of the property, as the appropriate measurement of just compensation.
The owner did seek to present testimony and evidence as to potential cures and then costs. The State argued to exclude this evidence based on the Oregon Evidence Code Rule 403 and the Oregon Supreme Court’s holding in Tunison v. Multnomah County, 251 Or 602 (1968). The State argued that evidence of the potential cures rejected by the property owner’s appraiser would mislead and confuse the jury, resulting in substantial prejudice to the State that would outweigh the probative value of the evidence. The specific language in Tunison relied on by the State reads:
"[The property owner argues] that since, under the circumstances . . . restoration costs may be used as a measure of damages, it is necessary for the appraiser to make an initial estimate of such costs in order to determine whether they were less than the depreciation in the market value of the property not taken and thus binding upon the owner. We reject this argument. The appraiser may find it advisable to make such a calculation but if the owner seeks to recover the depreciation in the market value of the property remaining, he cannot testify as to restoration costs. To permit him to do so would be to inject into the case evidence which the jury is likely to improperly consider in estimating the owner’s loss. (emphasis added.)"
Id. at 604-05
In response, the property owners made three arguments: (1) that the property owner was entitled to put on evidence of potential cures considered and rejected by the appraiser to rebut the State’s evidence that the damage to the remainder should be measured by the State’s proposed “cost-to-cure”; (2) that USPAP requires an appraiser to consider “cost-to-cure” in determining just compensation in a partial taking; and (3) that later Court of Appeals opinions favor allowing the jury to consider evidence of competing valuation methodologies in determining just compensation. The trial court denied the motion to exclude in each case finding that the property owner was entitled to present the rejected “cures” as rebuttal evidence. The trial courts appeared to reject (or at least did not reach a decision on) the property owners’ other two arguments.
The Tunison case is most often cited in support of using a “cost-to-cure” methodology in valuing damages to the remainder in condemnation cases. As a result, the State’s use of this case in an attempt to exclude competing “cost-to-cure” evidence is clever, but also disconcerting. First, USPAP (and the ODOT Right of Way Manual) requires an appraiser to consider potential cures in determining damages to the remainder in a partial taking case. To exclude evidence of rejected potential cures would prevent an appraiser from testifying to a key underpinning of his or her opinion on value. Second, the argument runs counter to Oregon Court of Appeals cases issued after Tunison that set a liberal standard for presenting expert testimony on valuation methodology to juries. See Tri-Met v. Posh Ventures, LLC, 24- Or App 425, at 437-438 (2011) (finding that jury is entitled to “hear expert testimony regarding the appropriateness of a particular valuation methodology”) and City of Bend v. Juniper Utility Co. 242 Or App 9, 20 (2011) (it is left to the trier of fact to assess the evidence, including expert testimony regarding the appropriateness of a particular valuation methodology, and to then make a factual call as to the fair market value of the property in question). Third, any danger that a jury will be misled or confused by evidence of rejected “cures” is mitigated by the uniform jury instructions used in most condemnation cases. For these reasons, it is the authors’ opinion that a property owner should be entitled to present evidence of competing potential cures in it case in chief, and not just as rebuttal evidence.
Effectively, the State asserted that only it could present evidence and testimony of a potential cure and its costs, but the owner, if relying on just compensation using diminution in value to the remainder, could not present testimony or evidence as to a cure or its costs, i.e., what is good for the goose is only for the goose. Fortunately, in both cases, the court allowed the owner to put in evidence and testimony regarding potential cure and their costs as rebuttal to the State’s assertion of a specific cure and its costs. Overall, a practitioner should carefully consider this aspect of the Tunison case in preparing for any trial that involves a partial taking in which either party intends to present “cost-to-cure” evidence.
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