5 Things You May Not Have Known About Eminent Domain

1. A Property’s Value Isn’t Restricted to Its Current Usage

If the government wants to take your property, it is obligated to provide you with “just compensation”. Just compensation is usually defined as the amount of money that would make the property owner whole by indemnifying the owner for the loss resulting from the taking of the property. The amount of just compensation is ordinarily determined by paying the owner the price that the owner would have received if the owner wanted to sell the property and found a willing buyer in the open market. Just compensation, therefore, must reflect the fair market value of the land, buildings, and other structures situated on the property. Property owners are entitled to a valuation that takes into account the “highest and best use” of the property. This means that if a property has the potential to be utilized in a way that would increase its value, the government’s offer would have to account for that. For example, were a piece of vacant land to be seized, its appraisal value would have to include its potential for commercial use, provided that such commercial use would be physically possible and legally permissible on the property. Additionally, a property improved with a modest single family home on a large piece of land near a highway might have a “highest and best use” which involves demolishing that home and constructing a more intense use on the land, such as a hotel or apartment building. The highest and best use of a property reflects its most profitable use, and property seized by eminent domain must be valued according to its highest and best use in order to make the property owner whole.

2. Legal Fees can be Reimbursable or Contingent on Success

When faced with a condemnation lawsuit, it’s important to ensure you’re doing everything possible to protect your rights, but the prospect of paying for an attorney can be daunting. Thankfully, there are a few practices in place to help alleviate these concerns: (1) In some circumstances, the government may be obligated to pay for your legal fees, and (2) many eminent domain attorneys offer contingent payment options.

Firstly, you can have peace of mind knowing that if your property is located in New Jersey and you succeed in preventing the government from taking your property, it will have to compensate you for your counsel fees. According to N.J.S.A. 20:3-26, if a court rules that the condemning agency cannot seize the property or has improperly used its eminent domain powers, the court will dismiss the case and the condemning agency will be responsible to pay for the property owner’s legal fees and related expenses.

Subsequently, in the event that you are unsuccessful in stopping the condemnation, your next step would most likely be to pursue an award of just compensation from the condemnor. Fortunately, many eminent domain attorneys structure their fees so that you only incur legal fees if they win you more than the government originally offered. This type of contingent fee structure generally ensures that you won’t be liable for counsel fees unless you succeed in obtaining more compensation than the government originally offers.

As you consider retaining an attorney to assist you in an eminent domain action, it is important for you to understand that these types of remedies and fee structures may be available.

3. You May Be Entitled to Relocation Benefits

The United States Constitution and New Jersey Constitution both guarantee that land owners who are subject to seizures of their property via eminent domain are entitled to just compensation. This includes the value of the land, buildings, features, and even the property’s potential to be converted into something more valuable. What many people don’t recognize, however, is that the government is also responsible to provide relocation costs and other benefits to the occupants of property seized by eminent domain, whether those occupants are owners, tenants or other lawful occupants at the time of the taking. Not only does the condemnor have to pay for the real estate itself, but also the costs associated with moving one’s home or business to a different location. Relocation laws vary from state to state but they are generally designed to assist occupants of properties who are displaced due to a taking via eminent domain. Some basic information about relocation laws in New Jersey is available here.

In circumstances where relocation is complex or difficult, relocation negotiations can be crucial. If you own a business that uses complex equipment and machinery, it may be especially important to consider relocation costs. In fact, complex commercial relocations may result in relocation awards that are larger than the amount paid for the real estate. Regardless, whether the government is threatening to take your capital-intensive business or simply your family home, it is necessary to understand your right to relocation benefits and assistance. An experienced eminent domain attorney can help guide you through this process.

4. Owners Need to be Properly Compensated for Partial Takings

In some instances, the government may not want to take an entire property, but rather just a portion of it. This is called a partial taking. A common example of a partial taking would be a road widening, where the condemnor would take only the land needed to increase the size of the road.

Determining compensation for partial takings can often be more complicated than doing so for complete condemnations. When a partial taking occurs, the government must not only provide just compensation for the land that was actually taken, but also severance damages for any decrease in value to the remaining property.

For example, imagine a situation where part of a retail store’s parking lot is taken to widen a road. While the owner would obviously be entitled to the market value of land area seized by eminent domain, it may be more important to consider how the taking would affect the remaining property.  Having fewer parking spaces could materially impact the utility of the remaining property for retail purposes, or might restrict the kinds of vehicular traffic that could maneuver around the property, such as large trucks which visit the property for deliveries, and the owner would need to be compensated for that. 

5. Taking One Property Might Cause Damages to Another Property

Sometimes, partial takings can involve two completely separate parcels of land. In these cases, if it can be proven that the two parcels share “unity of use,” the property owner can be entitled to severance damages for the piece of land that is not taken. “Unity of use” means that two pieces of property share a common purpose and depend upon each other to function.

An example of this would be if the owner of a retail store property owned or leased a parking lot across the street from its store. Even though the two pieces of land are physically separated from each other, the property owner may be entitled to severance damages caused to the value of the parcel containing the store if the parking lot is seized by eminent domain, if a unity of use exists between the store and the parking lot.  In other words, if the parking lot is used to service patrons or employees of the store, severance damages may be awarded to the store parcel if the parking lot parcel is taken by eminent domain.

These types of issues need to be carefully evaluated in order to assure that the owner receives just compensation.

The author acknowledges the assistance of John Oettinger, a summer intern at McKirdy & Riskin, in preparing this article.  Mr. Oettinger is a member of the Class of 2018 at the University of Michigan’s Ross School of Business.