Just Compensation in Eminent Domain Proceedings: A Closer Look

The Constitution’s Fifth Amendment is widely known for its criminal law components, mostly the right to remain silent. The tail end of the Fifth Amendment contains the takings clause. It restricts property seizures to public use takings that involve just compensation to the current owners. “Public use” is an extremely vague phrase which usually means a public works project, like a bridge or road. However, according to a recent Supreme Court decision, this phrase could also mean redevelopment of vacant property.

“Just compensation” is more well-defined. However, there are a number of moving parts. Theoretically, just compensation should make the owner whole, considering what was lost. So, just compensation usually hinges on the property’s value at the time of the seizure. This value is usually different from the figure published on the tax appraiser’s website.

Eminent domain notice usually comes near the end of a very long process. Condemnors (public or private entities seizing property) have a small army of lawyers, accountants, and other professionals to assist them every step of the way. Since most of these activities take place behind closed doors, owners often have little time to react. A Charlotte land use attorney cannot match the time and resources that the condemnor has. But an attorney can passionately stand up for your right to just compensation.

In the aforementioned public works seizures, the condemnor usually takes part of a parcel of land. However, just compensation in these situations is not just limited to the lost use of the property. There is also the lost value of the remaining property.

Assume the North Carolina Department of Transportation wants to expand a highway through part of Phyllis’ land. NCDOT plans to take a fourth of her land, which is worth $10,000. Just compensation for Phyllis is not $2,500, or a fourth of the land’s value. The remainder of Phyllis’ land might be almost worthless, since she will have a freeway running through the yard.

Therefore, just compensation includes not only the lost property, but also the lost value of the remaining property. Alternatively, NCDOT might agree to plant trees and build a sound dampening wall to mitigate Phyllis’ losses. However, NCDOT would still be responsible for diminished value.

Subjective items like diminished value can be difficult to calculate. Some of the more common methods are highlighted below.

Other times, the condemnor tries to seize the entire parcel. That is especially common in the property renovation seizures which are common under the aforementioned Supreme Court case, 2005’s Kelo v. City of New London. At the time, the Supremes had not considered a major eminent domain case for forty years. A sharply-divided Court ruled that the city could take private property as part of a “comprehensive redevelopment” plan. The Court allowed the taking, even though the proposed redevelopment was only in the early planning stages. Subsequently, financing for the deal collapsed, and the seized property remained undeveloped.

Just compensation is not the same thing as the published fair market value. Just compensation is a totality-of-the-circumstances financial analysis. Some factors to consider include the property’s size, its accessibility, unique characteristics of the land, its current use, and its potential use.

Based on the aforementioned factors, not all property is the same. So, there are three basic calculation methods to determine just compensation:

• Income Approach: This model usually applies to income-producing property. Examples include a surface dwelling or a subsurface mine. This calculation begins with net income, which is the projected rental income minus the vacancy factor (unleased units or parcels), if any, and operating costs, such as taxes and expenses. The property’s capital value is a consideration, as well.
• Market Approach: Comperables, or recent sales of comparable properties in the area, form the basis of this model. Unless the comparable property is almost identical in terms of size, age, and features, the comparable is practically worthless. Furthermore, the market approach must also account for market factors, like buyer demand and interest rates.
• Cost Approach: This third method is usually the fallback if the other two are inappropriate. Usually, these properties have speciality structures, like grain silos, which are relatively unique and difficult to repurpose. After determining the market value of the land itself, as if it was unimproved, the cost of replicating the structure is added. Capital value and depreciation often come into play as well.

Unfortunately, just compensation usually does not include noneconomic losses, such as emotional distress. People who are forced to give up land which has been in their family for generations receive no financial consideration for their feelings.

The government cannot take private property for any purpose without paying just compensation. For a confidential consultation with an experienced land condemnation attorney in Charlotte, contact Arnold & Smith, PLLC.