What is Inverse Condemnation?

Eminent domain, or land condemnation, is basically an involuntary title transfer process from a private owner to the state. Inverse condemnation, on the other hand, is essentially about just compensation for a taking of property. This taking could be direct or indirect.

Assume George and Amy both own land near a proposed freeway extension. George’s land is undeveloped, and Amy’s land contains an apartment complex. The state initiates eminent domain proceedings against part of Amy’s land. During the process, NCDOT relies on a faulty survey. So, it builds part of the freeway on George’s land. After the project’s completion, the freeway noise and freeway view prompt Amy’s tenants to leave.

Both these owners may have inverse condemnation claims. The state took George’s land without notice or compensation. The taking may have been unintentional, but that does not matter. Furthermore, the freeway essentially destroyed the value of Amy’s land. Again, that taking might have been unintentional, but Amy may nevertheless have a claim.

A Charlotte land condemnation attorney might approach these claims differently, in terms of just compensation. George’s lawyer would probably demand financial compensation. There is no effective way to un-build a freeway and give George his land back. Amy’s situation is more flexible. If NCDOT built a wall to block the noise and planted large trees to block the view, Amy could probably attract new tenants.

Essentially, “just compensation” has two elements: the property’s fair market value (FMV) of its highest and best use (HBU).

FMV is not necessarily the tax appraiser’s value. The FMV could be higher or lower, depending on the property condition, economic conditions, market conditions (i.e. is it a buyers’ market or a sellers’ market), and other factors.

HBU is the optimal property usage. For example, a piece of property might be farmland at the moment. But it may be in an area where retail development is booming. If that is the case, its HBU would be as retail property and not as farmland. Zoning ordinances and other issues sometimes come into play here, so HBU disputes are quite complex.

As mentioned, a government appraiser considers FMV, HBU, and other evidence to ascertain just compensation. This other evidence may include:

• Property history,
• Geographic area,
• Comperables (recent sale prices of similar, nearby property),
• Cost of replacing privately-owned improvements on the subject property, and
• Lost income generated by the property, if any.

There may be an indirect element as well. For example, if a property owner gives NCDOT an easement or part of a parcel of land, that bequest may adversely affect the remaining property’s value. Just compensation must account for these losses.

Condemnation and inverse condemnation both involve the Fifth Amendment’s takings clause. This process is called “inverse” because the parties are switched. In a condemnation action, as outlined above, the state is the plaintiff and the private owner is the defendant. Inverse condemnation actions involve a private owner plaintiff and a state agency defendant.

In 1922’s Pennsylvania Coal Company v. Mahon, the Supreme Court declared that private owners have legitimate inverse condemnation claims if the state goes “too far” in its property taking. The Court has never precisely defined this phrase, but it could mean:

• Physically seizing property without providing just compensation,
• Reduction of value to the extent that the property is no longer commercially viable, or
• An illegal quid pro quo (g. the state refuses to give the owner a building permit unless the owner gives the state an easement).

These three situations are per se takings. Property owners need not prove any other elements. In other inverse condemnation cases, plaintiffs must establish every element of the so-called Penn Central test (from 1978’s Penn Central Transportation Co. v. New York City):

• Nature of the government regulation,
• Economic impact of the regulation upon the property at issue, and
• Any interference with reasonable, investment-backed expectations.

These three factors are incredibly vague, which is why many Charlotte land condemnation attorneys have criticized the Penn Central test.

To better understand the elements of inverse condemnation, let’s return to George and Amy. George has a per se claim because the state took his land without just compensation. Amy’s claim, however, is much more complex. The freeway diminished her land’s value, but arguably, that decrease did not reach crisis proportions. She could build something else on that land. So, a Charlotte land condemnation attorney must probably rely on the Penn Central test.

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.