Eminent domain is the power of the government, or a private actor granted that power by the government, to acquire property for public use. We generally view this a necessary nuisance for a functioning society as the power is essential for the efficient development of necessary infrastructure. Eminent domain is commonly used to acquire the property necessary to build roads, electric lines, water lines, sewer lines, schools, oil and gas pipelines, and rail lines. However, taking one person’s private property for the benefit of the collective is a high price for citizenship. So, as a society, we have also agreed that, when private property is taken for the public good, society will pay just compensation, also called fair compensation, to the person whose property is being taken.
The source of the right to compensation bestowed to our citizens at the national level is the 5th Amendment to the U.S. Constitution which provides: “nor shall private property be taken for public use, without just compensation.” In Texas, we have similar language in our State Constitution. Article I, Section 17 of the Texas Constitution provides in pertinent part: “No person’s property shall be taken, damaged, or destroyed for or applied to public use without adequate compensation being made.” To determine “fair compensation” or “just compensation,” there is a simple formula (but complex to apply) – what was the property worth on the open market before the taking as compared to what it is worth on the open market after the taking.
When the Government Decides It Wants Your Property, What Happens?
If the government decides to acquire some part of your property for a public project, it is obligated to make you an offer for the property. To support the offer, the government must procure an independent appraisal that is shared with you. You are initially given thirty days to respond to the offer. If you are unable to come to terms with the government in that period of at least thirty days, the government must give you a “final offer” with another fifteen days to respond. If, in that period, you are still unable to come to terms with the government, the government can file a condemnation lawsuit.
Condemnation suits are civil cases and are typically filed in the county court in the county where the subject property is located. Upon a case being filed, the judge of the court will appoint three “special commissioners” to hear and decide the case. The Special Commissioners schedule a hearing to receive evidence from both the government and the property owner regarding the amount of compensation due. After the Special Commissioners render their award, the government can pay the amount of the award and, at that time, the government gets the right to take possession to the property they are acquiring.
Either the property owner or the government can appeal the award of the Special Commissioners. If either side appeals, the judge of the Court will set the case for a trial. Either side is entitled to a jury trial. If neither side wants a jury trial, it can be tried to the Court.
Important Valuation Issues in the Hospitality Industry
Loss of Parking: A government acquisition that causes a material loss of parking can greatly impact a property. A loss of parking that takes a property out of compliance with code can obviously be very detrimental. However, lost parking, even if it does not take a property out of code compliance, can still have a material impact on the value of the property.
Loss of Circulation/Loss of Fire Lane: A government acquisition may cause renovation of the remaining property such that circulation is lost or hampered or, worse yet, may take a property out of compliance with fire code requirements regarding on site fire lanes. Other onsite improvements may have to be altered to accommodate legally compliant fire lanes.
Denial or Obstruction of Access: A project can impede access on or off the property either temporarily (during the time of construction) or permanently. Loss of driveways or changes in the roadway leading to the property can impact the property’s value.
Interruption of Utilities: A less obvious, but significant, impact on operations are interruption of utilities. A project may cause electric lines, water lines, or sewer lines to be relocated. A property may lose utilities during a relocation. If utility relocation is necessary, it is important to have the work done at a time that minimally disrupts any business on the property.
How to Prepare for a Government Taking
Upon learning of a planned government taking, there are several action items that will help minimize impact and maximize compensation. First, find out as much as you can about the planned project and how it will impact the property. Second, if there are project design changes that will minimize harm to the property, meet with the government’s engineers and planners to see if such changes are feasible. Sometimes a small, relatively insignificant, project change can save very significant property damage. Third, consider whether there are property changes that can be made now that will maximize compensation later. Fourth, find qualified help. Not all appraisers or attorneys are expert in condemnation laws which can, at times, be illogical.