Averaging Costs of Possible Comparable Properties as Basis of Offer

In a current minimum compensation case I have, the acquiring authority took a very unusual approach to determining the amount of its initial written offer for just compensation.

The client owns an Asian restaurant in a metro-area suburb that is being displaced by a road project. In this case the owner of the underlying real property also owns the business that is being forced to relocate so there is no question that they are entitled to a minimum compensation payment as required by Minnesota Statute 117.187.

In this case the acquiring authority performed both a fair market appraisal of the property and a minimum compensation study to determine how much it was going to cost the client to purchase a comparable replacement property within their community. The fair market value appraisal would have resulted in a much lower payment than the minimum compensation study, so the acquiring authority based its initial written offer upon its minimum compensation study. However, the approach taken by the acquiring authority in its minimum compensation study and subsequent offer was quite odd and does not seem to comport with the requirements of Minnesota Statute 117.187.

In this case the acquiring authority identified six different properties that it determined to be comparable and based its offer upon the average cost for those six properties. Those six properties ranged in value from a high of $995,000 to a low of $595,000.

As we know, Minnesota Statute 117.187 requires that the damages suffered by an owner that is forced to relocate must be calculated upon what it will cost that property owner to purchase a comparable property within their community. It would seem that this approach would violate the requirements of Minnesota Statute 117.187 because that statute requires that a property owner’s damages be calculated based upon what it would cost them to purchase a comparable replacement property. However, the acquiring authority's calculation of damages in this case would not allow the client to purchase an actual comparable replacement property; it only makes a conclusion regarding the potential cost of a hypothetical property that does not actually exist. That would seem to be contrary to the purpose of Minnesota Statute 117.187, which is to prevent a property owner from ending up in a worse position than they were in at their displacement site.

Has anyone else had a similar experience like this type of offer? Does anyone have any thoughts as to the validity of this approach under Minnesota Statute 117.187?