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?
Wednesday, March 3, 2010
Tuesday, October 27, 2009
If an Acquiring Authority Performs a Minimum Compensation Study is it Required to Provide a Copy of that Study to the Property Owner
As I mentioned in one of my prior posts we had two cases involving total acquisitions of neighboring residential parcels in the metro area. In both of those cases the acquiring authority performed minimum compensation studies on the properties, but refused to provide copies of those studies to the property owners. The reason given by the acquiring authority was that unlike Minnesota Statute 117.036, which requires it to provide a copy of its appraisal upon which its offer was based, Minnesota Statute 117.187 does not require it to disclose the results of its minimum compensation study.
The position taken by the acquiring authority in those two cases raises the issue of whether an acquiring authority is required to provide a copy of its minimum compensation study to a property owner.
Unfortunately, Minnesota Statute 117.187 is silent on this particular issue. However, there is guidance in Minnesota Statute 117.036, Subd. 3, which would seem to indicate that an acquiring authority as part of the negotiation process should provide a copy of all sources of relevant information to the property owner so that person may make an informed decision regarding the taking of their property.
Minnesota Statute 117.036, Subd. 3 requires that prior to "commencing an eminent domain proceeding, the acquiring authority must make a good faith attempt to negotiate personally with the owner of the property in order to acquire the property by direct purchase instead of the use of eminent domain proceedings." That subdivision goes on further to require that as part of the negotiation process the acquiring authority "must consider the appraisals in its possession, including any appraisals obtained and furnished by the owner if available, and other information that may be relevant to a determination of damages under this chapter."
As we know, like the traditional valuation methods, minimum compensation is just another way to calculate the damages a property owner will suffer as a result of the taking of their property. Specifically, Minnesota Statute 117.187 indicates that "[w]hen an owner must relocate, the amount of damages payable, at a minimum, must be sufficient for an owner to purchase a comparable property in the community . . . ."
Despite the fact that Minnesota Statute 117.187 does not require the disclosure of any minimum compensation studies obtained by an acquiring authority, it would be very difficult to believe that it would be an act of good faith under Minnesota Statute 117.036, Subd. 3, for an acquiring authority to disclose a copy of its appraisal to the property owner, but not disclose a copy of its minimum compensation study. If a property owner cannot evaluate an acquiring authority's minimum compensation study like it can the appraisal, it would seem that this would preclude the property owner from being able to make an informed decision regarding the negotiated acquisition of their property, may actually delay the sale of the property and may even result in more cases being forced into litigation. Clearly, such an outcome would be contrary to the purposes of Minnesota Statute 117.036, which are to prevent the old trial by ambush when neither party was required to share a copy of their appraisals prior to the commissioners' hearings and to discourage the use of condemnation proceedings by encouraging good faith negotiated acquisitions.
If certain acquiring authorities continue to refuse to share copies of their minimum compensation studies in order to hide the ball from the property owner, it will only be a matter of time until a property owner files a motion to compel disclosure, or some other similar motion, and the courts will be forced to address this issue.
Has anyone out there had any similar experiences or thoughts on how Minnesota Statute 117.036, Subd. 3, affects the disclosure of minimum compensation studies.
The position taken by the acquiring authority in those two cases raises the issue of whether an acquiring authority is required to provide a copy of its minimum compensation study to a property owner.
Unfortunately, Minnesota Statute 117.187 is silent on this particular issue. However, there is guidance in Minnesota Statute 117.036, Subd. 3, which would seem to indicate that an acquiring authority as part of the negotiation process should provide a copy of all sources of relevant information to the property owner so that person may make an informed decision regarding the taking of their property.
Minnesota Statute 117.036, Subd. 3 requires that prior to "commencing an eminent domain proceeding, the acquiring authority must make a good faith attempt to negotiate personally with the owner of the property in order to acquire the property by direct purchase instead of the use of eminent domain proceedings." That subdivision goes on further to require that as part of the negotiation process the acquiring authority "must consider the appraisals in its possession, including any appraisals obtained and furnished by the owner if available, and other information that may be relevant to a determination of damages under this chapter."
As we know, like the traditional valuation methods, minimum compensation is just another way to calculate the damages a property owner will suffer as a result of the taking of their property. Specifically, Minnesota Statute 117.187 indicates that "[w]hen an owner must relocate, the amount of damages payable, at a minimum, must be sufficient for an owner to purchase a comparable property in the community . . . ."
Despite the fact that Minnesota Statute 117.187 does not require the disclosure of any minimum compensation studies obtained by an acquiring authority, it would be very difficult to believe that it would be an act of good faith under Minnesota Statute 117.036, Subd. 3, for an acquiring authority to disclose a copy of its appraisal to the property owner, but not disclose a copy of its minimum compensation study. If a property owner cannot evaluate an acquiring authority's minimum compensation study like it can the appraisal, it would seem that this would preclude the property owner from being able to make an informed decision regarding the negotiated acquisition of their property, may actually delay the sale of the property and may even result in more cases being forced into litigation. Clearly, such an outcome would be contrary to the purposes of Minnesota Statute 117.036, which are to prevent the old trial by ambush when neither party was required to share a copy of their appraisals prior to the commissioners' hearings and to discourage the use of condemnation proceedings by encouraging good faith negotiated acquisitions.
If certain acquiring authorities continue to refuse to share copies of their minimum compensation studies in order to hide the ball from the property owner, it will only be a matter of time until a property owner files a motion to compel disclosure, or some other similar motion, and the courts will be forced to address this issue.
Has anyone out there had any similar experiences or thoughts on how Minnesota Statute 117.036, Subd. 3, affects the disclosure of minimum compensation studies.
Friday, July 24, 2009
Comparable Property in Residential Cases Involving Non-Owner Occupants
In a recent metro-area residential case in which I have been involved one of the occupants of the home is disabled. That person was not a fee owner of the property and is not married to the fee owner of the property, but is the fee owner's significant other.
The home is rambler on a slab and is handicapped accessible to accommodate a motorized wheelchair, including wide doorways, a roll-in shower and has a main floor master bedroom with a reinforced floor to accommodate a hospital bed with a lift.
Prior to initiating negotiations, the acquiring authority performed a minimum compensation study. However, the home selected as most comparable in that study was not handicapped accessible and did not possess the same features as the displacement home. Not surprisingly, the home identified as most comparable in the minimum compensation study was available for sale on the market for less than appraised value of the displacement home. As a result of that the acquiring authority based its purchase offer on the fair market value appraisal rather than on the comparable property.
At the time the acquiring authority submitted its written purchase offer it did not disclose the results of its minimum compensation study to us. To this date it still has not done so and argued that Minnesota Statute 117.187 does not require it to disclose the results of that study.
When we had our appraiser perform his minimum compensation study, he selected a handicapped accessible home that had the same essential features as the displacement home. That home was for sale on the market for considerably more than the appraised value of the home. We submitted a counteroffer based upon the comparable property selected by our appraiser. In response to our counteroffer the acquiring authority raised the issue of whether the comparable property in our minimum compensation study had to be handicapped accessible because the handicapped person living in the displacement home was not the owner of the home.
As noted in previous postings, Minnesota Statute 117.187 defines owner "as the person or entity that holds fee title to the property." Based upon this definition, the acquiring authority would not reconsider its minimum compensation study. The acquiring authority argued that the statute only requires that the damages be sufficient to allow the owner to purchase a comparable property within the community, not be sufficient to allow the owner to purchase a comparable property that would be suitable for all non-fee owner occupants of the home.
For several reasons not related to this issue, the property owner chose to accept the acquiring authority's initial written offer for the purchase of her home. However, this case again raises the issue of what constitutes a comparable property within the community. It would seem that the Minnesota legislature never intended such an absurd interpretation of that phrase when it adopted this statute.
As I argued in previous postings, it seems that the legislature intended this statute to prevent property owners from ending up worse off than they were prior to the acquisition. However, that that is exactly what happened in this case. The homeowner could not find a comparable property within her community for the same price as she was paid by the acquiring authority. In order to try to afford a replacement home, she was forced to purchase a foreclosed home that was not decent, safe and sanitary and that required tens of thousands of dollars in rehabilitation expenses just to try to replace what she had in her displacement home.
While we will never how this case would have been resolved by the courts, it does raise the issue of what exactly needs to be replaced in terms of locating a comparable replacement property. Is it only what the fee owner of the property uses and possesses or is it something more than that?
It would seem simplistic and contrary to the purpose of the statute for an acquiring authority to only have to replace what the fee owner uses and possesses. This seems especially true in light of the case of the fee owner(s) having children. In such a case the fee owner(s) may only sleep in one bedroom with one master bathroom, but have 7 kids than use 6 different bedrooms and 3 different bathrooms. Based upon the acquiring authority's argument in this case, since the children are not fee owners as defined by Minnesota Statute 117.187, the comparable replacement property would only have to have 1 bedroom and 1 bathroom. Such a result would lead to absurd results as no one could reasonably believe such a home would be comparable. However, until we get some clarification from the courts on this issue we can expect acquiring authorities to raise every possible issue to avoid having to comply with this statute.
Do you have any experiences in such a case or have any thoughts in this regard.
The home is rambler on a slab and is handicapped accessible to accommodate a motorized wheelchair, including wide doorways, a roll-in shower and has a main floor master bedroom with a reinforced floor to accommodate a hospital bed with a lift.
Prior to initiating negotiations, the acquiring authority performed a minimum compensation study. However, the home selected as most comparable in that study was not handicapped accessible and did not possess the same features as the displacement home. Not surprisingly, the home identified as most comparable in the minimum compensation study was available for sale on the market for less than appraised value of the displacement home. As a result of that the acquiring authority based its purchase offer on the fair market value appraisal rather than on the comparable property.
At the time the acquiring authority submitted its written purchase offer it did not disclose the results of its minimum compensation study to us. To this date it still has not done so and argued that Minnesota Statute 117.187 does not require it to disclose the results of that study.
When we had our appraiser perform his minimum compensation study, he selected a handicapped accessible home that had the same essential features as the displacement home. That home was for sale on the market for considerably more than the appraised value of the home. We submitted a counteroffer based upon the comparable property selected by our appraiser. In response to our counteroffer the acquiring authority raised the issue of whether the comparable property in our minimum compensation study had to be handicapped accessible because the handicapped person living in the displacement home was not the owner of the home.
As noted in previous postings, Minnesota Statute 117.187 defines owner "as the person or entity that holds fee title to the property." Based upon this definition, the acquiring authority would not reconsider its minimum compensation study. The acquiring authority argued that the statute only requires that the damages be sufficient to allow the owner to purchase a comparable property within the community, not be sufficient to allow the owner to purchase a comparable property that would be suitable for all non-fee owner occupants of the home.
For several reasons not related to this issue, the property owner chose to accept the acquiring authority's initial written offer for the purchase of her home. However, this case again raises the issue of what constitutes a comparable property within the community. It would seem that the Minnesota legislature never intended such an absurd interpretation of that phrase when it adopted this statute.
As I argued in previous postings, it seems that the legislature intended this statute to prevent property owners from ending up worse off than they were prior to the acquisition. However, that that is exactly what happened in this case. The homeowner could not find a comparable property within her community for the same price as she was paid by the acquiring authority. In order to try to afford a replacement home, she was forced to purchase a foreclosed home that was not decent, safe and sanitary and that required tens of thousands of dollars in rehabilitation expenses just to try to replace what she had in her displacement home.
While we will never how this case would have been resolved by the courts, it does raise the issue of what exactly needs to be replaced in terms of locating a comparable replacement property. Is it only what the fee owner of the property uses and possesses or is it something more than that?
It would seem simplistic and contrary to the purpose of the statute for an acquiring authority to only have to replace what the fee owner uses and possesses. This seems especially true in light of the case of the fee owner(s) having children. In such a case the fee owner(s) may only sleep in one bedroom with one master bathroom, but have 7 kids than use 6 different bedrooms and 3 different bathrooms. Based upon the acquiring authority's argument in this case, since the children are not fee owners as defined by Minnesota Statute 117.187, the comparable replacement property would only have to have 1 bedroom and 1 bathroom. Such a result would lead to absurd results as no one could reasonably believe such a home would be comparable. However, until we get some clarification from the courts on this issue we can expect acquiring authorities to raise every possible issue to avoid having to comply with this statute.
Do you have any experiences in such a case or have any thoughts in this regard.
Thursday, June 11, 2009
Does Minimum Compensation Have Any Impact on the Unit Rule?
Under the traditional method of valuing property (fair market value based upon appraisals) the "Unit Rule" required that a gross award be made for the property as a whole, which would then be allocated between the various parties holding an interest in the property based upon the amount of damage they will suffer as a result of the taking. County of Hennepin v. Holt, 207 N.W.2d 723 (Minn. 1973). Under the Unit Rule no party has a right to any award made to the other by the condemning authority because it is their compensation for the damages they will incur as a result of the taking of their interest in the property. Id.
In the case of a tenant with a compensable leasehold interest the commissioners determine the overall value of the property being taken and then apportion that award between the owner of the property and the tenant. However, the award being apportioned is based upon the value of the property being taken.
This raises a two potentially interesting questions:
1. Whether a Minimum Compensation claim by a property owner/occupant under Minnesota Statute 117.187 affects a tenant's ability to make a leasehold interest claim under the Unit Rule.
2. If a Minimum Compensation claim made by the property owner/occupant does not affect a tenant's ability to make a leasehold interest claim, does that tenant still have a traditional leasehold valuation appraisal done to calculate their damages.
As noted above, the Unit Rule requires a gross award for the property being taken, which is then apportioned between the various parties having an interest in the property. However, under Minimum Compensation, the damages paid to the property owner/occupant are not based upon the fair market value of their property, but upon what it will cost them to purchase a comparable property within their community.
This means the property owner/occupant is paid what it will cost for them to buy another property, which, in many cases, will be more than the appraised fair market value. This also means there is no traditional gross award for the property being taken that can be apportioned among the various parties having an interest in the property. If a tenant's leasehold interest claim is based upon a leasehold advantage they have over the market for the property they occupy, can they make a claim to a Minimum Compensation award when that payment is not based upon the property they occupy.
The easy answer is to simply act as if the Minimum Compensation payment is just another measure of damages like fair market value and that is the gross award that must be apportioned, but is that the right course of action to take. Couldn't a property owner/occupant just as easily argue that there is no gross award for the property being taken because the tenant's long-term lease does not contribute to the determination of the damages awarded and so no apportionment should occur. There is no easy answer to this question and because of the limited number of leasehold interest claims, this may just be an academic exercise anyway.
Assuming a tenant can make a leasehold interest claim in a Minimum Compensation case, is the traditional leasehold advantage appraisal still the best way to make that claim. As the determination of a leasehold advantage is based upon the tenant's rent versus what they should be paying to occupy a similar property, there really is no relation to a property owner/occupant's Minimum Compensation claim and so it would appear that the traditional leasehold advantage appraisal would still be the best way to document a tenant's damages.
Practically speaking, a Minimum Compensation claim may also make it easier for the property owner/occupant to accept the payment for a tenant's leasehold advantage. The reason for this is that the gross award is no longer the fair market value of the property, with any payment to a tenant is coming right off the top of what the property owner would be entitled to receive for their property. Instead, in a Minimum Compensation case the gross award can be substantially higher than the fair market value of the property, which would mean the property owner/occupant could pay the tenant for the value of their leasehold advantage and still receive more than the appraised value of the property.
This exact scenario happened to me in a recent leasehold interest claim in the out-state area. In that case the property owner/occupant could not stand the thought of having to pay my client anything for the value of his leasehold advantage (following the Minnesota Supreme Court's decision in the MAC v. Noble case, http://www.lawlibrary.state.mn.us/archive/supct/0904/OPA062400-0409.pdf the lease had a questionable condemnation clause). On several occasions I offered to assist the property owner/occupant with making a Minimum Compensation claim as a way to increase the amount of damages they were potentially entitled to receive and to make the payment to my client more palatable. However, the property owner/occupant, and their attorney, refused my offers and as far as I am aware only made a claim for the property based upon a traditional fair market value analysis.
In the end we were able to settle my client's leasehold interest claim and instead of that payment coming out of a larger pot of money based upon Minimum Compensation, it came right off the top of the appraised fair market value for the property. I am not sure which process would have been better, but I know what process I would have chosen had I been the property owner/occupant.
Do you have any thoughts on this issue?
In the case of a tenant with a compensable leasehold interest the commissioners determine the overall value of the property being taken and then apportion that award between the owner of the property and the tenant. However, the award being apportioned is based upon the value of the property being taken.
This raises a two potentially interesting questions:
1. Whether a Minimum Compensation claim by a property owner/occupant under Minnesota Statute 117.187 affects a tenant's ability to make a leasehold interest claim under the Unit Rule.
2. If a Minimum Compensation claim made by the property owner/occupant does not affect a tenant's ability to make a leasehold interest claim, does that tenant still have a traditional leasehold valuation appraisal done to calculate their damages.
As noted above, the Unit Rule requires a gross award for the property being taken, which is then apportioned between the various parties having an interest in the property. However, under Minimum Compensation, the damages paid to the property owner/occupant are not based upon the fair market value of their property, but upon what it will cost them to purchase a comparable property within their community.
This means the property owner/occupant is paid what it will cost for them to buy another property, which, in many cases, will be more than the appraised fair market value. This also means there is no traditional gross award for the property being taken that can be apportioned among the various parties having an interest in the property. If a tenant's leasehold interest claim is based upon a leasehold advantage they have over the market for the property they occupy, can they make a claim to a Minimum Compensation award when that payment is not based upon the property they occupy.
The easy answer is to simply act as if the Minimum Compensation payment is just another measure of damages like fair market value and that is the gross award that must be apportioned, but is that the right course of action to take. Couldn't a property owner/occupant just as easily argue that there is no gross award for the property being taken because the tenant's long-term lease does not contribute to the determination of the damages awarded and so no apportionment should occur. There is no easy answer to this question and because of the limited number of leasehold interest claims, this may just be an academic exercise anyway.
Assuming a tenant can make a leasehold interest claim in a Minimum Compensation case, is the traditional leasehold advantage appraisal still the best way to make that claim. As the determination of a leasehold advantage is based upon the tenant's rent versus what they should be paying to occupy a similar property, there really is no relation to a property owner/occupant's Minimum Compensation claim and so it would appear that the traditional leasehold advantage appraisal would still be the best way to document a tenant's damages.
Practically speaking, a Minimum Compensation claim may also make it easier for the property owner/occupant to accept the payment for a tenant's leasehold advantage. The reason for this is that the gross award is no longer the fair market value of the property, with any payment to a tenant is coming right off the top of what the property owner would be entitled to receive for their property. Instead, in a Minimum Compensation case the gross award can be substantially higher than the fair market value of the property, which would mean the property owner/occupant could pay the tenant for the value of their leasehold advantage and still receive more than the appraised value of the property.
This exact scenario happened to me in a recent leasehold interest claim in the out-state area. In that case the property owner/occupant could not stand the thought of having to pay my client anything for the value of his leasehold advantage (following the Minnesota Supreme Court's decision in the MAC v. Noble case, http://www.lawlibrary.state.mn.us/archive/supct/0904/OPA062400-0409.pdf the lease had a questionable condemnation clause). On several occasions I offered to assist the property owner/occupant with making a Minimum Compensation claim as a way to increase the amount of damages they were potentially entitled to receive and to make the payment to my client more palatable. However, the property owner/occupant, and their attorney, refused my offers and as far as I am aware only made a claim for the property based upon a traditional fair market value analysis.
In the end we were able to settle my client's leasehold interest claim and instead of that payment coming out of a larger pot of money based upon Minimum Compensation, it came right off the top of the appraised fair market value for the property. I am not sure which process would have been better, but I know what process I would have chosen had I been the property owner/occupant.
Do you have any thoughts on this issue?
Tuesday, May 19, 2009
What is a Property Owner Entitled to Replace
Recently, I had a discussion with a metro area condemnation/relocation practitioner about the necessary scope of a minimum compensation study.
In that particular case we discussed a property owner that owned a business on their property that needed to relocate so there was no question regarding their eligibility to make a minimum compensation claim under Minnesota Statute 117.187. However, the property owner's business only occupied about 75% of the building, while they leased out the remaining 25% of the building to another business.
The practitioner wanted to know what kind of comparable replacement property he needed to find that could serve as the basis of the acquiring authority's offer. He needed to know whether the comparable replacement property had to be similar in size to the property being taken or if it only had to be similar in size to the 75% of the property that the business actually occupied.
I told the practitioner that while I could understand his confusion given the phrase "when an owner must relocate" in 117.187, it would seem contrary to the purpose of the statute that the building owner only be able to replace 75% of what they owned at their displacement site. If that were to occur it would mean they would be worse off following the taking of their property, which is what the legislature was trying to avoid when it adopted this statute.
Additionally, I noted to him that 117.187 has a different definition of "owner" than is used elsewhere in Chapter 117 and that might provide additional explanation as to why the property owner would be entitled to a minimum compensation claim based upon 100% of their property rather than just the 75% their business occupied.
Minnesota Statute 11.025, Subd. 3 defines an owner as "all persons with any interest in the property subject to a taking, whether as proprietors, tenants, life estate holders, encumbrances, beneficial interest holders, or otherwise." However, 117.187 defines an owner "as the person or entity that holds fee title to the property." The specific use of the phrase "the person or entity that holds fee title to the property" seems to indicate that the owner is entitled to replacement of whatever constitutes "the property" that they owned. If the Minnesota legislature wanted to limit that to whatever the property owner used and and occupied they would have used an even more restrictive definition of the word owner. The legislature could have gone further and defined an owner as "the person or entity that holds fee title to the property and the part of the property they occupy" but it did not do so.
When you look at the actual definition of the word "owner" in the statute and the reason why the legislature adopted 117.187 it seems clear that an owner is entitled to a minimum compensation claim based upon not just upon what they owned and occupied, but the entirety of what they owned.
In that particular case we discussed a property owner that owned a business on their property that needed to relocate so there was no question regarding their eligibility to make a minimum compensation claim under Minnesota Statute 117.187. However, the property owner's business only occupied about 75% of the building, while they leased out the remaining 25% of the building to another business.
The practitioner wanted to know what kind of comparable replacement property he needed to find that could serve as the basis of the acquiring authority's offer. He needed to know whether the comparable replacement property had to be similar in size to the property being taken or if it only had to be similar in size to the 75% of the property that the business actually occupied.
I told the practitioner that while I could understand his confusion given the phrase "when an owner must relocate" in 117.187, it would seem contrary to the purpose of the statute that the building owner only be able to replace 75% of what they owned at their displacement site. If that were to occur it would mean they would be worse off following the taking of their property, which is what the legislature was trying to avoid when it adopted this statute.
Additionally, I noted to him that 117.187 has a different definition of "owner" than is used elsewhere in Chapter 117 and that might provide additional explanation as to why the property owner would be entitled to a minimum compensation claim based upon 100% of their property rather than just the 75% their business occupied.
Minnesota Statute 11.025, Subd. 3 defines an owner as "all persons with any interest in the property subject to a taking, whether as proprietors, tenants, life estate holders, encumbrances, beneficial interest holders, or otherwise." However, 117.187 defines an owner "as the person or entity that holds fee title to the property." The specific use of the phrase "the person or entity that holds fee title to the property" seems to indicate that the owner is entitled to replacement of whatever constitutes "the property" that they owned. If the Minnesota legislature wanted to limit that to whatever the property owner used and and occupied they would have used an even more restrictive definition of the word owner. The legislature could have gone further and defined an owner as "the person or entity that holds fee title to the property and the part of the property they occupy" but it did not do so.
When you look at the actual definition of the word "owner" in the statute and the reason why the legislature adopted 117.187 it seems clear that an owner is entitled to a minimum compensation claim based upon not just upon what they owned and occupied, but the entirety of what they owned.
Wednesday, April 29, 2009
How Do You Define "Community"?
In my second post I discussed a recent minimum compensation case I had against a metro-area municipality. One of the issues that came up in that case was how does one define the word "community" as it is used in Minnesota Statute 117.187.
In that case the property owners owned a small "mom and pop" used car dealership in the west metro that also had one service bay with a hoist. The property owners estimated that 80-90% of their clientele lived within 5 minutes of their shop.
In searching for a comparable replacement property within their community that would serve as the basis for their minimum compensation claim, we were unable to locate a property that was currently available on the market in that immediate area. Once we determined no comparable properties existed in that immediate area we had two options: (1) expand the scope of our search for comparable properties, which would expand the property owner's community; or (2) obtain an estimate for how much it would cost to construct a similar building on property available within that immediate area. We decided to simultaneously pursue both options so the property owners could make an informed decision on how they wanted to proceed with their minimum compensation claim.
In that case the property owners owned a small "mom and pop" used car dealership in the west metro that also had one service bay with a hoist. The property owners estimated that 80-90% of their clientele lived within 5 minutes of their shop.
In searching for a comparable replacement property within their community that would serve as the basis for their minimum compensation claim, we were unable to locate a property that was currently available on the market in that immediate area. Once we determined no comparable properties existed in that immediate area we had two options: (1) expand the scope of our search for comparable properties, which would expand the property owner's community; or (2) obtain an estimate for how much it would cost to construct a similar building on property available within that immediate area. We decided to simultaneously pursue both options so the property owners could make an informed decision on how they wanted to proceed with their minimum compensation claim.
We determined that it was going to cost well in excess of $1 million to construct a new building on an existing property within the property owner's immediate area. We also determined that a comparable replacement property existed on the market for $779,000. However, that property was approximately 17 miles away, but was still located on the west side of the metro area. The property owners concluded it was more reasonable to use the existing property as the basis for its minimum compensation claim, even though it was 17 miles away, than submitting a claim based upon the cost to construct a new building.
When the municipality finally concluded its minimum compensation study it identified several properties that it thought could serve as potential comparable replacement properties. All of those properties were on the market for less than the comparable replacement property identified by the property owners. The properties identified by the municipality were all located in St. Paul or the east side of the metro area. Those properties were probably closer in size, age and condition that the property identified by the property owners, but served a completely different client base.
We argued that even though the comparable replacement property identified by the property owners was 17 miles away, it was still at least on the west side of the metro area and closer to their existing client base. We also argued that the properties identified by the municipality were so far away from their existing client base, that the property owners would essentially be creating a new going concern because they would have to start all over in creating a new client base. Unfortunately, the matter never went to a commissioners hearing so we did not reach any definitive conclusion on this issue.
However, this case raises the interesting question of what constitutes a property owner's community. Is community narrowly defined as the municipality in which the property is located, is it more broadly defined as the property owner's customer base/service area or is it based upon a number of different factors.
From my perspective community must be decided on a case-by-case analysis of the particular facts of the property owner. No two cases are going to be exactly alike because the community for a small mom and pop used car dealership is going to nothing like an internet based retail service. Some of the factors to consider when trying to identify a property owner's community should include a combination, or all, of the following:
1. Location;
2. Traffic counts;
3. Visibility;
4. Accessibility for clientele;
5. Competition in the area;
6. Service area;
7. Customer base;
8. Type of business; and
9. Licensing, permitting and zoning issues.
Tuesday, April 21, 2009
Minimum Compensation Claims in Cases of Partial Acquisitions
I received an email from a follower of this blog that I wanted to post for possible feedback. The person that sent the email is a right-of-way acquisition specialist for a suburban municipality.
In his email, the person stated that he thought that the minimum compensation statute is only applicable in cases where the entire property is taken or in cases where the remainder of the property may be considered an uneconomic remnant.
I responded by noting that I thought he was correct in his understanding of the statute. The statute does say "when an owner must relocate". Presumably, this means that the property owner can no longer use it for its intended purpose because the remainder does not meet setback requirements, zoning restrictions, etc.
For example, an ordinary strip taking for right-of-way purposes that does not affect the improvements would most likely not require a minimum compensation payment. That person would be entitled to compensation for the property taken and severance damages, if any, to the remainder of the property. However, if the strip taking affects the improvements, but is not a total take, and the business or resident can no longer remain on the property, then I think that property-owner would be entitled to a minimum compensation payment.
The tougher question becomes what happens in the case of a strip taking that affects the future development potential of that property. The strip taking doesn't currently affect the owner's use of the property, but maybe that property is in transition to some higher and better use because it had be previously rezoned during an amendment to the city's comprehensive plan. Right now the property is being used for residential purposes, but had been previously rezoned to office/commercial and the property owner had plans to convert their home to small office space (for an insurance office or real estate sales office). Now the property owner is nearing retirement and wants to earn rents from the conversion of their property to small office rentals. If the strip taking were to affect the use of the home for small office, would that property owner be entitled to a minimum compensation claim for the future use of that property?
That also leads to another question, how would you value that minimum compensation claim. Are their damages based upon purchasing a comparable property within the community for its current use or any possible future uses based upon the rezoning of that property. My guess is that they would be entitled to a minimum compensation claim based upon a comparable property located within a similarly zoned area. Just my thoughts.
Does anyone else have any thoughts on the issues raised in this post?
In his email, the person stated that he thought that the minimum compensation statute is only applicable in cases where the entire property is taken or in cases where the remainder of the property may be considered an uneconomic remnant.
I responded by noting that I thought he was correct in his understanding of the statute. The statute does say "when an owner must relocate". Presumably, this means that the property owner can no longer use it for its intended purpose because the remainder does not meet setback requirements, zoning restrictions, etc.
For example, an ordinary strip taking for right-of-way purposes that does not affect the improvements would most likely not require a minimum compensation payment. That person would be entitled to compensation for the property taken and severance damages, if any, to the remainder of the property. However, if the strip taking affects the improvements, but is not a total take, and the business or resident can no longer remain on the property, then I think that property-owner would be entitled to a minimum compensation payment.
The tougher question becomes what happens in the case of a strip taking that affects the future development potential of that property. The strip taking doesn't currently affect the owner's use of the property, but maybe that property is in transition to some higher and better use because it had be previously rezoned during an amendment to the city's comprehensive plan. Right now the property is being used for residential purposes, but had been previously rezoned to office/commercial and the property owner had plans to convert their home to small office space (for an insurance office or real estate sales office). Now the property owner is nearing retirement and wants to earn rents from the conversion of their property to small office rentals. If the strip taking were to affect the use of the home for small office, would that property owner be entitled to a minimum compensation claim for the future use of that property?
That also leads to another question, how would you value that minimum compensation claim. Are their damages based upon purchasing a comparable property within the community for its current use or any possible future uses based upon the rezoning of that property. My guess is that they would be entitled to a minimum compensation claim based upon a comparable property located within a similarly zoned area. Just my thoughts.
Does anyone else have any thoughts on the issues raised in this post?
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