New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

On May 17, 2011, Timothy P. Duggan, Chair of Stark & Stark’s Eminent Domain and Property Valuation Group, was successful in obtaining a jury verdict in a condemnation action for $4,450,000. Mr. Duggan represented the owner of an old bank building which was taken by Rowan University. When Rowan University and the property owner could not reach an agreement on the amount of just compensation, the matter was tried before a jury in Camden County, New Jersey.
 

Rowan University’s appraiser initially valued the property at $2.8 million, however, nine months after the complaint was filed, Rowan attempted to reduce its offer to $2.35 million. Prior to the start of trial, Mr. Duggan was successful in having the new appraisal stricken, which resulted in Rowan University being forced to rely upon its initial appraisal of $2.8 million.
 

The property owner’s appraiser opined to a value of $4,580,000. The jury listened to the testimony of four experts (two appraisers and two architects), and several fact witnesses, and rendered a verdict of $4,450,000.

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Timothy P. Duggan, Chair of Stark & Stark’s Condemnation & Eminent Domain Group, was quoted in the March 18, 2011 NJ Biz article, N.J. Supreme Court decision could affect commercial lease negotiation.

Mr. Duggan comments on the recent New Jersey Supreme Court decision on a Kearny eminent domain case which would affect the majority of commercial lease negotiations in the state. Mr. Duggan states that the decision “is going to have a minimal impact on the majority of condemnation cases, because in the majority of condemnation cases, the government will take the entire property from the owner.”

You can read the full article online here.

 

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On November 1, 2010, the New Jersey Supreme Court refused to review a decision by the Appellate Division of the Superior Court of New Jersey holding that a billboard located along the New Jersey Turnpike was not “real property” under the Eminent Domain Act of 1971. New Jersey Turnpike Authority v. Witt, et. al., Docket No. A-0995-09T3 (App. Div. July 15, 2010).

 

On June 26, 2009,  the New Jersey Turnpike Authority (“NJTA”) filed a complaint seeking to acquire property containing an office building and a double-sided billboard.  The billboard was owned by an outdoor advertising company who leased part of the property from the owner to construct the billboard.  The billboard company opposed the taking arguing that the billboard was real property and, as a result, the NJTA was required to enter into bona fide negotiations to purchase the billboard prior to filing suit.   The outdoor advertising company’s argument was based primarily upon N.J.S.A: 20:3-2-(d), which defines property as:
 

Land, or any interest in land, and (1) any building, structure or other improvement imbedded or affixed to land, and any article so affixed or attached to such building, structure or improvement as to be an essential and integral part thereof, (2) any article affixed or attached to such property in such manner that it cannot be removed without material injury to itself or to the property, (3) any article so designed, constructed, or specifically adapted to the purpose for which such property is used that (a) it is an essential accessory or part of such property; (b) it is not capable of use elsewhere; and (c) would lose substantially all its value if removed from such property.
 

The outdoor advertising company argued that its billboard, which stood 43 feet tall above the ground and was imbedded in the ground in a 20 x 20 x 5 foot slab of concrete, was an “improvement imbedded or affixed to the land” and thus compensable property.  The property owner and NJTA disagreed and argued that the billboard was personal property.
 

The Appellate Division reviewed the statutory definition of property and concluded that the key issue is not how the billboard is attached to the property, but whether it is an “essential and integral part of the land.”  In reviewing the facts before the court, the Appellate Division agreed with the property owner which argued that a billboard is not part and parcel to the property, “but merely a trade fixture owned by LaMar that is located on the property.”  The Court also found that the specific language in the lease stating that the “landlord agrees that the sign shall remain tenant’s personal property” clearly shows that the outdoor advertising company “never considered the billboard as real property and reserved its right to remove the billboard at anytime during the terms of the lease.”

 

Although billboard cases may not be as common as one would think, the decision clearly stresses the importance of evaluating all potential rights being acquired in a condemnation case.  The analysis must include an extensive review of the applicable statutes and case law, and a thorough understanding of real property law.

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In most eminent domain cases, the government will deposit the pre-litigation offer with the Superior Court of New Jersey shortly after the complaint is filed.  The property owner (or lien holders) is entitled to withdraw the funds without effecting his or her right to seek additional money from the government. If the property owner is successful in recovering additional money (ie., proving the property is worth more than the government’s appraised value), the government must pay interest on any additional money awarded to the property owner.

   

Recently, the Appellate Division reversed a trial court judge who held that the property owner was limited to the judgment rate of interest on the additional award of just compensation.  The property owner wanted to present evidence of a more reasonable rate of interest, (10 year treasury rate plus 290 basis points) which was much higher than the judgment rate of interest.  At stake was an additional $500,000 for the property owner.

   

The Appellate Division agreed with the property owner and held that the judgment rate of interest is not controlling in eminent domain cases.  Rather, the court held that the trial court should have held an evidentiary hearing to determine the applicable rate of interest.  The Appellate Division did not think an evidentiary hearing was not required in all cases and that under certain circumstances, the trial court can make its determination based upon certifications.  However, in this case, an evidentiary hearing was merited.

   

This case is an important decision for larger cases where there are substantial amounts of time between the filing of a complaint and the ultimate conclusion of the case.  In this particular case, the complaint was filed on March 7, 2001, funds deposited on May 3, 2001, but the award was not finally confirmed until March 28, 2008.  The property owner was entitled to just additional interest which accrued over approximately 7 years.

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Timothy P. Duggan, Shareholder of Stark & Stark’s Condemnation group, was quoted in the June 16, 2009 NJ Biz article, Senators announce amendments to eminent domain legislation. The article discusses the recent amendments to State Senate majority leader Steve Sweeney (D-West Deptford) and State Senator Ronald Rice’s (D-Newark) previously proposed eminent domain legislation, which would allow  redevelopment in the state while still providing protection and fair compensation to property owners if eminent domain is required.

Mr. Duggan states that you need a good compromise by making certain that redevelopment is allowed to go forward in some areas, such as inner cities, while curbing abuses in areas that are truly not blighted. Mr. Duggan also comments on effects the recent economy has had on several redevelopment plans in the area.

You can read the full article online here.

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What recourse, if any, does a property owner have when the government relocates a tenant to a new property in anticipation of acquiring the first property by eminent domain, but subsequently decides not to take the property?  The answer depends on the length and terms of the lease.
 

The Appellate Division of the Superior Court of New Jersey recently affirmed a trial court’s decision finding that the property owner was without recourse when its tenant was relocated and the New Jersey School Construction Corporation (“NJSCC”) decided not to acquire the property.  R.A.R. Development v. Associates v. New Jersey Schools Constr. Corp., 2008 WL 2663403 (N.J. Super. A.D. 2009).  In this particular case, NJSCC targeted a property for acquisition in order to build a new school.  After making an offer to acquire the property but before filing a condemnation complaint, NJSCC agreed to relocate a commercial tenant located at the property in question.  Since the relocation was going to take more than one year at a cost of approximately $5 million, NJSCC did not want to wait for the condemnation complaint to be filed before starting the relocation process.  When the move was almost complete, NJSCC decided not to acquire the property.  The property owner was extremely upset since it lost a tenant occupying over 100,000 square feet of space.
 

The property owner filed a lawsuit against the NJSCC alleging several causes of action, including tortuous interference with contractual and economic advantage, estoppel and inverse condemnation.  In terms of the tortuous interference claims, the court found that the NJSCC acted in good faith and pursuant to its statutory rights since New Jersey law permits the relocation of tenants prior to acquiring property by eminent domain (subject to certain requirements).  In terms of the estoppel argument, the court found that the property owner did not rely to its detriment on any representations of the NJSCC concerning the relocation of its tenants.  Finally, the court dismissed the inverse condemnation claim finding that the lease was at the end of its term (1 month remaining at the time the tenant completed its move) and the tenant had paid all rent due through the term of the lease.  In rejecting the property owner’s agreement that it was entitled to compensation for the taking of its renewal option, the court held that a “landlord’s expectation that the tenant will exercise the right of renewal does not confer on the landlord a recognized property interest subject to just compensation for its taking.”
 

The property owner in this case was harmed, but without recourse.  When negotiating with a condemning authority, one must keep in mind that New jersey law allows a condemning authority to change its mind at various stages of the process with little regard for the property owner’s rights.

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On April 9, 2009, the  New Jersey Supreme Court reversed the decision of the Appellate Division in a case analyzing a condemning authority’s obligation to reimburse a property owner for legal fees and expenses in a condemnation case.  Township of West Orange v. 769 Associates, LLC, ___, N.J. __  WL. 962687 (2009).  The New Jersey Supreme Court held that a property owner is entitled to reimbursement of his or her attorney fees and expenses as a matter of right once a condemnation complaint is filed and later abandoned by the condemning authority.  More importantly, New Jersey Supreme Court held that the property owner may recover attorney fees and other professional fees incurred  prior to the complaint being filed providing the attorney fees and expenses are directly related to the government’s efforts to acquire the property.  In this particular case, the Court found that the date of the accrual of the right to recover attorney fees and expenses was the date the Township adopted an ordinance authorizing the municipality to acquire the property by eminent domain.  The New Jersey Supreme Court also discussed the criteria to be used by a court in evaluating the amount of attorney fees and expenses to be awarded.
 

This is a very important case for property owners since it makes it clear that attorney fees and expenses can be recovered in the event the government files a condemnation action and later abandons the taking.  However, if a property owner spends a substantial amount of time and money negotiating with the condemning authority and the complaint is never filed, there is no right to recover attorney fees and expenses.  A complaint must be filed.  In addition, property owners may now look to recover attorney fees and expenses incurred prior to the filing of the complaint providing the attorney fees and expenses are directly related to the taking of the property and are incurred after the property is targeted for condemnation.

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Timothy P. Duggan, Shareholder and member of Stark & Stark's Condemnation group, will serve as Co-Chair of the 4th Annual CLE International Eminent Domain Seminar. The seminar will be held Friday April 17, 2009 at the Hilton in Newark, New Jersey.

In addition to serving as program co-chair, Mr. Duggan will present a seminar entitled Case Law and Legislative Update: Year In Review. The full-day program will provide eminent domain best practices tips, expert trial techniques, a discussion on how to control redevelopment without condemning property, basic and special concerns for valuation, and the new COAH rules driving redevelopment in New Jersey.

You can access the full seminar brochure, as well as registration information, here. (PDF)

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Recently, the Appellate Division of the Superior Court of New Jersey was required to determine whether the holders of  tax sale certificates for unpaid real estate taxes were entitled to be paid from the proceeds of a condemnation award when the estimated environmental clean-up costs exceed the fair market value of the property.  After a thorough review of the law, the court held that the tax liens could not be paid until the amount of the environmental liability was determined, even if it meant that the tax liens may never get paid.
   

In Township of Haddon v. Morgan Brothers, et al., Haddon Township sought to acquire a parcel of real estate by the exercise of its power of eminent domain.  After the complaint was filed, Haddon Township deposited $280,000 with the court which was the Township’s estimate of the fair market value of the property “as if remediated”.  The Township also admitted into evidence an expert report alleging that the amount necessary to remediate the environmental contamination was estimated to exceed $1.3 million.
   

The holder of several tax sale certificates sought to withdraw $125,000 from the $280,000 deposit which was the amount due on the tax sale certificates.  The tax certificate holders argued that as first priority liens under New Jersey law, they were entitled to be paid before any other party in the case.  However, the estimated clean-up costs were approximately $1.3 million and greatly exceeded the value of the property.  The court was asked to determine whether the tax certificate holders were allowed to be paid from the $280,000 being held in escrow, or whether the certificate holders were required to wait to see if there was any money available after the clean-up was completed.
   

Under New Jersey law, when a condemning authority deposits the estimated value of the property into court and files a declaration of taking, title to the property transfers to the condemning authority.   Liens against the property attach to the deposit in priority order.  Parties with an interest in the funds are entitled to file a motion with the court to withdraw funds in the order of their priority.  For example, a mortgage holder is entitled to withdraw the balance due on its mortgage before the property owner receives any funds.  The same holds true for a tax certificate holder who is entitled to be paid before all mortgages, judgments liens and the owner.  This is the case when there are no environmental problems.
   

When there are environmental problems, the process for withdrawing funds is changed.  The condemning authority is entitled to introduce into evidence an environmental report disclosing the estimated clean-up cost for the property and request that the estimated clean-up costs be withheld from the amount on deposit until the clean-up is completed.  For example, if the “as remediated” value of the property is $300,000 and the estimated clean-up costs are $100,000, the property owner and lienholders are only entitled to withdraw $200,000 from the $300,000 on deposit, with the balance of $100,000 to remain in escrow pending the completion of the environmental clean-up.  The term  “as remediated” means the value of the property assuming all environmental remediation has been completed.
   

The Appellate Division ultimately held that the tax liens may only be paid from funds remaining after Haddon Township is reimbursed for the remediation costs.  Under the facts in the case, it was unlikely there will be any remaining funds remaining due to the high cost of remediation.
   

The case is based upon sound reasoning.  Looking at the Haddon Township case, if a property is worth $280,000 “as remediated”, but it costs $1.3 million to remediate it, it has negative value.  After the remediation is completed, the property is only worth $280,000.  It would be unfair to allow the property owner (or lienholders) to keep the $280,000 which is a direct result of the $1.3 million spent to clean up the property. 

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N.J.S.A. 20:3-26(b), part of the Eminent Domain Act of 1971, provides:

       
“If the court renders final judgment that the condemnor cannot acquire the real property by condemnation or, if the condemnation action is abandoned by the condemnor, then the court shall award the owner of any right, or title to, or interest in such real property, such sum as will reimbursed such owner for his reasonable costs, disbursements and expenses actually incurred, including reasonable attorney, appraisal and engineering fees.”

   
Despite the clear language in the statute, not all courts have allowed property owners to recover legal fees when a condemning authority decides to abandoned a condemnation case.  For example, a case decided in 1999 denied a request for allowance of legal fees and expenses in a condemnation action where Essex County filed a condemnation complaint, but abandoned the lawsuit before the commissioners held their hearing.  Essex County v. RAR Development, 323 N.J.Super. 505 (Law Div. 1999).  The Essex County court relied upon a case from 1941 which held that a property owner’s right to receive attorneys was “conditioned” upon the public entity abandoning the condemnation action within 20 days after the filing of the commissioners’ report or jury’s verdict.  Since the case in question did not reach the commissioners’ hearing stage, the court denied the request for legal fees and expenses.

   
On December 24, 2007, the Appellate Division of the Superior Court of New Jersey decided a case which rejected the Essex County decision.  West Orange Township v. 769 Associates, LLC, ___ N.J.Super. ___, 2007 WL 4472101 (N.J.Super.A.D. 2007).   In 769 Associates, the Appellate Division found that the entitlement to reimbursement of legal fees and expenses is triggered upon the filing of the condemnation action.  Once the complaint is filed, any abandoned entitles the property owner to reimbursement of legal fees and expenses.  In rejecting the Essex County decision, the Appellate Division found that the trial court in Essex County erred when it relied upon a decision interpreting a statute which had been repealed.  The Appellate Division continued by declaring:

      
 “Here, by contrast, there is simply not textual support in N.J.S.A. 20:3-26(b) for such a limitation.  Under our current law, the only condition that must be satisfied to trigger the right of reimbursement is the abandonment of a condemnation action by the public entity.  The point in time in which this occurs is not a relevant consideration in determining whether reimbursement is warranted.”

   
The Appellate Division also held that legal fees and expenses incurred prior to the filing of the condemnation complaint cannot be recovered by the property owner.  This is somewhat problematic because often times a property owner retains counsel to negotiate with the condemning authority before the condemnation complaint is filed.
  
   
769 Associates is an important case for two reasons.  First, is it seems to over-rule Essex County, although there is an argument that the Appellate Division’s discussion of the Essex County case is dicta and not binding on lower courts.  Second, as set forth in the blog posting discussing the Township of Pemberton v. Berardi decision,  a condemnor does not have to commit to the taking until many months into the case.  Now, as a result of the 769 Associates case, property owners have some recourse if a condemnation case is abandoned by the condemning authority late in the case.

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