Condemnation & Eminent Domain

Stark & Stark Shareholder Timothy P. Duggan, Chair Stark & Stark’s Bankruptcy & Creditor’s Rights, Eminent Domain and Real Estate Tax Appeal Groups, was a Star-Ledger Guest Columnist in the op-ed article “Irvington’s Eminent Domain Plan Not the Answer,” published on January 29, 2014.

The article discusses  why the town of Irvington, New Jersey’s plan to use eminent domain to acquire mortgages is a bad idea. Mr. Duggan explains, “At the end of the day, it is unlikely the program will have any positive impact on anyone (other than savvy investors and loan facilitators) and may ultimately reduce the values of homes.”

To read the full article, click here.

 

What happens when a bank is on the eve of a foreclosure sale and a municipality wants to acquire the property being foreclosed by eminent domain?  If the pre-litigation offer is rejected by the owner, is the bank entitled to take over the negotiations as the true party in interest? The Appellate Division recently reviewed these issues and held that the condemning authority is only required to make an offer and negotiate with the “record owner”, not a foreclosing mortgagee or any other party.  Merchantville v. Malik & Sons., docket no. A-3745-11T4 (App. Div. Feb. 5, 2013).  Also, the Appellate Division once again held that a property owner must do more than simply reject an offer if it wants to challenge the bona fides of the condemning authority’s negotiation tactics.

In Malik, the property owner received a written offer from the municipality to acquire the property.  The property owner rejected the offer for several reasons, including the fact that the offer was not sufficient to pay off the mortgage and liens on the property. The property owner’s counsel invited the municipality to increase its offer by stating “we would however be in a position to discuss more reasonable compensation in amounts which would satisfy all liens and encumbrances on the property.  Please feel free to contact me if the Borough is willing to discuss a more reasonable sale price for the property.”  It is important to note that the rejection letter did not provide any evidence that the value was too low or otherwise attack the sufficiency of the municipality’s appraisal.

When the offer was made, the property was being foreclosed by a lender.  The lender contacted the municipality to advise about the foreclosure and requested that the eminent domain case be delayed until the lender obtained title by way of a sheriff’s sale.  The municipality declined the offer and commenced the eminent domain case before the sheriff’s sale was completed.

The lender was named in the eminent domain case since it held a mortgage on the property.  As a party to the case, the lender filed a motion to dismiss the complaint arguing that as a mortgagee on the eve of foreclosure, it was the true party in interest and the municipality was required to negotiate with the lender before filing the eminent domain case.  This argument was easily dismissed by the Court since the statute in question only requires the municipality to negotiate with the entity holding “title of record to the property being condemned.”  Like prior cases, this is the entity who holds fee simple title to the property (ie. who is on the deed).  Since the lender had not acquired title, it was not entitled to participate in the negotations.

The lender also challenged the bona fides of the offer and the appraised value, and presented evidence to the court that the property was previously under contract for significantly more money.  However, this evidence and other problems with the appraisal were not presented to the municipality at the time the owner responded to the offer.  As a result, it was too little too late.

If a property is under water and the owner is not interested in negotiating with the condemning authority, a lender must act quickly to protect its rights.  Being a lender alone does not entitle it to participate in the pre-litigation negotiations.  Lenders may want to obtain a deed in lieu of foreclosure in order to become the record owner.  If this is not feasible, a lender needs to make certain the owner not only responds to an offer in a timely manner, but presents sufficient evidence of value to force the condemning authority to reconsider its initial offer.

Tim Duggan is a Shareholder in Stark & Stark’s Eminent Domain Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Mr. Duggan.

The increase in oil prices has been a boom for natural gas suppliers as many property owners convert from oil to natural gas.  To meet demand and extend service, gas companies are installing new pipelines throughout New Jersey and, in most cases, the pipelines are being installed on private property.  When a gas company like Transco knocks on your door to inquire about placing a pipeline on your property, you need to understand your legal rights and what the pipeline company can, and cannot do.

First, pipeline projects are generally not performed by your local municipality, but a pipeline company.  Gas companies can obtain the power of eminent domain to take property in order to install and construct pipelines, but they first must jump through certain hoops to obtain that power.  Those laws are beyond the scope of this article.

Second, the majority of the eminent domain cases involving pipelines are "partial takings". A partial taking usually involves the acquisition of an easement which allows the gas company to not only construct an underground pipeline on your property, but gives the company the right to come back on your property for repairs to the pipeline. Also, the easement will generally restrict what a property owner can do with his or her property in the easement area.  For example, the easement may prohibit the property owner from building a pool or structure in the easement area, or possibly limiting the type of tree that can be planted in the easement area.

Third, partial takings are much more complicated then complete takings since the damage analysis is often very complicated.  Under New Jersey law, the pipeline company must pay fair compensation for (1)  the value of the property actually taken, and (2) any damage to the remainder of the property owned by the homeowner. The damage to the remainder often requires a detailed analysis of potential future uses and how those uses are restricted by the pipeline.

Finally, in some cases a property owner may prefer to have the gas company’s pipeline take their entire property so they can move to a new location.  In order for a property owner to force the pipeline to acquire the entire parcel, the property owner must proceed under the Uneconomic Remnant Doctrine– a difficult task.

Stark & Stark’s Eminent Domain Group has represented many property owners in gas pipeline cases and can help protect your rights.

New Jersey adopted a law that may help property owners whose property was damaged by Hurricane Sandy.  However, you need to act quickly to take advantage of the law.
 
New Jersey assesses real property on an annual basis using October 1 of each year as the date of valuation.  For example, 2013 tax assessments are based upon the condition and value of property as of October 1, 2012.  Since Hurricane Sandy arrived after the valuation date, any decrease in value caused by Hurricane Sandy may not be relevant in a 2013 tax appeal.
 
However, there is an exception to the rule.  If your property sustained significant damage that caused a “material depreciation” in the value  between October 1, 2012 and January 1, 2013, you may be entitled to a reduction in your tax assessment.
 
The law in question  (N.J.S.A. 54:4-35.1) provides:
When any parcel of real property contains any building or other structure which has been destroyed, consumed by fire, demolished, or altered in such a way that its value has materially depreciated, either intentionally or by the action of storm, fire, cyclone, tornado, or earthquake, or other casualty, which depreciation of value occurred after October first in any year and before January first of the following year, the assessor shall, upon notice thereof being given to him by the property owner prior to January tenth of said year, and after examination and inquiry, determine the value of such parcel of real property as of said January first, and assess the same according to such value.
 
To take advantage of this law, you need (1) a building or structure that was damaged, (2) the damage must cause the value to be materially depreciated, and (3) you must notify the tax assessor of the damage before January 10, 2013.  It is advisable to send a written notice to the tax assessor, via certified mail, immediately and follow up with a call.  You may access the statewide directory of tax assessors here.
 
If you have any questions or need assistance in sending a notice to your local assessor, please contact Timothy P. Duggan, Esquire, at 609-895-7353 or tduggan@stark-stark.com.

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.

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.

 

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.

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.

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.

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.