Eminent Domain

Category: Eminent Domain

Eminent Domain

How Will COVID-19 Affect Real Estate Values?

Those of us in the real estate practice—and particularly in areas concerning real estate valuation such as eminent domain and property tax appeals—are obviously quite concerned about the impact of the COVID-19 pandemic on our clients’ property values as we all proceed through these very uncertain times. I think about two upcoming quick-take hearings that I have for clients in late March and early April. The quick take hearing is the critical time during an eminent domain proceeding when the court grants the government title to and possession of the real property needed for whatever public project necessitated the taking. The date of this transfer of title and possession—the so-called “take date”—is the date on which the property will be valued for purposes of determining the damages that the property owner is owed as “just compensation” for the taking. Will the unfortunate timing of my clients’ quick take dates in the midst of this pandemic affect their ability to recover just compensation? It’s anybody’s guess at this point. Josh Folland and his group of appraisers at Valbridge Property Advisors have interviewed Twin Cities real estate professionals to try to assess the potential impacts of the pandemic at this early stage. I’m pleased to pass on Valbridge’s newsletter and report for your information. If you have thoughts (or experiences) of your own, we’d love to hear from you. Stay safe and stay well. Valbridge notes that market sentiment is likely to change as the impacts of the virus become more clear. They will continue to survey the market and will publish updates to this report.

March 20, 2020

Construction

Mediation Can Pull Matters Out of the Litigation Rabbit Hole

One of the most challenging aspects of an attorney’s job is to advise a client regarding possible litigation. I think of myself as a pragmatic business lawyer whose primary job is to help my clients achieve their business objectives. I much prefer to accomplish this through time spent on advocacy, negotiation and problem solving. Litigation typically is not part of the strategy to achieve client objectives unless that is the reason the client has come to me from the outset. When litigation becomes a question or even a tactic to be considered (if the client has been sued already, that’s a different topic entirely), I try hard to give objective advice about the merits or lack thereof vs other options, as I see them. The fact is that even when litigation goes exceedingly well, there often is substantial staff and executive time spent in pursuit of a court claim (along with mental and emotional distraction), not just dollars; and, of course, there will be dollars spent, often substantial sums, for lawyers, consultants and related costs, with no assurance of success, let alone an opportunity to recoup the spending (with some narrow exceptions). This is time and money that could be spent either in resolving the source of the impasse or pursuing other business opportunities with a greater prospect of successful completion. Minnesota’s court system has, to its credit, aggressively pushed parties to use various forms of alternative dispute resolution (ADR)(which includes mediation) to short-circuit litigation. Mediation can be a very effective tool for negotiating a resolution to an issue that led to actual or potential litigation; it is very flexible, usually cost-effective and based on a schedule set by the parties. However, it is not a sure-thing. Based on my experience with numerous mediation sessions over the years, one of the most important factors leading to a successful mediation process is timing: how much discovery has been completed so that the parties feel they are well informed about the facts in question; how much money has been expended or is anticipated to be spent if the litigation runs its course; and how much pressure exists for one or both parties to the litigation to reach a resolution on a timely basis. Another important factor is the willingness of the parties to sincerely engage in the mediation process; if one or both parties are not motivated to resolve the dispute, a successful mediation outcome is more challenging. In that case, the first factor (timing) becomes more important. For those not familiar, mediation is a controlled form of negotiation involving a neutral third-party, often a lawyer but not necessarily so. The mediators job is foremost to facilitate direct conversation between the parties for the purpose helping them see the merits of a resolution of their litigation, if possible. In the first instance, the parties may not feel they are ready to mediate (egos, principle, anger, lack of pressure, etc.); the mediator has to find a way to give parties a voice so that they can focus more honestly on the source of the dispute. If parties are represented by lawyers, then the mediator can encourage consultation privately to make sure each party knows what lies ahead for them if a lawsuit either is commenced or continues. If the parties are not represented for some reason (maybe no lawsuit yet), the mediator needs to educate them about what a court process entails, both in time and money, as well as the uncertainty of a satisfactory outcome. In my experience, mediation sessions often run several hours if not a full day (including well into the evening if progress is being made and the parties see an end to the dispute). Sometimes a mediation will extend over a couple of days to allow parties to regroup and investigate settlement options or underlying facts. Sometimes, in spite of best efforts, mediation does not result in a conclusive settlement; but even then, mediation can positively contribute if it does nothing more than allow the parties to clarify positions, exchange pertinent information and voice objections. Perhaps a negotiated settlement can still be achieved outside of mediation at some future point in the process (see my discussion of Factor 1 above). While I am not a fan of litigation, I realize that it is a reality for my clients in some instances, sometimes not of their choosing, but sometimes part of a business strategy. In such case, mediation can be a useful tool to bring closure to the dispute without the extensive investment of time and money that would otherwise be required to bring a matter to conclusion through trial. But for mediation to work, parties have to want it to work and be motivated to try. Everything else is just details.

January 9, 2020

Eminent Domain

Relocation Reimbursement: Actual Moving Expense or Business Re-establishment?

Property owners forced to move their business locations through condemnation for the Metropolitan Council’s Southwest Light Rail Transit project are generally entitled to compensation on two fronts—first, they are entitled to just compensation for the taking of their real property; second, they are entitled to relocation benefits for the costs and expenses of moving their business operations to new business premises. Navigating the weird amalgam of federal statutes, federal regulations and state statutes governing “relocation reimbursement” can be confusing and frustrating for these business owners. Consider a business client of ours requiring both warehouse and office space that relocates after condemnation to a building once occupied by a manufacturing business. The city insists that the new and different use required by the business—warehousing as opposed to manufacturing—requires installation of a new water line to accommodate sprinkler system modifications for the former manufacturing space that will now become warehouse space. The cost? $90,000. Can the business owner receive relocation reimbursement from Metropolitan Council for this necessary modification to carry on the business in the new location? It may depend on whether that cost is considered an “actual moving expense” or a “business reestablishment expense.” Why does it make a difference? Because the law caps “business reestablishment expenses” at $50,000—not a difficult lift to reach for an established, successful small business possessing a large inventory that is forced to relocate. But there is no monetary limit on “actual moving expenses,” other than that the expense must be “reasonable.” In the example of the sprinkler modifications, the regulations are less than clear. On the one hand, the relocation regulations state that, “modifications necessary to adapt utilities at the replacement site, to the personal property …” can be reimbursable as an actual reasonable moving and related expense. Application of this rule would exclude the water utility expense from the $50,000 cap. On the other hand, the relocation regulations also state that, “[r]epairs or improvements to the replacement real property as required by Federal, State, or local law, code or ordinance …” may qualify as a reestablishment expense. Application of this rule would subject the expense to Minnesota’s $50,000 cap on reestablishment expenses. The Metropolitan Council rejected the business owner’s $90,000 expense for reimbursement, concluding that it was a reestablishment expense subject to the $50,000 cap, which the owner had already exhausted through reimbursement of other expenses. Where does that leave the business owner? The allowable recourse to the Metropolitan Council’s final determination is appeal to an Administrative Law Judge. The process ultimately could wind up in the Minnesota Court of Appeals if the administrative hearing process leads to an unsatisfactory outcome.

October 30, 2019

Eminent Domain

Public Project, but Private Property Owner Pain

In case you missed it, WCCO ran a story the other night about a small business owner who has been displaced through condemnation of her property by the massive, two-billion dollar Southwest Light Rail project. The business owner said she was promised by the project’s sponsor, the Metropolitan Council, that she would be “made whole.” Her land and building were taken through the legal process of eminent domain and she continues to seek compensation from the Met Council for the loss of her business property and for the costs of relocating her business. She said that after three years with no final resolution, she has been forced to take out loans to keep her business afloat and that she is still seeking several hundred thousand dollars in moving expense reimbursement from the Met Council. This is a familiar story and a familiar dilemma. The Takings Clauses in both the United States and Minnesota Constitutions require that property owners receive “just compensation” when their property is taken for a public purpose. This is an express recognition that when the government plans and executes a public project for the greater good, the burdens of the project are likely imposed more heavily on some members of the public than on others. As the Minnesota Supreme Court has put it, “The purpose of the Takings Clause is to ensure that the government does not require some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Fair application of the Takings Clause ensures that the burdens of a public project are equalized between the general public that benefits from the project and individual property owners who must sacrifice property interests to make way for the project. The greater public benefits from rail transit. In turn, those who have been forced to give up their property for the project are constitutionally entitled to be paid for what has been taken from them. The payments to these property owners who have suffered loss come from taxpayer money. This ensures that the burden of the project is “borne by the public as a whole” and that the burden is not unfairly borne by the unfortunate property owners who must move their businesses or homes. What struck me in the television news report was a comment by a Met Council official who pointed out that the agency needed to be responsible with taxpayer money (undoubtedly true) and that there is a $50,000 limit on relocation reimbursement to a business property owner. The latter comment is not entirely accurate. There is indeed a $50,000 limit on “reestablishment expenses,” which are expenses incurred by the business owner in relocating and reestablishing the business at a replacement site. But there is no monetary limit to “relocation expenses” that can be shown to be both “reasonable” and “necessary.” The broad category of relocation expenses includes everything from professional services (planning and executing the move, installing equipment and property at the relocation site), to disconnecting, dismantling, removing, reassembling and reinstalling machinery and equipment, to reestablishing utility connections at the replacement site; such expenses also include modifications needed to personal property to adapt it to the replacement site. The business owner in the television news story said she was still attempting to recover $400,000 in moving-related expenses. The attorney representing the business owner said that Met Council was adopting an unduly narrow interpretation of the law governing relocation reimbursement. The Met Council official ultimately expressed that the greater good was being served because “this is a very good project” and “very valuable for the community.” That’s not the point. The constitution and the law provide that regardless of the merits of the public project, any private property owner who loses real property and who is forced to relocate a business mustbe paid both just compensation for the real property loss and reimbursed for reasonable and necessary relocation expenses. Otherwise, these property owners are being forced to bear public burdens which, in all fairness and justice, should be borne by the public as a whole. Click herefor the full WCCO story.

September 25, 2019

Eminent Domain

Condemnation in Reverse: Inverse Condemnation Can Be a Powerful Remedy for Property Owners

Inverse condemnation is a potentially powerful kind of litigation ju jitsumove that property owners can use in certain situations to call the government to account when it damages their property by an official act or omission. Most everyone has some familiarity with eminent domain, also known as condemnation or a governmental taking. Where private property has been taken or damaged for some public project or purpose, the government is required by the Constitution to pay the owner for the loss in the property’s value. Sometimes the government takes an action that may damage private property and doesn’t see that it has taken anything that triggers the property owner’s right to compensation. This is where inverse condemnation comes in, acting as a kind of condemnation proceeding in reverse. When the government fails or refuses to commence an eminent domain proceeding, many states, including Minnesota, allow a property owner to bring a lawsuit asking the court to order the government to bring a condemnation proceeding to determine damages to an owner’s property. Attorneys’ fees are often awardable to the property owner in inverse condemnation actions and mandatory in Minnesota if the property owner wins. Some recent creative examples of the use of inverse condemnation to force an eminent domain proceeding include those for damages caused by the California wildfires that destroyed thousands of homes and the Flint, Michigan water crisis. In Flint, a supposedly cheaper new water supply for the city not only endangered human health, but also caused damage to properties when the corrosive water destroyed plumbing and stigmatized the properties as having contaminated water. Follow this link if you are interested in learning more about how inverse condemnation might apply to a situation that you may be facing as a property owner.

July 2, 2019

Eminent Domain

New Rights Available to Property Owners in Path of Transit Projects

Property owners in the path of light rail and bus rapid transit projects are now eligible to receive the full protection of the state’s eminent domain laws, thanks to legislation passed in 2017 by the State Legislature. Before passage of this legislation, the Metropolitan Council (Met Council) had been taking the position that it was a public service corporation. This status would have exempted the Met Council from extending to property owners certain compensation rights normally available under Minnesota law when private property is taken for public projects. Because of this new legislation, the following property owner rights are now available to those whose property is taken – in whole or in part – by the Met Council for a light rail or bus rapid transit project: • Attorney fees under Minn. Stat. § 117.031, which provides that the court may award attorney and expert fees if just compensation recovery is at least 20 percent, but not more than 40 percent greater than the Met Council’s last written offer. The statute further provides that the court must award such fees if the just compensation recovered is more than 40 percent greater than the last written offer. • The Met Council must provide property owners with a written offer, along with a copy of an appraisal. The council must also make a good faith attempt at negotiating with the property owners and reimburse them for appraisals up to $1,500 for single and two-family residences and $5,000 for other types of property. • Property owners must now be advised by the Met Council of certain rights in the petition filed with the district court to commence the condemnation proceedings. These rights include their right to challenge the public use, purpose or necessity of the project for which their property is being taken and their appeal rights from any adverse determination on such a challenge. • Business property owners are now eligible to seek compensation for “loss of going concern” under Minn. Stat. § 117.186, and to seek minimum compensation under Minn. Stat. § 117.187. Minimum compensation recognizes that when a business owner must relocate, the damages, at minimum, must be sufficient to allow the owner to purchase a comparable property in the community. • The Met Council cannot require a property owner to accept as part compensation a substitute or replacement property and cannot force the owner to accept the return of property that has been acquired. • Displaced business property owners are now also eligible for relocation assistance in the form of reestablishment expenses up to a maximum reimbursement of $50,000. All displaced property owners also now have the right to challenge their eligibility for relocation assistance and to challenge the amount of such assistance through a contested case proceeding before an administrative law judge. These are significant statutory rights that the legislature adopted to ensure that property owners displaced by a public project would have the opportunity to receive “just compensation” for the taking of their property, as the state and federal constitutions require. The 2017 legislation restores these rights to property owners who find themselves in the path of transit projects carried out by the Met Council.

August 30, 2017

Eminent Domain

Landowners in LRT Path Face Hard Choices

The Twin Cities of Minneapolis and St. Paul, and surrounding metro region, are experiencing a surge in large public transit projects, most notably the long-awaited Southwest Light Rail Line (SWLRT), which extends the existing Green Line from Minneapolis to the southwest suburbs, terminating in Eden Prairie, MN. In addition to light rail, several other fixed transit ways are being constructed or are in the planning stage. What does this mean for a property owner with land potentially in the path of any work required to construct a new transit corridor? Uncertainty, confusion, frustration, anger and anxiety are just a few of the emotions that landowners, including business owners, experience when they discover their property may be taken through a future condemnation action. The consequence could be to force a wholesale relocation of a business and its employees to an unknown new location, with all the risks associated with such a move. The public agencies do a reasonably good job of providing base-level information about a major public project, including broad estimates of timing, and SWLRT is no exception. However, when it comes to the specific project location, impact, land payments, relocation and especially timing, such agencies often themselves have no answers on which to base a plan. In the case of SWLRT, the involved public agencies and their hired contractors have been waiting literally years to throw the switch and get started on land acquisition and construction of the new approximately 15-mile corridor. The “promised” start date has been a moving target, frustrating the planning efforts of affected parties. This means landowners and business owners have been riding a roller coaster of emotions as they anticipate a firm start date. The practical consequence of this uncertainty is that an affected business owner might be forced to hedge a bet and speculate about a new location, sometimes even committing to buy land or another building for a future relocation if and when it occurs. This means they are forced to expend time and precious capital to research new location options, evaluate the value of their existing property and make concrete plans for the future. The alternative is not a good choice either: delaying a search process to secure a new business home could place an affected business at risk of losing its current home without having secured an acceptable replacement. For those with special site needs, such as extended parking or outside storage, the challenge to find a location is further frustrated by municipal zoning restrictions affecting such uses. The prudent step is to initiate the planning process presuming the outcome and secure as much lead time as possible before making a hard commitment to the new location. If you have a particular urgency to act, the Metropolitan Council has been cooperative in confirming eligibility for relocation assistance ahead of formal condemnation proceedings.

August 9, 2017

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Category: Eminent Domain

How Will COVID-19 Affect Real Estate Values?

Mediation Can Pull Matters Out of the Litigation Rabbit Hole

Relocation Reimbursement: Actual Moving Expense or Business Re-establishment?

Public Project, but Private Property Owner Pain

Condemnation in Reverse: Inverse Condemnation Can Be a Powerful Remedy for Property Owners

New Rights Available to Property Owners in Path of Transit Projects

Landowners in LRT Path Face Hard Choices

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