This is the first in a series of articles that will describe the fundamentals of the most consequential topics falling under the umbrella of real estate law. As a real estate trial lawyer with personal experience handling disputes in each of the areas that will be considered, my goal is to explain in plain language key legal concepts and terms commonly used in real estate law, identify issues that regularly lead to disputes, and describe how controversies in each area are resolved. The first subject matter to be considered in this series is the law of eminent domain, also known as the law of takings.
Takings law can be a confusing subject matter. A single piece may alternatively discuss takings, eminent domain, condemnation, and inverse condemnation, all without ever defining the meaning of these terms. “Eminent domain” refers to the government’s authority to seize land. The land is taken for a number of purposes, such as transportation projects, public improvements, to address a blighted area, etc. The government is generally required to first attempt to negotiate with a landowner regarding the land sought to be taken. If that fails, the government will resort to the courts to obtain ownership of the land.
The power of eminent domain is incidental to a government’s sovereignty, thus explaining why no provision in the Constitution of the United States expressly grants the federal government authority to take land. The power of eminent domain extends beyond the federal government to state governments, state agencies, local governments, and even, in certain circumstances, private corporations acting with authority delegated by the government.
“Condemnation” has been given various meanings, but frequently refers to the proceedings by which the power of eminent domain is executed.
Eminent domain may only be exercised for a “public use” or a “public purpose.” What comprises a “public use” in Minnesota is whether the land will be possessed, occupied, owned and/or enjoyed by the general public, or by public agencies. A taking must also be “necessary,” meaning that it is reasonably necessary or convenient to further the goal sought to be achieved by the government.
When the government exercises its eminent domain power to effectuate a “taking,” a property owner is entitled, under both the United States and Minnesota Constitutions, to “just compensation.” In Minnesota, a “taking” is broadly defined to include “every interference, under the power of eminent domain, with the possession, enjoyment, or value of private property.” When the government damages or destroys the value of a property that it has not physically appropriated, such as by regulation, it may be liable for a “regulatory taking.”
“Just compensation” is the fair market value of the property at the time of the taking. It is the price that a willing buyer would pay a willing seller, taking into consideration the highest and best use of the property. A property’s highest and best use is not necessarily the current use of the property. Instead, it is the use that is physically possible, legally permissible, financially feasible, and maximally productive. Whether a particular potential use meets all of these criteria is a common point of contention in court. In some cases, a landowner may also recover other financial losses, such as loss of going concern of a business and relocation costs.
An “inverse condemnation” proceeding occurs when the property owner, and not the government, initiates a lawsuit to recover just compensation. Property owners and businesses start these lawsuits when their property has been damaged or destroyed as a result of governmental action, but the government will not admit it. In this case, the owner brings a lawsuit alleging that his or her private property has been taken without compensation. A landowner only recovers damages if a court holds there has been a taking and then orders the government to start a condemnation proceeding.
Thus, inverse condemnation cases might require not one but two trials: the first trial concerns whether there was, in fact, a taking; the second concerns the amount of damages if there was a taking. Often the issue of whether there has been a taking is resolved on a pre-trial motion (request to the court) known as “summary judgment.” This spares the parties the cost, time, and expense of two trials.
The government will often take only part of a property owner’s land. “Severance damages” are those damages that occur when only part of an owner’s land is taken and as a result the rest of the land is damaged. Severance damages are determined using the “before and after” rule: compare the market value of the land before the taking with the market value of the land after the taking.
Ordinary Condemnation Proceedings
A takings case will begin by the condemnation authority filing a petition with the local county district court describing the land desired to be taken and stating the purpose for the taking. All affected property owners must be served with the petition. The court will hold a hearing and at that time, determine whether the taking satisfies a public use/public purpose and is necessary. In certain circumstances, Minnesota law allows the government to take the title to a property before a hearing has taken place to determine its value. This is appropriate when the government can demonstrate that it requires immediate ownership of the property. Such proceedings are referred to as “quick take” condemnation proceedings. The government’s use of the quick take procedure is the norm in Minnesota.
Assuming the judge concludes that the taking satisfies the above-stated criteria, the court will appoint a panel of three commissioners to determine the damages caused by the taking. Commissioners are real estate professionals such as attorneys, appraisers, and brokers who have agreed to serve on such panels. The commissioners will hold a hearing at which valuation evidence is presented by both the landowner and the government. The commissioners will then decide the just compensation (damages) owing to the landowner.
The property owner has a limited period of time to appeal the commissioners’ award to the district court. A property owner appealing to district court has the right to demand a jury trial on the amount of damages suffered by the taking. Although jury trials have become rare in most areas of the law, they continue to occur with regularity in eminent domain cases.
Of critical significance to landowners is that, under Minnesota statute, in certain circumstances they may recover their attorneys’ fees if they can prove damages sufficiently in excess of what was previously offered by the condemning authority.
The next article in this series will address the government’s use of special assessments to fund public improvement projects. Look for it in February 2021.