What Is Condemnation?

Condemnation is the taking of private property by the government (or government agencies) for public purposes. These purposes include construction of roads, road widening (or improvement), parks, schools, environmental preservation, job creation, housing and municipal parking lots. Many commercial property owners, especially those with property along major thoroughfares, will, at some point, be confronted with a condemnation. For example, the New York State Department of Transportation has recently conducted major road improvements and widenings along Sunrise Highway (Route 27), Jericho Turnpike (Route 25), Main Street/Northern Boulevard/Port Jefferson-Riverhead (Route 25A) and the service roads along the Long Island Expressway. Several towns and counties have likewise undertaken major road widening and drainage projects which have and will affect property owners along the right of way.

Once a government decides to take property, it is very difficult, costly and usually futile to try to prevent it. [There is a general misconception that a condemnation can be “stopped.” Taken at face value, this is an overstatement. Many condemnations can, at great expense, be “slowed down” or “delayed,” but, as a practical matter, not stopped permanently. It is extremely difficult, except in extraordinary circumstances, to prove that a taking is not for a “public purpose.” See, generally, EDPL Art. 2. Conceivably, the mere delaying of the condemnation could result in the condemnor abandoning the project, but this is really an administrative and/or political decision, more than a legal one.] The Eminent Domain Procedure Law (“EDPL”) requires that public hearings be held by the condemning authority to review the proposed taking and the public purpose underlying the taking. Almost invariably, these hearings will result in a finding that a “public necessity” exists for the taking and then authorizing the condemnation to proceed.

The EDPL provides for a specific judicial review process of this finding of public necessity. However, unless the taking is plainly not for a public purpose and thus improper – an extremely difficult showing to make – a court will not intervene. Usually, the most that can be accomplished is to delay the taking on the ground of some procedural irregularity such as improper notice or inadequate environmental studies. See EDPL §§202 and 203.

Essentially, the property owner’s remedy is to receive just compensation (i.e., the market value of the property) guaranteed by the Fifth Amendment of the Constitution for the taking of private property.

The discussion which follows is based on New York State statutes and practice. However, every state has a procedural law for condemnation proceedings (e.g., NJSA Title 20).

Obviously, the practice will vary from state to state, but there will be many similarities. For example, most states require an “advance payment” upon taking of the property (see, e.g., NJSA 20:3-18; Calif. Code of Civ. Pro. § 1255.010, PA. St. 26 P.S. § 1-407). Every state has a procedure for the filing of a claim and a method – whether it’s before a panel of commissioners or the court – to determine just compensation (compare Penn. Statute 26 P.S. § 1-502 to New York’s EDPL Article 5).

The concept of “what is compensable” also varies from state to state, but there are certain bedrock constitutional standards of just compensation that apply to every state.

(A) – What is Considered A Fixture?
A fixture is an article in the nature of personal property which has been so annexed to the realty that it is regarded as part of the real property. For valuation purposes, a fixture is compensable. It does not need to be permanent or affixed in a manner as their removal would cause damage. In New York, the standard used by courts is extremely broad. A fixture is compensable if (i) it is intended to be used in conjunction with the property; (ii) it is affixed in a permanent manner to the property; (iii) the property would, in some way, be damaged if the fixture was removed; and most importantly (iv) even if the fixture is removable and it meets one of the above three criteria, it becomes compensable.

(B) – Can I Recover for Damages to My Fixtures?
The owner of the fixtures has a potential claim for damages. However, these claims are complicated and require solid evidentiary support and must be detailed in the claim. See EDPL §503(C). A fixture claim requires advance planning at the time of title vesting.

A claimant should make certain that photographs have been taken of any fixtures before moving out and that the fixture appraiser has completed his inventory and appraisal. A detailed inventory should be taken of what is removed. Any item which has been removed may not be claimed for as a fixture. However, the costs of removal and reinstallation may be claimed. Before moving, a claimant should have a copy of the fixture appraisal for reference purposes. The fixture claim will be affected by the removal claim and vice versa. A claim for an item as a fixture will bar payment for its removal and/or reinstallation.

The answer to this question is simple: anything and everything provided that it pays just compensation. Except if limited by the enabling statute (and this limitation will usually only be applied to subordinate government agencies or subdivisions), the power to take is, as a practical matter, virtually unlimited. The government can take real property, personal property, trade fixtures, leasehold interests, contractual rights, franchises, and entire businesses.

A taking can be “partial;” for example, when the government takes some frontage to widen a road; or it can be “total” when the government takes the entire property. It can be permanent (i.e., the government owns it forever) or temporary (i.e., taking a portion of real estate to provide for construction, at the end of which the property is returned).

(A) – Rent

(i) Back Rents. The owner of the building should collect all his rents up to but not including the date of title vesting. The condemning authority or its agents will not attempt to collect any of the rents due prior to title vesting date. If the owner does not collect back rent himself, it will not be adjusted or collected by the condemnor.

(ii) Rents after Vesting. If any rent is collected by the owner for a period subsequent to the passing of title, the condemnor will demand a rebate of those rents. If unpaid, such rents will be a lien against the award to be made and will have to be paid or adjusted prior to the payment of the award. The property owner should make rent adjustments to the condemning authority as soon after title vesting as possible. Disputes can better be resolved while tenants are still available.

(iii) Continued Occupancy. The owner or a tenant can often occupy any of the space in the building after vesting, either as a commercial or residential tenant. The condemning authority will demand a rent to be paid for use and occupancy. The amount of this rent may be negotiated, and will not affect the determination of just compensation. If unpaid, such rent will be deducted upon payment of the award. Disagreements on the amount of the appropriate use and occupancy rental, are resolved by a judicial hearing or may be an issue in the trial itself. No written agreement as to rent should be entered until counsel has reviewed it. See EDPL §305.

(iv) Services/Utilities. Tenants should assume that the rental arrangement with the State, unless otherwise agreed, will be on a net basis (i.e., the tenant is responsible for insurance, maintenance, etc.). It is highly unlikely that the condemning authority will provide services or repairs to the premises or make arrangements for same after the taking. If the owner chooses to remain in occupancy, it is his or her responsibility.

(B) – Insurance

Even where the taking is total, liability insurance should be continued for a reasonable period after the title vesting date as protection against pre-existing physical defects or claims. If the owner of the property continues to occupy all or any portion of the premises, insurance should be continued on personal property. The owner should consult its insurance broker as to continuing protection for itself as a tenant with respect to fire and liability insurance.

(C) – Taxes

(i) Payment to Vesting. As a general rule, the owner is required to pay only the apportioned amount of the real estate taxes for that part of the tax year prior to vesting of title. However, if the owner is in title as of the tax status date, it is, as far as the assessor is concerned, still the owner and will be liable for the tax for the entire year although the condemning authority may vest title at some point in that tax year. Note, however, that this excess payment can be adjusted later see (iii) below.

(ii) Apportionment. Prior to the next tax status date, application should be made to the assessor for an apportioned bill to remove the property taken by the condemnor and adjust the tax bill accordingly. All real estate taxes should be paid promptly to avoid any interest and penalties.

(iii) Condemnor/State Refund of Apportioned Taxes. If the tax has already been paid for a period beyond title vesting, the condemnor, upon proper application, will pay an apportioned amount of the taxes.

(iv) Where the taking is partial, the above explanation applies, but there will be a further apportionment.

(D) – Water

If water taxes are paid by a frontage charge, the owner is liable for an apportioned water tax for the year in which title vested. If there is a water meter, a reading should be requested as soon after the date of title vesting as is possible to include up to the date of title vesting. If water frontage charges have already been paid, application should be made by the owner himself to the local tax collector for a refund.

In the State of New York, the condemnation procedure is governed by the Eminent Domain Procedure Law (EDPL) which applies to all condemnations, including those undertaken by the State, municipalities, and state and local agencies.

The question of the effect of an environmental condition on the valuation of the property for condemnation or just compensation purposes is still an open issue. As of the date of this brochure, no New York appellate court has rendered a definitive determination on how costs of remediation fit into the valuation of property where there is an environmental condition. The position of the government is that these costs must be deducted from the gross market value to determine the net market value of the property and the position of the claimant/property owner is that it would be improper to impose costs of remediation as a deduction, especially where the property taken has been operating without interference with this condition. Trial courts which have addressed the issue have largely found that either the costs of remediation may not properly be deducted from the award, or that the amount of costs of remediation which can be deducted are limited by various circumstances. This is still a developing area of condemnation law and you, as property owner, should feel free to contact us to discuss this problem if the situation applies.