- Source of the Power
- Who May Exercise the Power of Eminent Domain?
- Just Compensation
- Highest and Best Use.
- Total Takings.
- Partial Takings.
- Civil Procedure Relating to Eminent Domain.
- Pre-Suit Negotiations with the Property Owner.
- Pre-Trial Procedures.
- Payment of Estimated Good Faith Compensation.
- Expert Fees and Attorney Fees.
- Inverse vs. Direct Condemnation.
- Necessary Elements.
- Vacating Streets and Loss of Access.
Source of the Power
A private property owner's right to receive just compensation for property that is taken for public use is protected by both the Federal and State Constitutions. The Fifth Amendment to the United States Constitution states: “[n]or shall private property be taken for public use, without just compensation.”
The Michigan Constitution provides that, “Private property shall not be taken for public use without just compensation therefor being first made or secured in a manner prescribed by law. Compensation shall be determined in proceedings in a court of record.” Const. 1963, Art. 10, § 2.
The purpose of requiring a government agency that is acquiring property to pay just compensation is to put the property owner in as good a position as it would have been had the taking not occurred. Miller Bros. v. Dep't of Natural Resources, 203 Mich App 674, 685; 513 NW2d 217 (1994). The public may not be enriched at the expense of the property owner, nor may the property owner be enriched at the public's expense. Id.
In addition to these constitutional requirements for the taking of property by eminent domain, Michigan has adopted the Uniform Condemnation Procedures Act (“UCPA”). The UCPA provides standards for an agency's acquisition of land, the conducting of condemnation actions, and the determination of just compensation. M.C.L. § 213.52(1). Section 5 of the UCPA provides that a condemning agency must make a property owner a good-faith offer of just compensation for the property. M.C.L. § 213.55(1). Section 12 of the UCPA provides that either the government agency or the property owner is entitled to a jury trial over issue of just compensation. MCLA 213.62.
- Who May Exercise the Power of Eminent Domain?
Both the federal and state governments (including their respective agencies) have the power of eminent domain or condemnation. In Michigan, cities and counties have also been delegated the authority or power of eminent domain by statute. See, MCLA 213.21. Of course, all entities exercising the power must be acting on behalf of the public when using the power of eminent domain.
Public utilities, such as gas and power companies, may also condemn property in Michigan. See, MCLA 486.252. Public utilities must typically receive authorization from a state or federal board or commission before condemnation proceedings may begin. The Michigan Public Services Commission grants authority to power companies to commence condemnation proceedings. See, In Re Acquisition of Land by Detroit Edison, 137 Mich App 161 (1984).
- Who May Exercise the Power of Eminent Domain?
The issue of what is “just compensation” for the taking of property is ultimately a jury issue. But the UCPA sets a floor for the amount of just compensation to be paid to the property owner at the time the agency takes title to the property. Section 5(1) of the UCPA, MCLA 213.55, requires that a written offer be made by the condemning agency and requires that the offer be at least the amount set forth in the agency's appraisal of just compensation for the property. Section 5(1) states:
[b]efore initiating negotiations for the purchase of property, the agency shall establish an amount that it believes to be just compensation for the property and promptly shall submit to the owner a good faith written offer to acquire the property for the full amount so established... The amount shall not be less than the agency's appraisal of just compensation for the property.
Because both the government and the property owner typically present the expert opinions of property appraisers to support their respective calculations of “just compensation,” the condemnation trial is likely to be a “battle of the experts” over the issue.
Expert appraisers base their determination of just compensation on the “market value” of the property at its “highest and best use.” Market value is the highest price the property would bring if exposed for sale on the open market, with a reasonable time allowed to find a purchaser with knowledge of all of the uses and purposes to which it is adapted and for which it is capable of being used. To determine market value, the cost approach, income approach or comparative market approach are used.
The cost approach is a method in which the value of the property is determined by estimating the replacement cost of improvements, deducting from this sum the estimated depreciation of the improvements and adding to that sum the market value of the land.
The income approach is based on the anticipated net income of the property. A capitalized value is determined from the anticipated net income. The value and reliability of this technique is dependent upon the reasonableness of the estimate of the net annual income, the duration of the net income, the economic life of the building or property and the method used to convert income to capital.
The comparative market approach is the most commonly used method for determining market value. It is an appraisal technique where value is predicated upon the prices paid for similar property through arms-length transactions. Listings of property for sale may also be used in the comparative market approach. Adjustments are made by the appraiser to attempt to equate the subject property to the similar property.
In considering the opinions of the appraisers on this issue of just compensation for condemned property, jurors are instructed that the following may be taken into consideration:
- Was the transaction freely entered into in good faith?
- If the transaction was on credit, how much should the price be discounted to reflect the amount which the property would have brought in cash?
- How near is the date of the other transaction to the date of valuation in this case?
- How near is the size and shape of the property to the size and shape of the owner's property?
- How similar are the physical features, including both improvements and natural features?
- How similar is the use to which the other property is, or may be, put, to the use which is, or may be, made of the owner's property?
- How far is the other property from the owner's property, and is the distance important?
- How similar is the neighborhood of the other property to the neighborhood of the owner's property?
- Is the zoning classification the same on both properties?SJI2d, 90.16.
Highest and Best Use.
In deciding the market value of the property, the jury must base its decision on the “highest and best use” of the property. Highest and best use means the most profitable and advantageous use the owner may make of the property even if the property is presently used for a different purpose or is vacant, so long as there is a market demand for such use. See, SJI2d 90.09. Under this definition, even if the property is zoned for one use, if there was a reasonable possibility, absent the threat of this condemnation case, that the zoning classification would have been changed, the jury is instructed to consider this possibility in arriving at the value of the property on the date of taking. SJI2d 90.10.
Because the value of a parcel of property may vary significantly based on its use (e.g., commercial v residential), the appraiser's assumptions regarding the zoning classification and whether it would be changed will have a significant impact on the outcome of the appraisal.
A total taking encompasses the owner's entire parcel of property. The government has the right and duty to acquire and take the entire parcel of property, even if it will not use the entire parcel in its project, whenever the acquisition of the part actually needed would destroy the practical value or utility of the remainder of the property. See, SJI2d, 90.18. The property owner may also claim that the practical value or utility of the property has been destroyed even if it has not been taken by the government. MCLA 213.54. This happens most frequently when the portion of the property that is being taken causes the remainder of the property to be landlocked or inaccessible. It is for the jury to determine whether or not the practical value or utility of the remainder has, in fact, being destroyed. (Id).
If the condemning agency is taking only a portion of the property at issue, the apprisal issue becomes more complex. Instead of simply valuing the property at the time of the taking, the appraiser and the jury must first determine the value of the property before the taking and subtract the value of the property after the taking. See, SJI2d, 90.12. The difference between the before and after property values is the just compensation for the property. In valuing the property that is left after the taking, the appraiser must take into account various factors, including, (1) its reduced size, (2) its altered shape, (3) reduced access, (4) any change in utility or desirability of what is left after the taking, (5) the effect of the applicable zoning ordinances on the remaining property, and (6) the use to which the condemning agency intends to make of the property it is acquiring and the effect of that use on the owner's remaining property.
In valuing the remainder of the property after the taking, the appraiser must assume that the agency will use its newly acquired property rights to the full extent allowed by the law. State Highway Comm'r v Schultz, 370 Mich 78 (1963) and SJI2d 90.06. Any loss to the value of the property caused by the partial take must be considered.
Civil Procedure Relating to Eminent Domain.
Pre-Suit Negotiations with the Property Owner.
The UCPA provides the framework for the civil procedure of eminent domain cases. The process begins with the government agency contacting the property owner with a “good faith offer” to purchase the property. Section 5(1) of the UCPA provides that if an appraisal has been prepared, the agency must supply a copy to the property owner. The section states: “the agency shall provide the owner of the property and the owner's attorney with an opportunity to review the written appraisal, if an appraisal has been prepared, or if an appraisal has not been prepared, the agency shall provide the owner or the owner's attorney with a written statement and summary, showing the basis for the amount the agency established as just compensation for the property.” MCLA 213.55(1).
The agency must also provide the property owner a reasonable time to review the good faith offer. If the agency is unable to agree with the owner regarding the terms for the purchase of the property, the agency may then file a complaint for the acquisition of the property in the circuit court in the county in which the property is located. (Id). The complaint filed by the agency must ask that the court ascertain and determine just compensation to be made for the acquisition of the described property. (Id). There is a right to a jury trial and the condemning agency will typically demand a jury trial in its complaint.
The UCPA details what must be included in the condemnation complaint. In addition to other allegations permitted or required by law, the complaint must include or have annexed to it:
- A plan showing the property to be taken;
- A statement of the purpose for which the property is being taken;
- The name of each known owner of the property being taken;
- A statement setting forth the time within which the defendants may contest the right of the condemning agency to take the property;
- The amount that will be paid and to whom it will be paid if there is a default;
- The arrangements which have been made regarding the escrow of the good faith compensation; and
- A declaration of taking describing the property to be taken, whether fluid or mineral rights are included and the sum of money estimated by the agency to be just compensation for each parcel of property being acquired.
Once the case has been filed, it will follow the procedure of other civil cases in the jurisdiction. There is usually a “first hearing” on compensation which is set at the time the complaint is filed. At the first hearing, typically set after the deadline for filing an answer, the government agency may (1) enter a default against any parties who have not appeared or answered the complaint, (2) deposit the good faith compensation with the court or enter an order compelling payment of the compensation to the property owner and (3) set deadlines for the exchange of appraisals and other deadlines. The parties may by stipulation, agree on these issues and avoid the need for a hearing.
Payment of Estimated Good Faith Compensation.
Unless a motion to review the necessity of the taking is filed as permitted by MCLA 213.56, the court, upon a request of a party, “shall order the escrowee to pay the money deposited under MCLA 213.55 for or on account of the just compensation that may be awarded under MCLA 213.63. The good faith compensation check is made payable to all parties with an interest in the property. Therefore, if there is a mortgage on the property, the check will be issued jointly to the owner and mortgagor. If there is a dispute between the parties, a motion may be filed to apportion the estimated compensation among the claimants to the compensation. MCLA 213.58(1).
Expert Fees and Attorney Fees.
Property owners are entitled to reimbursement of expert fees and attorney fees in condemnation cases. The allowable attorney fee is based upon the initial written good faith offer submitted by the condemning agency. The Uniform Condemnation Procedures Act provides as follows:
If the amount finally determined to be just compensation for the property acquired exceeds the amount of the good faith written offer under section 5, [MCLA 213.55] the court shall order reimbursement in whole or part to the owner by the agency of the owner's reasonable attorney's fees, but not in excess of 1/3 of the amount by which the ultimate award exceeds the agency's written offer as defined in section 5. The reasonableness of the owner's attorney fees shall be determined by the court.
Section 5(1) of the Uniform Condemnation Procedures Act, MCLA 213.55, describes the written offer as follows:
[b]efore initiating negotiations for the purchase of property, the agency shall establish an amount that it believes to be just compensation for the property and promptly shall submit to the owner a good faith written offer to acquire the property for the full amount so established. The amount shall not be less than the agency's appraisal of just compensation for the property.
It is the obligation of the property owner in a condemnation action to request reimbursement of attorney fees and to provide the court with the evidence necessary to determine whether the requested fees are reasonable. In Re Condemnation of Private Property for Highway Purposes, 211 Mich App 136 (1997).
When multiple “good faith written offers” have been made by a governmental agency, the first offer controls for purposes of calculating the maximum attorney fee under the statute. Mich Dept of Transp v Robinson, 193 Mich App 638 (1992), City of Flint v Patel, 198 Mich App 153 (1993). The written offer to be used as the fee base under MCLA 213.66 must also be made before the agency files its condemnation complaint. Bay City v Surath, 170 Mich App 139, 145 (1988).
Historically, courts have approved attorney fee requests in condemnation cases based on the maximum allowable contingency fee set forth in MCLA 213.66. See, In re Condemnation of Private Property for Highway Purposes (Dep't of Trans v Curis), 221 Mich App 136 (1997). The Curis court held that the following factors should be considered in making an award of attorney fees:
- the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services properly;
- the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
- the fee customarily charged in the locality for similar legal services;
- the amount involved and the results obtained;
- the time limitations imposed by the client or the circumstances;
- the nature of the client;
- the experience, reputation, and ability of the lawyer or lawyers performing the services; and
- whether the fee is fixed or contingent.
Id at 140.
In Curis, the court analyzed the factors set forth above and approved an attorney fee equal to the contingency fee set forth in the contract between the defendant and his attorneys. The court stated that “although reasonableness cannot be shown merely by reference to the existence of a contingent fee contract, a contingent fee agreement may be considered by the court in its efforts to determine what constitutes a reasonable fee award.” Id.
Other courts have refused to award a full one-third fee when the fee requested is substantially higher than the fee that would have been generated by multiplying the time spent on the case by the attorney's regular hourly rate. See, City of Detroit v Larned Associates, 199 Mich App 36; 501 NW2d 183 (1995).
- Pre-Suit Negotiations with the Property Owner.
- Inverse v Direct Condemnation.
The State of Michigan "recognizes a cause of action, often referred to as an inverse or reverse condemnation suit, for a de facto taking when the State fails to utilize the appropriate legal mechanisms to condemn property for public use." Peterman v DNR, 446 Mich 177, 187-188 (1994). An Inverse condemnation may also occur even if there is not a physical taking of the property where a governmental regulation effectively prevents use of a landowner's property for any profitable purpose. Id. Stated differently, "In the regulatory context, a compensable taking occurs when the government uses its power to so restrict the use of property that its owner has been deprived of all economically viable use." Miller Brothers v DNR, 203 Mich App 674, 679 (1994), citing Electrotec, Inc v H F Campbell Co, 433 Mich 57, 68-69 (1989)(emphasis supplied).
In Engineered Housing Concepts Inc v Wayne County, 180 Mich App 465 (1989), the court held that the county did not have the authority to require the plaintiff to pave a public road abutting plaintiff's property as a prerequisite to approval of plaintiff's preliminary plan for a mobile home park. The court stated that “when the taking of private property becomes necessary in the ‘laying out, widening, changing or straightening of a road,' the county must acquire that property by either purchase or condemnation.” Id at 471.
The court then stated:
A government may not use its police power to require a property owner to refrain indefinitely and without payment from using and enjoying his land because it has been set aside for possible future condemnation.
Id. at 472-73. See also, Gordon v City of Warren Planning and Urban Renewal Comm, 388 Mich 82, 91-92 (1972).
The United States Supreme Court has also recognized that the government may not prevent a property owner from using and enjoying its property. In First English Evangelical Lutheran Church v County of Los Angeles, 482 US 304 (1987), the court held that when a government agency's acts prevent the property owner from using its land, an inverse condemnation occurs, requiring that the agency pay compensation to the property owner. First English also recognized that temporary regulatory takings are not different from permanent takings.
In Poirier v Grand Blanc Township, 167 Mich App 770 (1988), the court recognized that where property is taken on a temporary basis by the government, the property owner is entitled to compensation for the period the taking was effective. These concepts were applied to a highway construction case in Standard Industries Inc v Dept of Trans, 183 Mich 53 (1990).
In Standard Industries, there were no agency regulations preventing the property owner from using its property. The owner alleged that MDOT's actions in delaying the construction of M-275 resulted in a temporary taking of its property. After a 5 day trial, “the court concluded that plaintiff failed to prove that defendant had deliberately delayed the acquisition process.” Id at 55. The ruling in favor of MDOT was upheld on appeal because “while the proposed highway created a cloud of uncertainty over plaintiff's property, we cannot conclude that the defendant deliberately or unreasonably stalled the project.” Id at 58. Therefore, under Standard Industry, the normal delays that are attendant to any highway project do not support a claim for an inverse condemnation case. However, Standard Industry also suggests that an agency's “deliberate” or intentional acts, coupled with unreasonable delays, can create an inverse condemnation.
Vacating Streets and Loss of Access.
In the case of Mackie v Watt, 374 Mich 300 (1965). the Michigan Supreme Court, in an opinion by Chief Justice Kavanagh, upheld an order of the Wexford County Circuit Court which had refused to confirm an award of commissioners impaneled to determine the proper compensation in a condemnation case. The case predated the Uniform Condemnation Procedures Act (“UCPA”) and the prior statute did not allow for a jury trial of condemnation cases. Instead, commissioners appointed by the trial court decided the proper compensation to be paid to property owners.
The specific holding of Justice Kavanagh was that potential business loss due to diversion of traffic was not an element of damages to be considered in a condemnation proceeding involving the partial taking of a parcel of property abutting a highway.
In Mackie, there was a taking of approximately 1.3 acres of a 20 acre parcel in connection with the construction of new US-131 south of Cadillac. It is unclear whether the property being taken was to become part of the roadway or taken for a shoulder or easement to the highway. In any event, there was a seven unit motel located on the northwest corner of the property abutting old US-131. As a result of the construction of new US-131 on the east end of the property, there would be a diminution in the traffic past the motel. (Given the width of the property and the limited access freeway that was being constructed as the new US-131, the property owner undoubtedly lost substantial traffic as a result of the construction of the new highway.) No portion of old US-131, however, was vacated. The State of Michigan reserved the right to cul de sac the old US-131 “approximately one mile from appellant's property...” Id at 311. However, it is clear that other roads would have continued to provide access to the property owner's motel via old US-131. The Supreme Court in Mackie discussed and agreed with the following quotation from Tomaszewski v Palmer Bee Co, 223 Mich 565, 569 (1923):
The question of eminent domain is not involved. By no stretch of imagination can it be said that property rights of plaintiffs are taken. Mere inconvenience in having to go around the east half of the block next south, instead of through it, constitutes no taking of the property of plaintiffs. It is a well settled rule that a lot owner's right to object to the vacation of a part of a street depends upon whether his lot abuts upon or comes in actual contact with the vacated portion, or access to his lot is entirely or materially cut off by reason of the vacation. That he may be inconvenienced or that he may have to go a more roundabout way to reach certain points does not bring to him any injury different in kind from the general public, but only in degree. If means of ingress and egress are not cut off or lessened in the block of the abutting owner, but only rendered less convenient because of being less direct to other points in the city, and made so by the vacation of the street in another block, such consequence is damnum absque inguria.
Id at 313-314. (Emphasis added).
In Tomaszewski, the property owners were not on the same block of the street that was vacated. The court noted: “None of the plaintiffs have property abutting upon the vacated parts of the street.” Id At 568. The Tomaszewski court also distinguished the case of Horton v Williams, 99 Mich 433; 58 N.W. 369 (1894). Horton involved property owners on the same block affected by the vacation of any alley. In Horton, the Michigan Supreme Court held that the City of Mason could not vacate the alley without paying compensation to the abutting property owners.
The Michigan cases, therefore, distinguish between property owners whose routes of travel are affected by the vacating of a street and property owners whose land ‘abuts upon” or comes in actual contact with the vacated portion of the street.
In Mackie, the court reasoned that the property owner was in the same position as all other property owners whose land abutted Old US-131. The court's rationale was as follows:
The effect of these decisions is that such an act as the creation of a cul de sac in the instant case is not a taking and, therefore, noncompensable, since no property right is being violated. A violation of a property right of appellants would be occasioned partly by this cul de sac if, at a later date, appellants would be deprived of their right of access to the general system of highways by a combination of the cul de sac potentiality and the acquisition by the State of the right to close old US-131 between appellants' property and the next crossroad to the north and of appellants' right of access from the eastern end of the their property to Forty-three Mile road (so-called ‘Old Stone Ledge road'). The evidence disclosed that the State had acquired no such rights at the time of trial. Without such additional factors, the cul de sac would merely be an interference with the general public right of travel, common to all the people of this State, particularly those who might operate a similar motel and business on the opposite side of the present highway from appellants' property. It is a mere incident which can hardly be looked upon as a vested right of property, which it would not be competent for the Legislature to take without compensation.
Id at 314-315.
In Pearsall v Board of Supervisors of Eaton County, 74 Mich 558, 42 N.W. 77 (1889), the Michigan Supreme Court upheld the payment of compensation to a property owner whose property was split by the Allegan and Lansing State Road. The board of supervisors “discontinued” the road. Mrs. Pearsall's house was on one side of the road and her barn was on the other side. The court stated the road's “discontinuance will deprive her of access to any highway...” and “will greatly inconvenience her in working the farm.” Id at 560.
More recently, in Thom v State of Michigan, 376 Mich 608; 138 N.W.2d 322 (1965), the Michigan Supreme Court found that a grade change on a highway abutting the owners' land was a compensable event. In Thom, the highway at issue, M 53, ran north and south in front of the Thom home and access to it was by a U- shaped driveway which intersected M 53 at two points. When the state highway department improved the roadway, the grade was 10 feet higher than the driveway at one end and 8 feet higher on the other. The highway department officials acknowledged that the access was “pretty bad.” Id at a626. The state's own appraiser described it as “dangerous.” The court ruled:
[W]hen a governmental unit changes the grade of a highway in such a way as to diminish the value of an abutting owner's property by impairment of his right of access to that highway, that owner's property has, to the extent of the diminution in its value, been ‘taken' for the public's use, thereby entitling the owner to just compensation therefor.
Id at 625.
In Spiek v MDOT, 456 Mich 331; 572 N.W.2d 201 (1998), the Michigan Supreme Court again recognized the distinction between property owners who suffer harm that is unique and different and harm that is suffered by all property owners near the area of a taking. In Spiek, the court refused to award compensation to property owners along an interstate freeway who complained that noise, dust, vibration and fumes damaged their property. In distinguishing the Thom case, the court stated:
Thom involved not the ordinary inconveniences of proximity to a public highway, but a clear injury to the plaintiffs' indefeasible right of reasonable access.
Id at 351, n 12.
The lesson of the cases referenced above is that damages may be paid for loss of access, but not simply diversion of traffic to or from the owners' property. In addition, the property owner must prove that the property has suffered unique harm due to the owner's proximity to the area being vacated.