Property
Class Notes
Back
to Poletown…wasn’t
the nice neighborhood the people lived in a public benefit in itself? The courts would say that that’s a question for
the legislature. Some people may find
that quite unsatisfying. The attitude of
the courts is that if the legislature sees a public purpose that justifies the
cost of eminent domain and that purpose is legitimate, then that’s enough. The court doesn’t ask this very good question. Absent a constitutional issue, we believe in legislative
supremacy, which the courts interpret to mean that they must give great
deference to legislative findings including the finding that giving the
property to GM was better than keeping it the way it had been for a long time.
Just compensation
Braunstein
practices in this area! This is the
issue that you’re almost always talking about as a practitioner. It’s the only
issue to be decided in most cases.
In law school, we deal with the most difficult cases for obvious
reasons, but these aren’t the cases that most frequently arise. The biggest question in most cases is this just
compensation question.
The
rule is pretty easy to state: just compensation is the fair market value of the
property taken, or at least that’s a big part of it. This is something you should know because it
comes up a lot.
Fair market value
Fair market value is the
amount that a willing buyer would pay a willing seller, both reasonably well
informed and neither under a compulsion to buy or sell. In order words, it’s the selling price in a
market that works well.
Some
things are fungible and easy to find fair market value for: for example, a
pound of copper or a share of GM. One of
the problems with land is that there is a “thin” market for land, that is, a
particular parcel of land doesn’t sell frequently. So the fair market value question becomes
tougher; you need good proof including things like expert witnesses.
Other compensation
You’re
also entitled to damages in addition to just compensation. Frequently, the government doesn’t take all of a landowner’s property. It depends on how much land they own and what
the needs of the condemning authority are.
Consider widening a highway, for example. The government is only going to take a
portion of the land and leave the remainder.
But this may result in damage to the “residue”, or the land remaining. The remaining land may not be appropriate for
all the valuable uses it could have been used for before. You can get damages for the decreased value
of the land you continue to own.
Some
legislatures have determined that the courts’ definition of just compensation
is not sufficiently liberal in compensating landowners. Congress has enacted the Federal Relocation
Assistance Act. The landowner gets
moving expenses and, to some extent, the cost of replacement housing in
addition to everything listed above. In
any case in which the federal government is the condemning authority or in
which the federal government is directly
involved with the condemning authority, relocation expenses will have to be
paid.
Juries
tend to sympathize with a landowner. In
a sense, if you sit on a jury, it’s your tax money that’s going to buy the land
in question. Therefore, you might expect
that the jury will be someone tight-fisted with what is effectively their money. However, with a sympathetic defendant (like a
residential landowner), they will often be more liberal than you expect.
Some
point out that just compensation isn’t really sufficient to put the landowner
in the position they would have been in if there had been no take. The courts respond that this is part of the
burden of citizenship.
Factors which are excluded
You
don’t get compensated for sentimental value, historic value, annoyance, and the
value of any business you have going on that property.
Consider
the dude with the shotgun in Poletown. If he moves somewhere else, he’s going to get
a different place, but it’s not a true
replacement for what he had.
The
only way you get compensated for historic value is if there may be buyers on
the market who are interested in “collecting” the property because of its
historical significance, for instance a Frank Lloyd Wright house or a president’s
birthplace.
If
you operate a business on the taken property, you can’t get compensated for the
value of the business. Take “Kingy’s” in
So just
compensation, in many cases, is arguably insufficient because it doesn’t fully compensate people for the losses
they suffer as a result of the taking of their property. It can be argued in turn that we should
either change (increase) what we mean by just compensation or be more careful
with what we mean as “public purpose”.
Alternatively,
it can be argued that we accept as a burden of citizenship that all property is
subject to possible eminent domain.
Almota
Farmers Elevator & Warehouse Co. v. United States
It’s
a simple case! You’ve got a grain
elevator and a railroad. The government
wants to build a dam. What happened?
Almota had been leasing the property from 1919 to 1967. They built lots of stuff on the land in
service of their grain elevator business.
Almota isn’t entitled to the value of the land because they don’t own
it. The government argues that the
amount of just compensation is the value of their seven years remaining on the
lease.
Based
on the government’s theory, how would we value the lease? Almota is paying
rent. In this case, we take the fair
market rental value (how much a grain operator would pay to lease the land as
it’s been improved) and subtract the rent.
Assume this value is positive. That’s
the value of the lease per rental period (per month or per year). Compare this to our apartment leases: given
that our leases are short term, our rents are probably equal to fair market
value and thus our leases are worthless in and of themselves.
So,
take the value of the lease per year times seven and a half years: that gives
you the value of the lease that the government would have to pay according to
the government’s theory.
What
is Almota’s theory?
Almota improved the land by building the grain
elevator. They say that they just rent
the land from the railroad, but they have sort of a symbiotic relationship with
the railroad. The railroad
need Almota because they provide the wheat
that fills the railroad’s cars and thus makes the railroad a profit. If Almota decides
to sell (assign) their lease, they would get paid not just for the seven years
remaining times the value of the lease, but rather they would get paid more
because the assignee could reasonably expect they would get the value of the improvements (the grain elevator) as
well, which would include their value over their remaining useful life.
The
improvements belong to Almota at least until the
expiration of the lease. Unless we’re
told otherwise, we would assume the railroad gets possession of the grain
elevator at the end of the lease.
The “two-take” theory
The
government theorizes that they could have taken control of the land from the railroad
by eminent domain and then kicked Almota off at the
end of 7.5 years. The problem is that
when you value property for the purposes of eminent domain, you do so without
reference to the project the land will be used for. The government can’t use its eminent domain
power to force down the value of the
property.
This
happened with Campus Partners. The city
and OSU acquired the property quite slowly over a period of years. They didn’t like the bars on High Street. They drove down property values of the
surrounding properties they hadn’t yet acquired. They made the rest of the neighborhood look
bad, and thus lowered the value of this other property they wanted to grabby
grab.
So
when you value the property the government is taking, you do it as if the eminent
domain proceedings weren’t proceeding.
So
what does the Court adopt for the standard?
Does the government have to pay for every expectancy
of being able to renew a lease? They
consider three factors in establishing the fair market value:
1. The unbroken succession of
leases
2. The useful life of the
improvements
3. The value of the ongoing
business to the railroad
The
Court looks at the expectations of a potential
buyer. People in the grain elevator
business might want the property. They
would be willing to pay not just the value of the remaining years of the lease,
but also some money for the value of the improvements that have been
constructed because it’s reasonable to expect that the railroad will want grain
folks to remain there. You consider an objective buyer on the open market, notwithstanding
the fact that the property is getting eminent domainitized.
United States v. 50
Acres of Land et al.
Not
much to this one. In this case, private
property gets a new definition. The Court
defines private property for the purposes of the Fifth Amendment to include
public property owned by states and municipality. State or municipally owned property is
treated the same way as property owned by private individuals for the purposes
of the Fifth Amendment.
The
city argues that they should get the cost of a substitute landfill
facility. They think they should get
something different than the fair market value standard. The Court rejects this and says they’ll stick
with fair market value. When would the
replacement cost be a proper valuation for just compensation? The only time you could use it would be when
it’s too hard to find out the fair market value. If there’s no market at all (as opposed to a thin market) then you’d have to
use some other method of valuation, and “substitute facility” might be the
method you use. For example, if you gave
property to the city for a park open to the public for free and then the federal
government comes in and takes it for some reason, you might argue that there’s
no market for property that you can’t use for any profitable purpose if the
title stipulates that it must be used for a park that is open to the public
with no fee.
On the
other hand, it turns out there is a real market for landfills.
The
Court says that they are very reluctant to use the “substitute facilities” rule
when a local jury judges a federal government which appears to them to have
unlimited resources. The jury might
become “untethered” from reality, as it were.
What we’ve been talking
about so far
What
does it mean to own property vis-à-vis the government? Our conclusion is that we own property
subject to the power of the sovereign to just take our property rights.
Some things can just be taken.
Some things can be taken but must be compensated. The point is that whether the government pays
just compensation or not, your title is subservient
to the state.
Now
we’re going to go back to Chapter 1 and talk about some different ways to
acquire title. How do you acquire title
to a fox? How do you acquire title to
something you find on a bus?
Don’t
get bogged down in the details of this.
The importance of the following material is what it means to own
property vis-à-vis other individuals with claims to the property.
Then
we’ll also see the law being used as an instrumentality. When we do the fox case, we’ll find that the
courts didn’t like foxes and wanted to design the law in order to have as many
foxes killed as possible. However, their
design may have unintentionally led to the protection of foxes.