Condemning Contaminated Property

• Publication year: 1998
• Pages: 89
• Citation: Vol. 27 No. 10 Pg. 89

27 Colo.Law. 89 Colorado Lawyer 1998.

1998, October, Pg. 89. Condemning Contaminated Property

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89

Vol. 27, No. 10, Pg. 89

The Colorado Lawyer
October 1998
Vol. 27, No. 10 [Page 89]

Specialty Law Columns
Government and Administrative Law News
Condemning Contaminated Property
by Patricia C. Tisdale

Planning a public project necessarily involves consideration of the best location for the project. This article explores the determination of just compensation and the property ownership risks to the condemning authority when the chosen location for a public project is environmentally contaminated

Hypothetical Illustration

A simple hypothetical may illustrate the issues. The hypothetical concerns an income-producing property: a former service station now used as a flower shop, whose value may be calculated based on the income stream generated by the property in its present use. The underground gasoline storage tanks were removed a number of years earlier, when the service station closed. Unbeknownst to the owner and present lessee, the tanks had leaked into the surrounding soil, and the contamination has reached the groundwater

The highway department has now decided to widen the road adjacent to the property and, in connection with the acquisition of the necessary right of way, has investigated the property and discovered that it is contaminated. The department, concerned about its potential liability as the new owner of the right of way, decides to remove the contaminated soil from the right of way. The department reports the situation to the state department of health which then notifies the owner of the property that he must clean up the rest of the contaminated soil on the remainder and institute groundwater remediation as well.

At a valuation trial, the condemnor will focus on the property's fair market value at the time of the taking and will claim that because any knowledgeable purchaser in today's market would perform an environmental audit, discover the contamination, and insist on its cleanup prior to transfer of title, the contamination will adversely affect the property's present market value. The property owner, on the other hand, will argue that the property provided an income stream and value to the owner that did not recognize any offset for environmental contamination, and that but for the street widening project, the owner could have continued to lease the property indefinitely and might never have discovered the contamination, thus never incurring the costs of remediation.

Factors to Consider

In any condemnation, the major issue is the value of the property. Naturally, the condemning authority will seek to minimize the amount of compensation that it must pay to acquire the property, and the owner will seek to maximize its compensation. If the owner caused the contamination, or if the owner is a "potentially responsible party" by virtue of his ownership of the property, as that term is defined by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), the "fairness" of charging the owner with the cost of remediation may be self-evident. However, if the property is contaminated because of migration of contaminants from the adjacent property, the question becomes what public policy is served by reducing an innocent owner's just compensation to reflect the contamination.

Extent of the Contamination

The condemning authority should determine the effects of the contamination on the proposed public use of the property, and whether or not the problem must be remediated in order for the project to move forward. The owner will want to have access to any and all testing done by the condemning authority because the condemnor will likely argue that it should recover the cost of testing from the owner, and the owner will want the ability to agree with or challenge any findings and the proposed remediation, if any.

In addition, an owner would be wise to hire its own environmental consultant. This is especially important if there is a contaminated remainder because the condemning authority's proposed remediation program may not be the most efficient and cost-effective program for the remainder.

Stage of the Assessment And Cleanup Process

If the contamination has just been discovered, the cost of remediation and stigma effects will be much more difficult to predict. If the assessment is complete and a remediation plan is in place, the direct costs become more easily quantified, but stigma issues remain.

There may be support for the proposition that the property should be evaluated as if cleaned up, especially where remediation costs are reimbursable. If the property is merely past-contaminated, and the "no further action letter" is in hand, stigma may be the only valuation issue. In evaluating the effect of contamination on the market value of the property, both the condemning authority and the owner also will want to evaluate the...