4 Severance Damages and Loss of Access

• Library: Eminent Domain: A Handbook on Condemnation Law (ABA) (2011 Ed.)

Gerald Meaders and Matt Michel

OVERVIEW

Severance damages are recoverable only where there is a "partial taking" and depend on the highest and best use of the property. Thus, one first must determine if there is a partial taking of a larger parcel and, if so, determine the dimensions and uses of that larger parcel.¹ Unities of ownership, use, and contiguity within the entire larger parcel are normally required.² The reduction in market value or otherwise occurring severance damages may be reduced by, set off against, or mitigated by a cost to cure. The party asserting a cure has the burden of proof.

Leasehold interests are generally entitled to severance damages in eminent domain.³ Some jurisdictions limit certain types of recovery by tenants in various ways.⁴ One must first determine the nature and extent of the leasehold estate (and thus whether the tenant has a compensable interest in property taken) by reading the lease, sometimes obtainable only by discovery after the action is filed. The demised premises may not be the same as those portions of the premises that the tenants may use with others but for which the tenants may not be entitled to compensation.

Loss of access as a result of a partial taking implicates many common law principles as well as state statutes and constitutions as they relate to eminent domain. The practitioner should have a basic knowledge of those principles when dealing with a taking that will restrict, modify, or eliminate street access to the remainder property.

Severance Damages versus Before-and-After Rule

The "before and after" rule allows no separate calculation or award for severance damages that are not figured within the difference in value as measured before and as measured after the taking. In contrast, "severance damages" calculates a separate value for the part taken and for severance damage to the remainder property resulting from the tak ing.⁵ These rules relate to appraisal methods, and both may be available for use in a single jurisdiction.

Market value measured under the before-and-after rule does not differentiate the source, cause, or consequences of damage because the concept of market value does not per se make such distinctions.⁶ Market value can thus account for speculative elements of "damage" such as personal fear of the effects of the public project (e.g., environmental effects of a nearby high tension electric line).⁷ The before-and-after rule has the virtue of simplicity; severance damages are not separately calculated but are automatically factored into the calculation of the value of the remainder after the taking.⁸ On the other hand, condemnors should be aware that the before-and-after rule may conceal damage categories from view, scrutiny, preclusion, or setoff.⁹ The severance damage rule allows one to set off special benefits; compensation or severance damages or both may often be reduced or set off against benefits associated with the public project.¹⁰ As discussed further below, setoff against damages may be impossible under the before-and-after rule.¹¹

Development Prospects

Sometimes private development is under way at the time of partial taking of the same property.¹² A larger parcel may have been subdivided in anticipation of residential development. Smaller properties may have been partially assembled in anticipation of a large retail or multi-use project. One question is whether severance damages should be measured by the owner's loss or the taker's gain. Some jurisdictions presume separate parcels if so platted or subdivided, and as a matter of practice, smaller parcels for individual sale are generally more valuable than a larger one in both total and partial takings. This presumption is typically rebuttable.¹³ There is a split of authority on admissibility of projected profits under the "development" or "anticipated use" approach, which may apply to property in process of development.¹⁴

Scope-of-the-Project Rule and Special Benefits

Effects on value associated with the announcement of an impending public project come under the "project influence" or "scope of the project" rule.¹⁵ Some jurisdictions make an exception for enhancements in value,¹⁶ and a minority do not follow the rule.¹⁷ The rule dictates that the appraiser will disregard any decrease or increase in the fair market value of real property occurring prior to the date of valuation that is caused by the project for which the property is to be acquired, or by the likelihood that the property would be acquired for the project. "Condemnation blight" is a substantial decline in value due to a condemnor's unreasonable delay. Extreme cases of blight may be claimed as inverse takings.¹⁸ A related concept is "threat of condemnation"; that is, pre-condemnation activities tending to have a negative effect on value at the time of the taking.¹⁹

In some states, severance damages can be reduced or set off against special, but not general, benefits.²⁰ "General benefits are those that result from the public project giving rise to the taking, but are common to the community at large."²¹ "Special benefits typically only apply to the particular parcel of land from which the condemnor has taken a piece, and typically differ in kind from general benefits (rather than simply in degree)."²² Special benefits usually have certain requirements.²³ Courts are divided as to what effect special and general benefits have on partial takings.²⁴ Treatment of general and special benefits falls into one of five categories:

1. General or special benefits cannot be considered in the valuation process.
2. Only special benefits can be set off, and then only against damages to remaining property, not against the value of prop erty taken.
3. Both general and special benefits can be set off against damages, but not against the value of property taken.
4. Special benefits may be set off against both damages to remaining property and against the value of the part taken.
5. General and special benefits may be set off against damages and the value of the part taken.

Federal courts use the fourth category, using setoffs against both the value of the part taken and damages to the remainder, up to a point.²⁵ The majority of states use the second category, setting off only special benefits only against damages to remaining property.²⁶

SEVERANCE DAMAGES RELATED TO LAND USE AND ZONING

Partial takings in eminent domain can affect potential, existing, or remaining uses of property. Existing, permitted, and reasonably near-term probable uses figure into appraisal factors of highest and best use and reasonable probability of rezoning. Owners' damages claims as to the remainder property in partial takings typically cite restrictions on existing use, frustration of plans, added police power regulatory bur dens, and simple fear.²⁷

Property may not conform to current land use regulations prior to a partial taking.²⁸ The lot, structure, or use may be nonconforming and that status may be legal or illegal; that is to say, its existence may be allowed or disallowed under the local zoning code. A non-conforming lot or structure has an area, dimension, or location that was lawful prior to the current zoning but now fails to conform.²⁹ A nonconforming use is a structure or a use that does not comply with current zoning but existed lawfully, was created in good faith prior to current zoning, and is permitted to continue while similar uses are no longer permitted.³⁰ Nonconformity can also apply to characteristics of the land, density or intensity of use, signage, historical structures, architectural standards or design, alcoholic beverage sales, and access regulations.³¹ Some zoning codes make no provision for eminent domain impacts. Those codes with an eminent domain clause may provide relief for remainder property from otherwise applicable zoning regulations and may even be self-executing, with no application or permit required.

Potential for Rezoning as a Factor in Land Valuation

"The question of the probability of rezoning is fertile ground for the unscrupulous, the naive, and the dreamer."³² Statements by government officials predicting the outcome of rezoning or variance requests are generally not admissible evidence of probability of rezoning.³³ Still, many jurisdictions recognize a hypothetical reasonable probability of rezoning for valuing the property taken:

Most courts refuse to permit a witness to testify whether the particular zoning authority having control of the property would change or modify the zoning on that particular tract [citation omitted]. The issue seems to be whether a willing buyer and a willing seller would assume that a reasonable, though hypothetical, zoning authority would rezone the property. In making this determination the owner is entitled to the presumption that public officials controlling the zoning would perform their duties fairly and properly.³⁴

In many states, probability of rezoning does not apply to remainder property but only to property taken. In states where cost to cure and mitigation of damages are relevant to the remainder property in partial takings, one must consider the zoning impacts to remainder property and uses. Those doctrines usually require the owner to mitigate such impacts when claiming damages rather than require the condemnor to compensate for zoning restrictions incident to the taking. This mitigation often includes application for a variance where necessary.

Courts will generally deny evidence of hypothetical or even actual plans for a nonexistent proposed development³⁵ in the absence of actual steps taken toward development or a showing that the plans are reasonable, practicable, or feasible. Admissibility is generally left to sound judicial discretion.³⁶ Speculative uses of property remaining from partial takings are generally inadmissible.³⁷

LOSS OF ACCESS

Eminent domain may raise issues of compensation or damages for loss of access. The owner's property may be the land...