Recent Court Decisions on Real Estate and Valuation.

Author:Blair, Benjamin A.
 
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Condemnation blight as a compensable taking

The Pifers are independent operators of a gasoline service station, convenience store, and towing service in Mineral Wells, West Virginia. In April 1996 and October 1998, the state Division of Highways held public informational meetings regarding a planned highway interchange project near the Pifers' 2.45-acre parcel. Under the plan chosen in late 1998, the Division would take the Pifers' land almost in its entirety. In 2001, the Division informed the Pifers that plan development would begin in July 2003 and construction would begin in spring 2005.

Construction did not begin as planned. In April 2008, the Division announced new project plans that would largely spare the Pifers' property. Ultimately, the Division sought to condemn a 116-square-foot area for noncontrolled access right-of-way, and another 477 square feet for a temporary construction easement. In March 2010, the Division petitioned to condemn the Pifers' land, and the matter went to a jury trial.

In addition to seeking the usual compensation associated with a taking, the Pifers sought damages for the unreasonably long period between the first public announcement of the project and the filing of the petition. That is, the Pifers claimed they suffered damages for rental loss due to condemnation blight.

The Pifers' appraiser testified that he determined the fair market value of the property taken as $2,000, and the damage to the residue was zero. The threat of condemnation did not affect the value of the residue, but the primary influence of the condemnation blight was the loss of the Pifers' ability to negotiate a lease on the property with a major fuel distributor from 2001 to 2010. The appraiser opined that the Pifers suffered $35,000 in damages each year based on reasonable market rents. Pifer also testified that distributors had been interested in leasing the facility, but only once the project was complete, and no one wanted to lease the property during three years of road construction.

The Division's appraiser testified that he did not see evidence of condemnation blight, noting that the Pifers continued to operate their business during all relevant times. But following deliberations, the jury awarded $2,000 for the taking, $1,800 for the temporary construction easements, and $175,165 for five years of construction blight from 2003 to 2007. The Division appealed the judgment.

The West Virginia Supreme Court of Appeals noted that while some states simply incorporate into their constitutions the federal prohibition on private property being taken for public use without just compensation, twenty-five states, including West Virginia, expand the scope of the protection to both the taking and damaging of private property. Condemnation blight is one way of damaging property that is not taken. Condemnation blight can be marked by departure of rental tenants, unmarketability, and declines in rentability, capital values, and profits. It would be manifestly unjust to permit a public authority to depreciate property values through precondemnation activities and then take advantage of such depreciation by taking the property at a much lower price.

The West Virginia Supreme Court of Appeals agreed with the Division that the date of the taking, for purposes of determining the value of the property, was March 2010, but the court noted that the Pifers did not argue that a de facto taking occurred years earlier; rather they argued they were entitled to condemnation blight damages prior to the taking. This distinction is important, because a de facto taking may entitle the owner to establish an earlier date for purposes of property valuation and recovery of interest. But condemnation blight damages are, by definition, damages suffered in anticipation of the taking.

The court held that if it were to follow the Division's direction and attempt to force the Pifers' damages into a taking analysis, they would vanish, and the Pifers would be deprived of just compensation and obliged to absorb economic losses caused by the Division's protracted delay in implementing the project. Instead, the issue is whether landowners can recover damages related to condemnation blight as an element of just compensation.

The court noted the theory behind just compensation awards is that the individual property owner should be placed in as good a position as he or she would have been but for the establishment of the public project. When property owners who operate a small business suffer financial loss for several years as a result of the government's precondemnation activities, then the law should be used to establish a means of recovery.

The court therefore held that a landowner may seek damages for condemnation blight as an element of just compensation in a condemnation proceeding, but, because some delays in public projects are inevitable, a landowner must establish that there has been an unreasonable delay in instituting the condemnation proceeding following an official announcement. Landowners like the Pifers must prove that their damages were caused by the condemning authority's actions or inactions, and here, the court agreed with the jury that the Pifers offered proof of reasonable certainty of damages. The Division's appeal was denied.

West Virginia Dept, of Transportation v. Pifer

West Virginia Supreme Court of Appeals

November 19, 2019

No. 18-0517

County cannot redefine real property to include non-realty

This case arose from a taxation dispute between the County of Maui (County) and Kaheawa Wind Power (Kaheawa), which leases land on the island of Maui to operate a wind farm. At issue was whether the County had the authority to include the value of the wind turbines in Kaheawa's real property tax assessments and to redefine the term real property for that purpose.

The 1981 Hawaii Constitution provides that the taxing power "shall be reserved to the State" except that "all functions, powers and duties relating to the taxation of real property shall be exercised exclusively by the counties." Before that amendment's adoption, all taxing authority was vested in the state. At the time of the amendment's adoption--and still today--the constitution does not define the term real property.

In adopting their respective property tax ordinances, counties in Hawaii borrowed then-existing state statutory language defining real property as including improvements erected on or affixed to the land, and any fixture, including all machinery and equipment whose use "is necessary to the utility of such land" or whose removal cannot be accomplished without substantial damage to the land, buildings, and structures. This definition of real property for tax purposes remained the same for thirty years, until 2013 after Kaheawa challenged the County's authority to include the value of wind turbines within real property assessments for the 2007-2011 tax years.

In that earlier litigation, the Intermediate Court of Appeals (ICA) held that wind turbines did not qualify as real property under the existing definition. To qualify as a fixture under the earlier definition of real property, the wind turbines would need to be necessary to the utility of the land. The ICA looked to common law for guidance regarding fixtures, including a significant case from Ohio called Zangerle v. Republic Steel Corp. Applying that test, the ICA concluded that wind turbines were only necessary to the utility of the land given the particular business that Kaheawa currently operated. The County appealed, and the state supreme court denied the appeal.

In response to this litigation, the County amended its code to include wind turbines and other articles that "would increase the value" of the underlying realty within the definition of real property. In essence, the County redefined real property to include wind turbines that had just been found to be not real property. Under its new authority from the amended code, the County again began including value of the wind turbines in Kaheawa's real property tax assessments for the 2014, 2015, and 2016 tax years. Kaheawa appealed those assessments.

The Tax Appeals Court decided in favor of Kaheawa. The Tax Appeals Court found that the delegates to the Constitutional Convention had never intended to grant the counties the power to redefine the term real property to include personal property. The County again appealed to the state supreme court.

On appeal, the County argued that the constitution transferred the power to define real property to the counties and that, accordingly, the County had the power to add wind turbines to its definition; to adopt its own test based on appraisal concepts of use, utility, and value; and to potentially tax any type of property that satisfied the test as assessable accessions to realty. In the alternative, the County argued that, under the proper interpretations of utility and permanence, wind turbines constitute real property, even under the common law fixture test.

The Hawaii Supreme Court disagreed. The court acknowledged that in earlier cases, it had addressed the counties' broad scope of authority to set property tax policy. For example, counties are free to classify properties and tax them at different rates, and they are free to set their own methods of assessment. But that authority did not extend to empower counties to redefine what constitutes real property.

In the amended Constitution, several sections distinguished between real and personal property, thereby implying that there was some inherent difference between the terms. Had the delegates intended to provide the counties the authority to tax personal property, they would have done so explicitly. However, the court agreed that it is not clear from the text what the delegates meant by "real property."

Therefore, only the state legislature has the power to define real property, and that current...

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