Tag Archives: Condemnation

“Something Much Simpler” in Texas Condemnation – The Separate Economic Unit

 Value of the property is usually the paramount issue in a condemnation case.  Two recurrent factors which often influence land values are highest and best use and size of a parcel. Property utilized for commercial pad sites in a developed subdivision is likely to have a higher value per square foot than raw land put to agricultural use.

 No Subdivision Development Valuation.

 The Texas Supreme Court made clear that evidence that the highest and best use of a smaller tract taken from larger acreage is as a subdivision tract is not admissible when, at the time of taking, there is no subdivision or development of the larger acreage. State v. Willey, 360 S.W.2d 524 (Tex. 1962); City of Harlingen v. Sharboneau, 48 S.W.3d 177, 182 (Tex. 2001).

 The Sharboneau subdivision development method of appraisal, in which an undeveloped tract is valued by calculating what a developer could expect to realize from sales of pad sites, taking into account the costs of development and discounting future revenues, was held to be too complicated, complex and speculative. Sharboneau, 48 S.W.3d at 180-81. It required a comparison of types of properties that just were not comparable. Id. at 182-84.

 Separate Economic Unit Valuation Embraced.

 However, the Texas Supreme Court distinguished Willey, Sharboneau and other subdivision cases, in which landowners sought damages as if, before the taking, their properties were already located within developed subdivisions in In re: State, 355 S.W.3d 611, 616 (Tex. 2011).

 The State condemned 39 acres out of a 185 acre property. Id. Prior to the date of value, the landowner subdivided 51 of the 185 acres into 8 separate lots, with each of the 8 lots containing a portion of the 39 acres taken. Id. Each of the 8 lots had highway frontage. Id. The 8 lots were then appraised as separate economic units with the highest and best use of each lot being highway frontage commercial property. Id.

 The Court affirmed the appraisal opinion as the landowners were:

. . . not seeking valuation on the basis of the residential
subdivision of their undeveloped property. They seek
something much simpler. The property
. . . is primarily highway frontage, and their appraiser
testified that the highest and best use was as several
individual tracts that could be sold as highway frontage
commercial property. This was based on their belief that
similar property in the area was sold not in bulk but, rather,
in somewhat smaller, commercial-sized parcels.

Id.

 The seminal case of State v. Chana, 464 S.W.3d 769, 783 (Tex. App.—Houston [1st Dist.] 2015, no pet.) affirms the separate economic unit methodology, despite there being no prior partition of tracts. In Chana, the State condemned 2.072 acres out of 7.765 acres. Chana, 464 S.W.3d at 782. The landowner determined that the highest and best use of the 7.765 acres was dividing it into 3 separate self-sufficient tracts, each to be used for commercial development. Id. The condemned 2.072 acres was a part of one separate economic unit consisting of 2.385 acres. Id.

 In appraising the 2.385 acre unit, the landowner’s appraiser explained that it was self-sufficient and independent from the remaining acreage because the unit had a driveway on the highway for direct access. Id. Cross-access, however, was only over the other 2 economic units. Id. at 783. A sanitary sewer line would have to be extended 550’ to the unit, but other infrastructure was available. Id. These conditions were typical in the market area. Id.

The landowner’s appraiser testified that the sales in the market area showed that smaller tracts were being sold from larger tracts to be used for commercial development. Id. at 784. In upholding the appraisal opinion, the Court held:

the Chanas offered evidence showing that similarly sized
and situated parcels of land, comparable to the economic
unit . . . were being purchased in the vicinity for commercial                                             development. Thus, it was not speculative for the Chanas to
offer valuation evidence based on the premise that the
appraised economic unit was a separate, self-sufficient unit.

Id. at 785.

Lessons Learned.

Texas courts invariably resolve condemnation valuation issues by reference to the market area. Know your market and be sure your appraiser knows it too.
_________

This article appears in the Texas City Attorney Association’s December, 2015 Newsletter.  Please click here to see the article.

The Eminent and Inverse Environment – Interplay Between Environmental Issues and Condemnation

“THE EMINENT AND INVERSE ENVIRONMENT – The Interplay Between Environmental Issues and Condemnation” was presented to the Tarrant County Bar Association, Environmental Law Section in Fort Worth, Texas on February 27, 2014, by Mary Colchin Johndroe, 817-877-2810mjohndroe@canteyhanger.com.  The following summary contains highlights of the presentation.

In a statutory condemnation, the condemnor compensates the property owner before appropriating property.  If the government appropriates property without first paying adequate compensation, the property owner may bring a claim for inverse condemnation to recover resulting damages.  In both, statutory and inverse condemnation, a pivotal issue is compensation due to the landowner – which is typically measured by the difference in fair market value of the affected property before and after the taking. 

In Texas condemnation law, market value generally reflects all factors that buyers and sellers would consider in arriving at a sales price.  Environmental contamination, costs of remediation, and perception in the marketplace most assuredly can influence the value of a property.  

Texas courts have not yet decided if evidence of environmental contamination, potential liability for contamination, and remediation costs is admissible as relevant to market value of property taken by condemnation.  Although Texas case law has not specifically addressed these issues in the context of eminent domain, courts in at least thirteen (13) other states have determined the admissibility of evidence of environmental contamination and remediation of property taken in condemnation.  

The majority of courts follow an “inclusion approach,” holding that evidence of environmental contamination and the costs of remediation is relevant to fair market value and, therefore, relevant to a determination of just compensation in eminent domain proceedings.  Some courts follow an “exclusion approach,” with some excluding all evidence of contamination, while others have held that evidence of remediation costs is inadmissible, but property taken should be valued as remediated, as opposed to being clean and never contaminated.  The latter approach holds that evidence of the reduction in value of property caused by stigma attributable to environmental contamination is admissible.

In November of 2012, the Fourteenth Court of Appeals in Houston affirmed stigma  damages awarded for loss in market value resulting from prior  contamination  which  had been remediated. However, this was not a condemnation case. 

An inverse condemnation may occur when the government physically appropriates or invades the property, or when it unreasonably interferes with the landowner’s right to use and enjoy the property, such as by restricting access or denying a permit for development.  

The Texas Supreme Court has held that landowners have a constitutionally-protected, compensable property interest in groundwater and that State regulations cannot “unjustifiably” deprive landowners of the groundwater beneath their land.  At least one governmental entity has been held liable in inverse condemnation for denying permits for groundwater pumping and usage for irrigation. 

Moreover, Texas courts have allowed a claim by one private party against anotherfor trespass based on subsurface migration of water injected in a well permitted by TCEQ.  Regardless of a private party’s tort liability, constitutional concerns remain.  

Might governmental entities tasked with regulating groundwater or wastewater injection wells who issue permits resulting in migration onto other property and contamination of its water supply be liable for inverse condemnation?