How is just compensation determined in an eminent domain matter?

November 11, 2016

How is just compensation determined in an eminent domain matter?

By: J. Eric Rochford, Attorney

Landowners who face having their land taken by the government for a public project such as a highway, utility easement, or school building have likely heard the term “just compensation”. But what exactly does “just compensation” mean to a landowner? The U.S. Constitution holds the answer (specifically the Fifth Amendment of the U.S. Constitution. Also, Art. 1 § 21 of the Indiana Constitution).

A basic definition of just compensation

Just compensation in a total taking scenario is simply the value of your entire property. Just compensation in a partial taking scenario can be viewed in terms of difference of your property’s value before the taking (before value) less what it is worth after the taking (after value). The difference is the amount of total just compensation due. For example, if your property was worth $300,000 before the taking, and then it is worth $225,000 after the taking, total just compensation would be $75,000. Most appraisers will break down the $75,000 amount into the components of just compensation (discussed in more detail below), including the portion attributable to the land taken, land improvements taken, residue damages or other damages.

Indiana law provides substantial guidance on determining just compensation and what is or is not included in determining the amount of the offer that can be made. Obviously, real estate appraisers are the primary experts for purposes of substantiating your claim for total just compensation.

Calculating your land’s value in an eminent domain action

To determine what just compensation is for a particular landowner, it can help to look at it in terms of the categories of damages enumerated in the Indiana Eminent Domain Code and which the court provides the court-appointed appraisers.

  1. What is the fair market value of the land, or interest in the land that is taken?
  2. What is the fair market value of the improvements on the property that is taken?
  3. What is the amount of residue damages that a landowner’s remaining property suffers from a partial taking of land?
  4. What is the amount of other damages that result from construction of the proposed improvements in the manner proposed in a partial taking of land?

In addition to the above categories, the State of  Indiana also allows for benefits in certain circumstances. The value of certain benefits may  reduce the amount of just compensation that a landowner is due.

A deeper explanation of land valuation in a land condemnation action

Fair market value of the land taken.  The term “fair market value” basically boils down to: the price the real estate would bring after fair and reasonable negotiations between a seller willing but not forced to sell and a buyer willing but not forced to buy.

Fair market value of the land improvements taken.  The fair market value of improvements relates to the structures or other land improvements that are located on the land being taken. The most obvious structures include dwellings, barns or detached garages. However, improvements can also include items other than physical structures, which contribute value to your property.

Residue damages.  Residue damages can occur in partial takings of land. These damages pertain to  the landowner’s remaining real estate that is not being taken (residue). Residue damages can be caused by a number of issues, such as a change in the shape or size, reduced setback (distance from the roadway) or a change in the highest and best use of the real estate. Both land and improvements can suffer residue damages. The amount of residue damages is a common point of contention between a landowner and the government or taking agency.

Other damages.  Other damages is a sort of catchall category for damages that may not fit neatly into the residue damages category.

Cost-to-cure damages fall within this category. A cost-to-cure damage is one that is necessary to remedy a damage or issue that would otherwise cause more significant damages if not cured/fixed. For example, if a septic system serving a dwelling is within the area of the taking, it will be less expensive to replace  the septic system  with a new system (for say $15,000) than it would to compensate the landowner for the damages to the dwelling that would be caused by having no working septic system (say $75,000). The problem is curable because the damages caused by not replacing the septic system exceed the cost to replace the septic system.

Benefits.  Benefits are relatively uncommon. However, if your property is being taken by the state or county for a public highway or by a municipal corporation for a public use that provides benefits upon your real estate, then the amount of benefits may offset your total compensation. Benefits must be special to your property and not general to the community.

Many factors go into the government’s offer for just compensation to landowners in eminent domain land takings. The calculation can be complex so it’s important that landowners who are facing condemnation proceedings contact an eminent domain attorney to learn about their legal rights and options. While the government does have the right to take property for public use, landowners also have rights in these proceedings. I’ve litigated numerous eminent domain matters and serve landowners across Indiana.

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