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"Who put that magnetometer in the lobby?"--landlord claims for inverse condemnation based upon government-imposed security measures in multi-tenant office buildings. (Law and the Appraiser).

The events of September 11 may present appraisers with a unique valuation challenge related to buildings occupied by government agencies pursuant to a lease with a private owner. As federal, state, and local governments respond by increasing security measures in buildings housing their agencies, they may exert control over the exterior and interior common areas in ways not contemplated by the lease. Unless compensated through bilateral negotiations with the landlord, a government's increased security activities in the common areas may trigger liability under the Takings Clause of the United States Constitution's Fifth Amendment.

The purpose of this article is to demonstrate how a government's unilaterally imposed security measures in the common areas of a privately owned multi-tenant office building can constitute a "taking" of property requiring just compensation under the Constitution and to set forth the legal principles applicable to the determination of just compensation. While the issues discussed in this article may be relevant to offices leased by state and local governments, we focus on office space leased by the federal government because of its nationwide prevalence.

The article begins with a general overview of customary arrangements regarding common area usage and security in multi-tenant office buildings. Next, we discuss real property leasing by the federal government and recent changes in federal policy mandating sharp increases in security for these workspaces. We argue that this shift in security policy creates a legal problem for the federal government because many of its "mandatory" security measures, which require government control of the common areas, are not permitted under its leases for space in multi-tenant office buildings.

Then we discuss a remedy available to a landlord should the government proceed unilaterally to conduct security activities in the common areas--an inverse condemnation claim seeking just compensation under the U.S. Constitution's Takings Clause. Although we found no case law applying the Takings Clause to government activity in the common areas of an office building, we argue that the security measures currently required for some federal facilities can effect a categorical "permanent physical invasion" of the common areas that automatically triggers the government's obligation to pay just compensation.

Next we discuss the measure of just compensation due to the landlord for such a taking. Based on well-accepted principles, a landlord can seek to recover the fair market value of the interest in the common areas taken by the government plus any "severance damages"--i.e., the diminution in the value of the remainder of the building. From a legal perspective, one way to approach the valuation of these two components of just compensation is a "before and after" analysis of the building. The difference between the value of the entire building before the initiation of the government's security activities and the value of the building after the government's seizure of the common areas for security purposes captures both the value of the property interest taken by the government as well as the landlord's severance damages.

I. Overview of Common Area Use and Security Arrangements in Multi-Tenant Office Buildings

The allocation and use of space within a multi-tenant commercial office building is primarily regulated by the series of leases entered into by the private landlord and each tenant. These leases govern the activities permitted within the common areas of the building, which generally include the lobby, hallways, stairways, elevators, loading dock, parking areas, and exterior ground. The leases may also address each party's responsibility for providing security for the building and the leased premises.

Pursuant to typical lease terms, the landlord retains the right to control the common areas of the building, subject to an implied easement appurtenant to each lease granting each tenant a right to use the common areas. (1) The scope of the tenant's implied easement in the common areas is limited to activities necessary (and not merely convenient) to the use and enjoyment of the leased premises, such as access to and from the premises for the tenant's employees and visitors. (2)

Absent a lease provision or special circumstances, a commercial landlord is generally not obligated to protect tenants from the criminal acts of third parties. (3) However, the lease may address this issue and allocate the responsibility for building security between the landlord and tenant. The nature of the security measures permitted or required by each party can vary with the circumstances of each property. For example, the current standard clause in leases with the United States General Services Administration states that "lit] he Lessor shall provide a level of security which reasonably deters unauthorized entry to the space leased during non-duty hours and deters loitering or disruptive acts in and around the space leased... [and] shall ensure that security cameras and lighting are not obstructed." (4)

From a landlord's point of view, it would likely be unacceptable under the customary arrangement for one of the tenants to suddenly rake security measures that interfere with the landlord's control of the common areas as well as the use of the common areas by other tenants. For example, a landlord (and possibly other tenants) would likely object if one tenant unilaterally established a permanent post in the lobby of the building staffed by armed guards and equipped with metal detectors and an x-ray machine to screen every visitor to the building. Similarly, a landlord would not likely permit a single tenant to direct its own armed security guards to patrol through the common areas or to install its own closed-circuit video monitoring system throughout the building. Such visible and invasive activities would, at a minimum, threaten to disrupt the balance (carefully wrought through the negotiation of each lease) between the interests of all of the tenants and the landlord with regard to the common areas and sec urity. In addition, the intrusive use of the common areas by a single tenant for security has the potential to diminish the marketability of other space in the building.

II. Overview of Increased Security Measures in Federally Leased Office Space

Real Property Leasing by the Federal Government and Security

The General Services Administration (GSA) has primary leasing authority on behalf of the federal government. (5) Within the GSA, the Public Buildings Service (PBS) leases office space from private owners on behalf of other federal agencies. The PBS leases approximately 150 million square feet of workspace in 6,200 privately owned buildings across the United States. (6) The GSA-leased space is occupied by other federal agencies pursuant to interagency occupancy agreements. (7) Other office space is leased directly by other federal agencies pursuant to a delegation of leasing authority by the GSA. (8)

Physical security and law enforcement within federally occupied workspaces is provided by the PBS'S Office of the Federal Protective Service (FPS). (9) Among other services, the FPS conducts physical security surveys of federally occupied buildings, recommends security measures, installs and monitors security devices and systems, and administers contracts with private security companies that provide guard services in certain buildings. (10)

As part of its building-specific security activities, the FPS designates a physical security specialist to conduct routine security assessments of federal facilities for compliance with federal standards. (11) In addition, the FPS's physical security specialist works with agencies occupying space in a building to establish a Building Security Committee for its facility to address security concerns. (12) The FPS's physical security specialists regularly meet with the Building Security Committee to discuss the latest security assessments and to consider FPS recommendations for new security measures. (13)

Shift in Federal Policy Regarding Building Security after Oklahoma City Bombing

Following the bombing of the Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995, the President directed the Department of Justice (DOJ) to assess the vulnerability of federal office buildings to security threats, including terrorism and other forms of violence. (14) In June 1995, the DOJ issued a report, titled Vulnerability Assessment of Federal Facilities (DOJ Report), which proposed new minimum security standards for federal buildings and recommended that each federal facility be upgraded to meet those standards as soon as practicable. (15) The DOJ Report established five categories of "building risk levels" applicable to federal facilities based on building size, number of federal employees, volume of public contact, and the nature of the agencies occupying space. (16) For example, the "Level IV" risk category applied to "[a] building that has 451 or more federal employees; high volume of public contact; more than 150,000 square feet of space; and tenant agencies that may include high-r isk law enforcement and intelligence agencies, courts, and judicial offices, and highly sensitive government records." (17)

The DOJ Report also established 52 security standards in categories such as perimeter security, entry security, interior security, and security planning. The DOJ Report made specific recommendations for each "building risk level" regarding which standards were required, optional, desired, or not applicable. (18) For example, with regard to "entry security" at Level IV facilities, the DOJ Report requires agencies to implement new receiving/shipping procedures, consider the deployment of security guards, install an intrusion detection system with central monitoring, and perform x-ray screening of all mail and packages. (19) The DOJ Report grants agencies discretion, based on a facility-specific evaluation, to determine whether to deploy a security guard patrol or require x-ray and magnetometer screening of people at all public entrances. With regard to "perimeter security" at Level IV facilities, the DOJ Report requires agencies to, among other things, install closed-circuit television surveillance cameras with time-lapse video recording and to control parking at the facility. (20) With regard to "security planning" at Level IV facilities, the DOJ Report requires that agencies conduct annual security awareness training and, where applicable, to establish standardized armed guard qualifications and training requirements. (21)

Following the issuance of the DOJ Report, the President directed each federal agency to upgrade its facility to the minimum security standards recommended for its security level by the DOJ Report. (22) The FPS was tasked with managing the security assessment and upgrades of all GSA-leased space. (23) A of March 1998, the FPS had completed assessments and security upgrades in many federal facilities, but others remained incomplete. (24) By October 1999, it appeared the FPS had completed security assessments of at least 98% of the GSAs high-risk buiIdings (Level IV and above) and at least 96% of the GSA's lower-risk buiIdings (Level III and below) (25)

The terrorist attacks of September 11 changed the PBS'S understanding of its security needs and response to threats and renewed the urgency within the GSA and the FPS to protect federal employees and buiIdings from the risk of terrorist attacks. Joe Moravec, commissioner of the PBS, explained the agency's new approach to security following September 11: Prior to September 11, our greatest threat was perceived to be a vehicular bomb that couId result, as in the case of Oklahoma City, in the total collapse of a buiIding. September 11 made us realize that the universe of threats we face has expanded and the mentality of those who wish to do us harm is even more dangerous than we wouId have imagined. We now must be prepared not only for truck bombs, but also for chemical and biological weapons and weapons of mass destruction, delivered by individuals who have no regard for human lives, including their own. (26)

Shift in Federal Security Policy after September 11

As the GSA explained in its 2001 annual report:

PBS is responsible for providing safe and secure work environments for customer agencies and taxpayers and reducing the measurable threat groups or individuals may pose to Federal facilities. This responsibility has evolved from a reactive posture of patrol and incident response to a proactive stance of crime prevention and threat reduction. In the aftermath of September 11, 2001 terrorist attacks PBS has redoubled its efforts to provide a safe and secure environment. (27)

Since September 11, the FPS has upgraded it. assessment of the security threat facing numerous federal facilities across the country and "heightened security levels with increased scrutiny of tenants, vehicles, visitors and packages." (28) The FPS is "spending a lot of time in the buiIdings talking to the tenants and to the different buiIding security committees about what they can do specifically to protect themselves." (29) In some locations, including multi-tenant commercial office buiIdings housing federal agencies, the FPS has demanded immediate, mandatory security upgrades to ensure strict compliance with the Department of Justice's standards.

III. GSA's Legal Problem: Current Leases n Multi-Tenant Office BuiIdings Do Not Permit the GSA to Implement Many of the DOj's Recommendations in the Common Areas Inside and Outside the BuiIding

One legal problem facing the GSA as it seeks tighten security in leased workspaces following September 11 is that many of its leases were drafted long before the DOJ Report was issued in 1995. Particularly in buildings where federal agencies are co-located with businesses and other private organizations, the lease provisions utilized by the GSA likely do not include the rights in the common areas sufficient to allow the FPS to implement many of the required security measures.

As noted above, the current standard clause in leases with the federal government states that "[t] he [Landlord] shall provide a level of security which reasonably deters unauthorized entry to the space leased during non-duty hours and deters loitering or disruptive acts in and around the space leased... [and] shall ensure that security cameras and lighting are not obstructed." (30) The clause does not allocate responsibility or authority to the GSA to implement security measures in the common areas of the building. The language clearly does not authorize the establishment of permanent screening posts at building entrances; armed patrols of hallways, sidewalks, or alleys; or the installation of closed-circuit video surveillance or other electronic devices within the buildings walls. Thus, unless the GSA has inserted non-standard requirements for a particular building permitting such activities, it cannot implement many of the DOJ's security requirements without breaching its lease.

Private landlords generally empathize with the government's position and are often willing to attempt a negotiated solution that meets the government's requirements. However, for a host of legal reasons, including legal commitments to other tenants, lenders, and insurance companies and new liability risks, landlords are sometimes reluctant to cede control over the common areas for security purposes to a government tenant. In many instances, the government's security measures involve inconveniences not desired by existing private tenants and that may deter new tenants from the building. In addition, the landlord must assess the liability risk should the government's contract guards mishandle an incident or use inappropriate force against visitors and other third parties.

In the event that the GSA and the landlord cannot reach an agreement, the FPS may, nevertheless, proceed to implement the required security measures. Given its mission of securing the safety of federal employees and property and the perceived vulnerability of noncompliant federal facilities, the FPS may simply order the deployment of armed guards, the establishment of permanent guard posts, and the installation of electronic security equipment without waiting for the landlord's permission. In such circumstances, the private landlord must consider the legal remedies available to seek compensation from the government for security activities that are likely to fundamentally alter the operation and economics of the building.

IV. Analysis of Government-Imposed Security Activity in the Common Areas of a Multi-Tenant Office Building Under the Takings Clause of the U.S. Constitution

One legal remedy available to landlords facing the unilateral imposition of security activities by a government tenant is to file a claim in the United States Court of Federal Claims based on the theory that the government's activities constitute an inverse raking of property requiring the payment of "just compensation" under the Takings Clause. The landlord can claim that the government has effectively taken a property interest in the areas of the building subject to its increased security activities and seek compensation for the value of this property interest. In addition, because the government has taken only a "part" of the over all building, the landlord can also seek just compensation for any diminution in value of the remaining portions of the building.

Analysis of What the Government Has "Taken"

For the purposes of our analysis, we will assume the following hypothetical situation. Pursuant to a GSA lease, several federal agencies are co-located in a multi-tenant office building with private businesses and organizations. Recently, the FPS has unilaterally implemented the following security measures in accordance with the DOJ Report: (1) the establishment of permanent posts near all building entrances staffed with several armed guards and equipped with an x-ray machine and a magnetometer to screen all visitors; (2) the deployment of armed guards to patrol the interior and exterior common areas 24 hours a day; and (3) the installation of a closed-circuit video surveillance system, including dozens of cameras throughout the building and wires to connect them to a central monitoring location.

The hypothetical GSA lease contains the standard clause regarding security and does not otherwise permit the GSA to conduct these activities in the common areas.

Under these hypothetical facts, a landlord may claim that the government's establishment of the screening posts and the armed patrols of the common areas constitute the taking of an easement to use the common areas in this manner. A landlord could also claim that the installation of the dosed-circuit video surveillance system effected a taking of the space within and along the walls occupied by the cameras, wires and cables, and related equipment.

Basic Legal Principles for Determining What Constitutes a Taking Under the Fifth Amendment of the U.S. Constitution

Ordinarily, the government takes property by asserting its authority through the initiation of a formal condemnation proceeding in the appropriate court. When the government, through its actions, takes property without initiating formal proceedings, the property owner may assert its right to just compensation by bringing an action for "inverse condemnation." (31) Under the Tucker Act, the United States Court of Federal Claims hears claims for inverse condemnation against the United States. (32)

The Takings Clause of the Fifth Amendment provides "nor shall private property be taken for public use, without just compensation." (33) A takings claim calls for a two-step analysis. First, "a court determines whether the plaintiff possesses a valid interest in the property affected by the governmental action, i.e., whether the plaintiff possessed a 'stick in the bundle of property rights.'" (34) The courts have interpreted the term "property" as used in the Takings Clause to include "all rights inhering in ownership, including the right to possess, use, and dispose of the property." (35) If a plaintiff possesses a compensable property right, the court proceeds to determine "whether the governmental action at issue constituted a taking of that 'stick.'" (36)

Whether government action affecting property amounts to a "taking" under the Fifth Amendment is subject to a multi-tiered analysis. First, the courts have recognized two categories of government action that constitute an automatic per se taking: (1) government action that compels a property owner to suffer a "permanent physical invasion of property" and (2) government action that "denies all economically beneficial or productive use of land." (37) If the government action falls into either of these so-called "Lucas categories," it constitutes a compensable taking and no additional analysis is required. Instead, the issue becomes what constitutes just compensation for the taking. (38)

If the government action does not fall into either of the two Lucas categories, then the courts determine whether the government action constitutes a compensable taking by conducting a fact-intensive "case-specific inquiry" involving the consideration of several factors. These factors (commonly referred to as the "Penn Central factors" after the case in which they were first announced) include (1) the character of the government action; (2) the purpose of the government action; (3) the economic impact of the government action on the property owner; (4) the extent to which the government action has interfered with the owner's "distinct investment-backed expectations;" and (5) the benefit of the government action to the property owner. (39) Ultimately, the purpose of considering these factors is for the court to determine whether "'justice and fairness' require that economic injuries caused by [the government's action] be compensated by the government, rather than remain disproportionately concentrated on a few persons." (40)

Increased Security Activities as a Categorical "Permanent Physical Invasion"

Following the government's unilateral establishment of screening posts and armed patrols and the installation of a surveillance system, a landlord could claim that these activities constitute a permanent physical invasion of the common areas that automatically subjects the government to liability under the Takings Clause.

A physical invasion for the purposes of the Takings Clause "is a permanent and exclusive occupation by the government that destroys the owner's right to possession, use, and disposal of the property." (41) An owners right of possession is destroyed when "the owner has no right to possess the occupied space himself, and also has no power to exclude the occupier from possession and use of the space." (42) An owner's right to use property is destroyed when "the permanent physical occupation of property forever denies the owner any power to control the use of the property; he not only cannot exclude others, but can make no nonpossessory use of the property." (43) Even though an owner may retain "the bare legal right to dispose of the occupied space," an owner's right to dispose of property is destroyed when "the permanent occupation of that space... will ordinarily empty the right [of disposal] of any value, since the purchaser will also be unable to make any use of the property." (44) If the character of the ph ysical invasion is such that it destroys each of these rights, the invasion constitutes a categorical "permanent physical occupation," even if it lasts for a limited period of time. (45)

In the case of increased security activity in a multi-tenant office building, the landlord can characterize the property interests affected by the government's actions as follows: (1) a right to control the use of the common areas of the building, including for security purposes, and to exclude others from the common areas who conduct activities nor authorized under a lease or by law and (2) a possessory interest in the space along and in between the walls of the common areas.

With regard to its interest in the common areas, a landlord can assert that the government's establishment of screening posts and armed patrols has destroyed its right to possess, use, and dispose of the common areas. First, the continuous physical presence of the government's armed guards and their related activities effectively deprive the landlord of its right to possess and occupy the common areas for the purpose of providing security. Moreover, the government's unilateral deployment of guards to screen all visitors and patrol the building inside and out deprives the landlord of its right to exclude those conducting unauthorized activities from the common area. As the Supreme Court has noted, "the 'right to exclude,' so universally held to be a fundamental element of the property right, falls within [the] category of interests that the Government cannot take without compensation." (46)

Next, the landlord can also assert that the government's continuous physical occupancy of the common areas has destroyed its right to use the common areas. Through its increased security activities, the government has essentially expanded its easement in the common areas beyond the mere right of ingress and egress to and from its leased premises. The easement "taken" by the government in the common areas includes the right to post and deploy armed guards and conduct security-related activities at will. This assertion of control of the common areas effectively denies the landlord the power to control the use of the common areas that it previously enjoyed. While the landlord may retain some right to use the common area for non-security purposes, this circumstance should not preclude it from establishing a categorical taking based on a permanent physical occupation. (47)

In addition, the landlord can argue that the government's continuous security presence has destroyed its right to dispose of its rights to control and use the common areas. Although the landlord may arguably retain the "bare legal right" to dispose of the common area should it desire to sell the building, the government's permanent occupancy of the common areas for security purposes has rendered this right worthless. Any buyer of the building would find itself in the same position as the landlord--unable to control or use the common areas exclusively for security purposes or to exclude any unauthorized uses.

Thus, based on the government's establishment of mandatory screening posts and round-the-clock security patrols of hallways and sidewalks, a landlord may make the requisite showing that the government has destroyed its right to possess, use, and dispose of its interest in the common areas. Based on this showing, the landlord can pursue a claim that the government's activities constitute an automatic "permanent physical invasion" requiring the payment of just compensation.

A landlord can also claim that the installation of video cameras and related cables and wires within and along the walls of the building is a categorical taking of the space occupied by this equipment. In Loretto, the United States Supreme Court held that a New York law requiring landlords to allow television cable companies to attach boxes and wires to their apartment buildings constituted a taking of the cubic feet of space occupied by those facilities. (48) After concluding that any permanent physical occupation of property, no matter how small, is a compensable taking, the Court found that the installation of the cable facilities was a taking because it involved "direct physical attachment of plates, boxes, wires, bolts, and screws to the building, completely occupying space immediately above and upon the roof and along the building's exterior wall." (49) Under this analysis, the attachment of security cameras to walls and the installation of cables through the walls of the building to connect the cameras to a monitoring room constitute a taking of the space occupied by theses cameras and cables.

Analysis of Elements of Landlord's "Just Compensation"

The landlord's entitlement to just compensation based upon the government's increased security activities could comprise two components: (1) the value of the property interest taken by the government in the common areas and (2) any diminution in the value of the remainder of the building caused by the government's taking. One method to determine both of these components is a "before and after" analysis of the value of the entire building.

Valuation Principles Applicable to Determination of Just Compensation for the Government's Interest in the Common Areas.

For valuation purposes, the interest taken by the government in the common areas as a result of its increased security activities can be characterized as (1) an easement in the common areas running through the expiration of the government's lease to conduct security activities and (2) a possessory interest in the spaces along and inside the walls occupied by the surveillance equipment. In an inverse condemnation case, the amount the court would require the government to pay for these two interests would be based upon fundamental legal principles regarding "just compensation" that focus upon the price to which a willing landlord and a willing tenant would agree in an arms-length transaction.

The purpose of the just compensation requirement of the Takings Clause is to indemnify the owner for the property loss--i.e., to put the owner "in as good position pecuniarily as he would have occupied if his property had not been taken." (50) Just compensation "means the full and perfect equivalent in money of the property taken." (51) However, just compensation does not include consequential damages caused by a taking, such as lost profits, loss of good will, and relocation expenses. (52)

In determining the "value" of property, the courts do not consider any characteristics of the property that make it uniquely or specially valuable to the individual owner or the individual condemning authority. (53) Instead, "[t]he value compensable under the Fifth Amendment is only that value which is capable of transfer from owner to owner and thus of exchange for some equivalent." (54) As such, the courts generally prefer to determine the compensable value of property taken according to its fair marker value--"what a willing buyer would pay in cash to a willing seller" for the property on the date of the taking given the property's "highest and best use." (55)

In determining fair market value, a court attempts to determine the amount "that in all probability would have been arrived at by fair negotiations between an owner willing to sell and a purchaser desiring to buy." (56) The court may analyze "all considerations that fairly might be brought forward and reasonably be given substantial weight in such bargaining," including "all facts affecting the market value (of the property] that are shown by the evidence." (57)

In the case of a temporary raking, "since the property is returned to the owner when the raking ends, the just compensation to which the owner is entitled is the value of the use of the property during the temporary raking, i.e., the amount which the owner lost as a result of the taking." (58) "The usual measure of just compensation for a temporary taking, therefore, is the fair rental value of the property for the period of the raking." (59)

Fair market rent is "the rental price in cash, or its equivalent, that the leasehold would have brought at the time of the raking, if then offered for rent in the open marker." (60) In determining just compensation for a leasehold raking, the Takings Clause requires the parties to focus upon how a willing landlord and a willing tenant-both fully informed regarding all favorable and unfavorable circumstances affecting the value of the leasehold-would have negotiated a lease. (61) The court will consider "all factors which could fairly be suggested by the lessor to increase the rental price paid, and all counter-arguments which the lessee could fairly make to reduce the rental price to be paid by him," including any extraordinary circumstances of the raking such as "the indefinite and short-term nature of the government taking." (62)

In the absence of severance damages, developing a valuation of the easement to conduct security activities in the common areas may prove challenging to an appraiser tasked with this assignment. We found no reported cases addressing the valuation of such an interest. Generally, such easements are not regularly transferred in the marketplace. As such, evidence of comparable transactions are likely nor available. The cost and income approaches to valuation also do nor appear to fit the circumstances of valuing an easement in the common areas of a multi-tenant office building.

One possibility might be that the value of the easement is best reflected as an upward adjustment to the fair market rent for the government's space in the building. Because the leased premises includes an implied easement in the common areas for "necessary uses, such as ingress and egress, the fair market rent presumably includes the value of this easement. From the appraiser's viewpoint, the relevant inquiry might be to determine how a rational landlord and rational tenant might negotiate an adjustment in the rent for the leased premises to reflect the expansion of the tenant's easement to include the right to conduct unlimited security activities. This, in turn, might involve an economic analysis of the impact of such an easement on the building. To the extent that granting such an easement would make the other space in the building less desirable (and drive down rents), a rational landlord might insist on mitigating this impact through a corresponding increase in the rent of the tenant obtaining the easem ent. Other possibilities might exist as well based upon the application of valuation principles that are the regular domain of the appraiser.

If the landlord has a claim for severance damages, as discussed below, then the appraiser can determine the value of the interest in the common areas under a "before and after" approach. By determining the difference between the value of the entire building "before" the government's taking and the value of the remainder of the building "after" the raking, the appraiser necessarily captures both the diminution in value to the remainder and the value of the property interest taken by the government as a result of its security activities.

Valuation Principles Applicable to Determination of Landlord's "Severance Damages"

Because the property taken by the government's increased security activities is limited to the landlord's property interest in the common areas, the government has effected only a "partial taking" of the landlord's building. As such, if the landlord can show that the raking resulting from the government's increased security activities has diminished the value of the remaining portion of the building, it can recover this amount as "severance damages."

When the government takes only part of a landowner's property, "just compensation is mandated for any depreciation in value of the remaining property not taken which is occasioned by the partial taking." (63) Severance damages occur "when the remaining property, which was held as a unit... with the condemned property, is damaged as a result of the partial taking by reason of the relation between that condemned and that remaining." (64) In other words, when the part of the property not taken "is left in such shape or condition as to be in itself of less value than before, the owner is entitled to additional damages on that account." (65)

Severance damages are a two-way street. If the value of the remaining property is increased because of the taking, then the amount of this increase is set off against the award of just compensation for the portion of the property taken by the government. (66)

In order to establish entitlement to severance damages, the owner must prove that the remainder was "unified" with the taken property--i.e., that the taken property and the remainder were (1) commonly owned and (2) either physically contiguous or functionally related as an integrated economic unit. (67)

Generally, the courts employ one of two approaches to determining severance damages. Under the "before and after" evaluation approach, "severance damage is arrived at by first determining the value of the entire property before the taking and then subtracting there from the value determined to be applicable to the property remaining after the taking." (68) The difference between the "before" value of the entire building and the "after" value of the remainder represents both the value of the land taken and the diminution of value of the remainder property. (69) Alternatively, determining the difference between the remainder property before the taking and its value after the taking may prove severance damages. (70)

In the case of the government's seizure of the common areas for security purposes, the landlord must develop a factual basis for proving that the government's raking has diminished the value of the remaining space in the building. In a multi-tenant office building, the highest and best use of the remaining rentable space is likely for lease to other private businesses and organizations in the market. It is conceivable that many businesses and non-governmental organizations would be deterred from leasing space in the building because of the inconvenience and intrusion associated with the government's security activities.

Through market surveys or testimony from an experienced broker or other person knowledgeable about the relevant market, the landlord may show that potential non-governmental tenants find space in the building less desirable following the government's establishment of mandatory visitor screening and armed patrols of the hallways and sidewalks. From such evidence, the landlord's experts may be able to develop an opinion regarding the likely impact of the government's activities on the fair market rent of the remaining office space in the building. Other experts in the management of commercial multi-tenant office buildings might be consulted to determine any foreseeable increase in operating expenses arising from the government's activities.

Once the impact of the government's raking on gross income and expenses has been determined, an appraiser will be in position to determine the value of the entire building before the initiation of these activities and the value of the building in light of the fact that the government has seized control of the common areas for security purposes. Based on the data obtained about the "before and after" net operating income produced by the building, the appraiser can use the income method to value the building. The application of the income method can, itself, involve a complex series of calculations and reasoned judgments that are beyond the scope of this article. However, provided that underlying data is developed showing an adverse impact on the building's rent stream or operating expenses, a "before and after" valuation approach using the income method is one way to prove the just compensation due to the landlord. (71)

Conclusion

The terrorist attacks of September 11 and the subsequent anthrax mail attacks have forced federal, local, and state governments to respond to threats that, until recently, were unimaginable. At the federal level, these attacks have prompted the FPS to assess and upgrade security in buildings deemed vulnerable.

Where government agencies lease space from private landowners, governments may desire to implement security measures--particularly in the common areas--that are not permitted under the current leases. While the government's power of eminent domain enables it to immediately take any interest in an office building it deems reasonably necessary for security purposes, it must still pay for what it takes. One remedy available to a landlord is a claim for inverse condemnation. This article has sought to demonstrate that security measures currently mandated for federal facilities can effect a categorical "permanent physical invasion" of the common areas of a multi-tenant office building that requires the payment of just compensation under the Takings Clause.

As claims materialize, appraisers will be called upon to provide expert testimony regarding the value of the property interest taken by the government and any diminution in the value of the remaining parts of the building. One way to determine both the value of the property taken and the landlord's severance damages" is to determine the difference between the value of the entire building before the initiation of the government's security activities and the value of the remaining portion of the building after the government's taking. This method will require the development of underlying data regarding the likely impact of the government's security activities on marker rent and operating expenses. Ultimately, appraisers, lawyers, and possibly other experts must work closely together to develop these valuations and present them persuasively in court.

(1.) See 49 Am. Jur. 2d Landlord and Tenant [section] 625 ("The implied covenant of quiet enjoyment in every lease extends to those easements and appurtenances whose use is necessary and essential to the enjoyment of the premises. ... Nothing passes to the tenant, by implication as an incident or appurtenance to the lands demised, except such privileges and easements as are reasonably necessary to the proper enjoyment of the premises demised."); Milton R. Friedman, Friedman on Leases [section] 3.2 ("It is said that a lease includes not only the premises described but also everything in use at the time of the demise and reasonably necessary to the use and enjoyment of the premises though not particularly mentioned [in the lease]."); 51C C.J.S. Landlord and Tenant [section] 293 ("The rule is practically universal, that everything which belongs to the demised premises or is used with, and appurtenant to, them and which is reasonably essential to their enjoyment passes as an incident to them, unless specially reserved.").

(2.) See 49 Am. Jur. 2d Landlord and Tenant [section] 628 ("A right of way necessary to the enjoyment of premises leased over other premises of the landlord will pass as an appurtenance to the demised premises. ... Where property is leased to different tenants and the landlord retains control of passageways, hallways, stairs, etc., for the common use of the different tenants, each tenant has the tight to make reasonable use of the portion of the premises retained for the common use of the tenants. ... Although the right of access and exit is in the nature of an easement and appurtenant to the demised premises, the general rule is that a right of way by implication arises only from necessity, and never from convenience"); Milton R. Friedman, Friedman on Leases [section] 3.2 ("In most cases an implied right of a tenant to ingress and egress to and from the leased premises and through halls and stairs is virtually free from question."); 51C C.J.S. Landlord and Tenant [section] 295 ("By necessary implication of t he right to ingress and egress, the tenant's rights under the lease ordinarily extend to structures essentially incident to use of the premises demised, such as steps, stairways, porches, walks, and halls, and may also include elevator service ... and such means of ingress and egress usually pass as an appurtenant to the leased premises, unless, at the time of entering into the lease, the landlord expressly or impliedly reserves control over such facilities."); Annotation, Easements or Privileges of Tenant of Port of Building as to Other Parts Not Included in Lease, [section] 4 (1952).

(3.) See Annotation, Landlord's Liability For Failure to Protect Tenant From Criminal Acts of Third Person, 43 A.L.R. 5th 207, [section] 2 (1996).

(4.) Public Buildings Service, General Services Administration, Standard Clauses and Provisions, Solicitation for Offers, [section] 7.13 at http://hydra.gsa.gov/pbs/pe/standcla/standcla.htm (last visited on November 2, 2002).

(5.) Alex D. Tomaszczuk, et al., Leasing Real Property to the U.S. Government, 1-1 (1998) ("The 'statutory authority' to enter into leases for real property and to manage leased space for most federal agencies is vested in the Administrator of the GSA by the Federal Property and Administrative Services Act (FPASA) of 1949, as amended [codified at 40 U.S.C. [section] 490]").

(6.) Office of the Chief Financial Officer, General Services Administration, Annual Performance Report Fiscal Year 2001 21 (2002) ("GSA 2001 Annual Performance Report").

(7.) Public Buildings Service, General Services Administration, Customer Guide to Real Properly 9-10 ("GSA Customer Guide to Real Property").

(8.) Id. at 73-74; Federal Management Regulation [ss] 102-72.30, -72.70, -72.75.

(9.) 40 U.S.C. [ss] 318a to 318d; Office of the Federal Protective Service, GSA, Historical Background, at http://www.gsa.gov/Portal/content/offerings_content.jsp?contentOID=11 6083&contentType=1004 (last visited on November 2, 2002).

(10.) GSA Customer Guide to Real Property 39-42; Federal Protective Services, General Services Administration, Security and Law Enforcement Services--Frequently Asked Questions at http://www.gsa.gov/Portal/content/offerings_content.jsp?contentOID=11 5078&contentType=l004.

(11.) GSA Customer Guide to Real Property at 42-43; 1999 GAO Report at 11.

(12.) GSA Customer Guide to Real Property at 42-43.

(13.) Id.

(14.) United States General Accounting Office (GAO), Many Building Security Upgrades Made But Problems Have Hindered Program Implementation, GAO Report No. GAO/T-GGD-98141, 1 (June 4, 1998) ("1998 GAO Report").

(15.) 1998 GAO Report at l9.

(16.) Id. at 19-20.

(17.) Id. at 19.

(18.) Id. at 21.

(19.) Id. at 22.

(20.)Id. at 21.

(21.) Id. at 24.

(22.) President's Memorandum to Executive Departments and Agencies on Upgrading Security at Federal Facilities, 1 Public Papers of the Presidents: William J, Clinton--1995 964-65 (June 28, 1995).

(23.) 1998 GAO Report at 1.

(24.) Id. at 1.

(25.) United States General Accounting Office (GAO), Status of Efforts to Improve Management of BuiIding Security Upgrade Program, GAO Report No. GAO/T-GGD,/OSI-00-19, 4 9, 4 (October 7, 1999) ("1999 GAO Report").

(26.) Technology and Federal BuiIding Security Hearing Before the Subcomm. On Technology and Procurement Policy of the House comm. On Government Reform, 107th cong., 2002 WL 749849 at * 9 (April 25, 2002) (statement of F. Joseph Moravec, commissioner, Public BuiIdings Service, General Service Administration) ('Hearing on Technology and Federal BuiIding Security").

(27.) GSA 2001 Annual Performance Report at 40.

(28.) Id. at 23.

(29.) Hearing on Technology and Federal BuiIding Security, 2002 WL 749849 at * 24.

(30.) Public Buildings Service, General Services Administration, Standard Clauses and Provisions, Solicitation for Offers, (ss) 7.13 at http://hydra.gsa.gov/pbs/pe/standcla/standcla.htm (last visited on November 2, 2002).

(31.) See United States v. Clarke, 445 U.S. 253, 257 (1980) (stating that inverse condemnation is "a shorthand description of the manner in which a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted").

(32.) 28 U.S.C. ss 1491 ("The United States Court of Federal Claims shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution").

(33.) U.S. Const. Amend. V.

(34.) Karuk Tribe of Cal. v. Ammon, 209 F.3d 1366, 1374 (Fed. Cir. 2000).

(35.) Id. (citing PrimeYard Shopping Center v. Robins, 447 U.S. 74, 83 (1980)).

(36.) Id. (citing M & J Coal Co. v. United States, 47 F.3d 1148, 1154 (Fed. Cir. 1995)).

(37.) Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992).

(38.) Id.

(39.) Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978); Agins v. City of Tiburon, 447 U.S. 255, 262 (1980).

(40.) Penn Central Transp. Co., 438 U.S. at 123.

(41.) Boise Cascade Corp. v. United States, 296 F.3d 1339, 1353 (Fed. Cir. 2002).

(42.) Id. (quoting Loretto v. Teleprompter Manhattan CAP/Corp., 458 u.s. 419, 435 (1982)).

(43.) Id. (quoting Loretto, 458 U.S. at 436).

(44.) Id. (quoting Loretto, 458 U.S. at 436).

(45.) Id. at 1356-57 (clarifying the statement in Hendler v. United Stoles, 952 F.2d 1364 (Fed.Cir. 1991) that "'permanent' does not mean forever, or anything like it"). As the Supreme Court explained before the development of the Lucas and Penn Central approaches, "[p]roperty is taken in the constitutional sense when inroads are made upon an owner's use of it loan extent that, as between private parties, a servitude has been acquired by agreement or in course of time." United States v. Dickinson, 331 U.S. 745, 749 (1947).

(46.) Kaiser Aetna v. United Stales, 444 U.S. 164, 179-80 (1979); see also Heydt v. United States, 39 Fed.CI. 286, 308 (1997) (government categorically took the owner's warehouse where it failed to remove its property after terminating contractor for default because "[the owner) has the right to exclude others, including the Government from its property, and the Government's occupation and use of the facility constituted a taking of that right to exclude others").

(47.) See Skip Kirchdorfer, Inc., 6 F.3d at 1583 (holding that fact that owner of warehouse retained some access rights following government's seizure of the building "does not preclude a per se taking" where government "took [the] property and gave access to a third party").

(48.) See Loretto, 458 U.S. at 435--40 & 438 n. 16.

(49.) Id. at 438.

(50.) United States v. Miller, 317 U.S. 369, 373 (1943).

(51.) Id.

(52.) See United States v. General Motors Corp., 232 U.S. 373, 383 (1945).

(53.) See Miller, 317 U.S. at 376; Kimball Laundry Co. v. United States, 338 U.S. 1, 5 (1949).

(54.) Kimball Laundry Ca., 338 U.S. at S.

(55.) See Miller, 317 U.S. at 373-74; Olson v. United States, 292 U.S. 246, 255 (1934); see also Kirby Forest Industries, Inc. v. United States, 467 U.S. 1, 9-10(1984).

(56.) Olson, 292 U.S. at 257.

(57.) Id.

(58.) Yuba Nat. Resources, Inc. v. United States, 904 F.2d 1577, 1580-81 (Fed.Cir. 1990).

(59.) Id. at 1581 (citing Kimball Laundry Co., 338 U.S. at 7); see also United States v. General Motors Corp., 323 U.S. 373, 382 (1945).

(60.) United States v. 1735 North Lynn Street, Situated in Rosslyn, Arlington County, Va., 676 F.Supp. 693, 706 (E.D.Va. 1987).

(61.) See Kimball Laundry Co., 338 U.S. at 7.

(62.) 1735 North Lynn Street, 676 F.Supp. at 707; see also General Motors Corp., 323 U.S. at 383.

(63.) Georgia-Pacific Corp. v. United States, 226 Ct.Cl. 95, 640 F.2d 328, 336 (1980); see also 1735 North Lynn Street, 676 F.Supp. at 708 (recognizing that severance damages may be recoverable when government takes a leasehold interest in certain floors of an office building).

(64.) 1735 North Lynn Street, 676 F.Supp. at 708.

(65.) Dickinson, 331 U.S. at 1386 (quoting Bauman v. Ross, 167 U.S. 548 (1897)).

(66.) Miller, 317 U.S. at 376.

(67.) See United States v. 57.09 Acres of Land, 706 F.2d 280, 281 (9th Cir. 1983); United States v. Waymine, 202 F.2d 550, 554-55 (10th Cir. 1953).

(68.) Georgia-Pacific Corp., 640 F.2d at 336 n.4.

(69.) Id.

(70.) Id.

(71.) We are not advocating that the income method is the only approach, or even the best approach, to determining the value of a multi-tenant office building in these circumstances. We recognize that, with regard to the valuation of real property, every case (like every property) is fundamentally unique. Appraisers considering a specific building in a particular market and exercising their professional judgment may determine that another valuation approach, or combination of approaches, is appropriate. We only intend to suggest that the income approach outlined above may be one way of approaching the valuation challenge posed by government-imposed security measures in multi-tenant office buildings. We welcome the appraisal community to comment about valuation methodologies applicable to this situation.

Richard O. Duvall, LLB, is a 1967 graduate from the University of Virginia School of Law. Mr. Duvall is a partner in Holland & Knight LLP, through its professional corporation. He chairs Holland & Knight's government contracts practice and concentrates his own practice in government contracts and commercial litigation.

Contact: Holland & Knight LIP, 1600 Tysons Boulevard, Suite 700, McLean, VA 22102. (703) 720-8620; fax: (703) 720-8610; email: rduvall@hklaw.com.

David S. Black, JD, is a 1996 graduate of the Georgetown University Law Center. Mr. Black is an attorney at Holland & Knight LLP. His practice is concentrated in land use, eminent domain, commercial litigation, and government contracts.

Contact: Holland & Knight LIP, 1600 Tysons Boulevard, Suite 700, McLean, VA 22102. (703) 720-8680; fax: (703) 720-8610; email: dblack@hklaw.com.
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