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New eminent domain law won't change much.

According to a recent United States Supreme Court decision, the government's use of its authority to seize private land for private development is not unconstitutional so long as the government can establish that there is a "public purpose" to the proposed taking. While the Fifth Amendment of our Constitution provides that the government may take private property for "public use," that phrase was usually equated with the development, expansion or improvement of schools or roads or other public projects. Over time, however, the U.S. Supreme Court has held that "public use" may be interchangeable with "public purpose," thus allowing states to take private land and turn it over to private developers so long as a "public purpose" (such as economic development of blighted areas) was achieved. Now, under the U.S. Supreme Court's decision in Kelo v. City of New London any project that is deemed necessary to economic development--whether in response to blight or not--may be seen as fulfilling the underlying legal requirement. But has anything really changed as a result of Kelo? Do private property owners have a cause for concern?

if you were to ask Susan Kelo--the property owner that took her case to the country's highest court--she would likely respond with an emphatic "Yes!" But the answer may well be that the Kelo decision did little to change the government's powers, particularly as far as New York is concerned. In Kelo, the cash-strapped city of New London, Conn., signed a contract with a major corporation to build a massive office complex. Included in this urban development plan was the development of nearby waterfront property for a new marina, hotel and new housing--ostensibly for the corporation's new employees. The city's problem was that Susan Kelo and her neighbors already lived in the proposed redevelopment area. New London used its "eminent domain" powers to seize all property in Kelo's neighborhood, but Kelo and her neighbors refused to vacate. They argued that the Fifth Amendment only applied to takings for "public" purposes, and that a development benefiting private interests, particularly in the absence of adverse economic conditions, was not supported by the Constitution. New London countered that the projected increase in employment and tax revenue justified taking Kelo's home, even though a private entity would have actual use of the land. In the end, the country's highest court allowed the takings.

The U.S. Supreme Court's decision in Kelo reinforces what has already been recognized as the definition of "public use" used by the New York courts. The Metrotech project to revitalize downtown Brooklyn and the revitalization of Manhattan's Times Square are just two examples of private companies benefiting from the government's exercise of eminent domain or "takings" powers. The most recent example is the Hudson Yards development surrounding the Jacob Javits Convention Center. The Hudson Yards development spans 360 acres and insiders anticipate that 93 commercial and 50 residential units will be seized by the government through its eminent domain powers. By comparison, 200 commercial units and 50 residential units were seized for the Metrotech project, which covered only six acres in Brooklyn.

Of course, the government cannot act without some repercussion, for property owners subject to a taking must receive "just compensation." New York's statutes, such as the Eminent Domain Procedure Law ("EDPL") and the New York and United States Constitutions define and govern the procedures whereby land may be taken and all require that property owners be provided "just compensation." While that value is calculated by an appraiser of the government's choosing, should there be a dispute, the property owner may litigate the valuation in a judicial forum. In addition to compensation for the seized property, other forms of assistance for commercial and residential tenants are available, including compensation for relocation costs. In a further effort to protect property owners and tenants, New York State Assemblyman Richard L. Brodsky recently proposed legislation that would require the State to compensate displaced residents by 150% (rather than 100%) of the market rate of their unit.

While the government will not exercise its eminent domain powers on a whim, legislatures throughout the country are attempting to impose restraints. As a direct result of the Kelo decision, lawmakers in no less than 21 states (including the proposal by Assemblyman Brodsky) have introduced legislation to limit eminent domain's use. And, ironically, Connecticut Governor Jodi Rell has called for a moratorium on the use of eminent domain within that state until the legislature has had a chance to reform the current laws. Although legislative changes are likely to trigger yet another round of constitutional challenges, governmental taking for public and private development is here to stay and will likely remain a viable urban renewal strategy for the foreseeable future.
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Author:Ferrara, Lucas A.
Publication:Real Estate Weekly
Date:Aug 31, 2005
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