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Recent Court Decisions on Real Estate and Valuation.

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 statutory definition aligns with the prior definition that was held to exclude wind turbines. Unless and until the legislature changes the definition of real property, or clarifies the "use prong" of the fixture analysis, the common law test from Zangerle continues to apply. Applying that test, the court held that wind turbines are only necessary to the utility of the land given the particular business that Kaheawa operates; they would not be useful to the land regardless of the business carried on upon it. Accordingly, the court held that wind turbines are not fixtures and do not constitute real property.

Kaheawa Wind Power, LLC v. County of Maui

Hawai'i Supreme Court

January 21, 2020

SCAP-17-0000816

Inverse condemnation claim for sewer system backup

Raw, untreated sewage from the City of Oroville (City) sewer main backed up into a private sewer lateral in December 2009, invading the sinks, toilets, and drains of a dental practice in an office building owned by three dentists. The dentists filed claims against their insurer, and then the dentists and the insurance company sued the City for, among other things, inverse condemnation. The City filed a cross-claim, asserting that the dentists had failed to ensure a backwater valve was properly installed on their private sewer lateral in violation of the City's municipal code.

At trial, the City presented evidence that the sewer was built and operated as a gravity-driven system in which sewage flows downhill to a sewage treatment plant. Manholes provide access and are designed to allow sewage to escape through the manhole immediately upstream of the blockage. The City showed that the building was constructed after the enactment of the code provision requiring the installation of backwater valves, which prevent sewage from entering buildings during main line backups, and at the time of the backup, the building had no backwater valve installed. The dentists' expert conceded that a backup valve could have averted the incident.

In July 2014, the trial court found the City liable in inverse condemnation. The court concluded that the evidence showed that there was a blockage likely caused by roots; the blockage resulted in the sewage backup in the dental office; and the property was damaged. But even though the City shared causal responsibility for the damage with the dentists, the court ruled that, because the primary cause of the blockage was root intrusion--which, in an earlier case, was described as an inherent risk of sewer operation--the City was liable for inverse condemnation. The City appealed the case, which eventually went to the California Supreme Court.

Inverse condemnation claims are initiated by property owners seeking compensation for a taking or damage to a property. To resolve inverse condemnation claims and the causal questions they raise, courts look to tort and property law doctrines relevant to analogous disputes between private parties. From underground excavation projects to street construction, inverse condemnation covers a wide range of public improvements. Consistent across courts' assessments of these varied public works is the expectation that if an improvement is inherently dangerous to private property, the public entity is required to compensate owners for injury to their property arising from the inherent dangers of the public improvement.

Applying a standard of "substantial causation," the state supreme court explained that landowners may establish inverse condemnation liability even where the public improvement's design, construction, and maintenance was only one of several concurrent causes, provided the causal connection between the risks inherent in the improvement and the harm in question was sufficiently robust.

Accordingly, damage to private property must be substantially caused by an inherent risk presented by the deliberate design, construction, or maintenance of the public improvement. Under such circumstances, whether the damage was intentional or the result of negligence is not determinative. At the core of this test is the requirement that, even in the case of multiple concurrent causes, the injury to private property is an inescapable or unavoidable consequence of the improvement.

The court concluded that, by failing to analyze inverse condemnation with sufficient focus on substantial causation from inherent risks associated with the sewer system, the lower court erred. The record supported that the City acted reasonably in adopting the design for the sewer system in accordance with accepted practice at that time. The court concluded that ruling for the dentists would be "airbrushing out of the picture" not only the City's balance of safety and practical considerations, but also the dentists' noncompliance with an ordinary planning code requirement that would have eliminated or at least mitigated risks of sewage backup damage. Thus, the City was not liable in inverse condemnation for the damage to the property.

City of Oroville v. Superior Ct. of Butte County

California Supreme Court

August 15, 2019

446 P.3d 304

Measure of damages for taking to establish private road

The Timchula Living Trust owns Section 21 in a particular township in Albany County, Wyoming. Section 21 abuts Sections 15, 16, and 22. In May 2017, Timchula filed a complaint claiming that the trust property was without legally enforceable access, and proposing the construction of a road. Timchula proposed a route along an existing, two-track road that is already subject to easements, which would have crossed Sections 15 and 16. Section 15 is privately owned, while Section 16 is state owned. Timchula later amended the proposed route to avoid crossing the state's land in Section 16.

The private road statutes are the sole remedy for landlocked landowners to obtain access to their property. Any persons whose land has no outlet to a public road may commence an action for a private road, located so as to do the least possible damage to the lands through which the private road is located.

In their answer to the complaint, Section 15's owners--Sharpe and Logan--proposed an alternate route across a different two-track road crossing Section 22 owned by the Garsons. The court held a necessity hearing and determined that the Timchula property satisfied the statutory requirements for establishment of a private road and that access was necessary.

With input from the parties, the court then appointed three "viewers and appraisers," also referred to as "viewers," to assess the proposed routes and submit recommendations to the court regarding the more reasonable route for the road, any conditions or restrictions that should be placed on the road, and damages. In their report, the viewers largely adopted Timchula's proposal, finding that it would provide the most convenient access to a public road and would require the least new construction and maintenance. The court adopted the viewers' report.

Sharpe and Logan argued that Timchula should be restricted from using the private road for subdivision of the Timchula property and that the road be used for agricultural and residential purposes only, but the viewers did not recommend that restriction, since no other users of that right-of-way had such restrictions. The court adopted this recommendation.

Finally, the viewers recommended that Timchula pay $25 per rod to Section 15's owners and $500 total to the Garsons, based on an evaluation of 25 sales in the area that showed the value of the property over which the road would cross was $1,000 per acre. The baseline amount generally charged by the state for easements over its land is $25 per rod. The court agreed.

Section 15's owners appealed. They contended that the court failed to select the most reasonable route when it chose the viewers' proposal instead of their proposed route. Specifically, they argued that the viewers' route was longer, required substantial infill, and traversed the Sharpes' existing homesite areas with corrals, trailers, and a well. In contrast, the Section 22 route had several benefits, including following an existing road and an existing powerline.

The Wyoming Supreme Court noted that these reasons were "decidedly bent" in favor of Section 15's owners. It failed to address two of the most important considerations that led the viewers and the court to adopt the viewers' route. The viewers' route was 2.5 miles closer to the major highway, saving five to ten minutes of driving. The viewers' route also provided the best opportunity for dependable access despite drifting snow.

The court then turned to the issue of damages. In an earlier case, the court held that the measure of damages for taking a private road was the difference in value of the entire parcel before and the value of the remaining land after the taking, and the legislature had adopted that test. The court said that the legislature's use of the word "shall" means viewers and appraisers must use this method to calculate damages.

Here, the record showed that the viewers considered before-and-after values, but they could not reach a consensus and thus did not report any such values. They had difficulty appraising property already burdened by easements and found it more reasonable to consider what other landowners had paid for easements. But because damages were not calculated in accordance with the statute, the court reversed the damages award and remanded for the lower court to reassemble the viewers (or, if necessary, appoint new viewers) and instruct them to determine and separately report before-and-after values of each separately owned parcel of affected land. The judgment designating the viewers' route, however, was affirmed.

Sharpe v. Time hula

Wyoming Supreme Court

December 4, 2019

453 P.3d 761

Consequential damages in an avigation easement dispute

In 2006, Mako Development (Mako) purchased a 6.2-acre parcel near the LaGrange-Callaway Airport in Troup County, Georgia, for $1 million. The Georgia Department of Transportation later used its eminent domain power to take a portion of the property while providing Mako compensation of $320,000. The remainder was 4.41 acres, all of which was undeveloped and covered in vegetation.

In 2015, Troup County (County) approved a large expansion of the airport, including an extension of its runways. The County filed a declaration of taking against the property, claiming an avigation easement over the entire property to allow airplanes to fly over the airspace. The easement included a restriction on use of airspace above 725 feet over the entire contiguous tract, a permanent right of entry to remove objects extending into the airspace, and a restriction on erecting or growing any structure or object into the airspace. In the declaration, the County estimated the compensation for the taking at $4,500.

Mako filed a notice of appeal of the declaration. The trial court initially concluded that, as a practical matter, all damages flowing from the avigation easement were diminution in value to the remainder, since a property owner rarely has occasion to use the airspace 700 feet above the property.

At trial, both parties retained appraisers to testify regarding the appropriate amount of compensation for the condemned property. Both appraisers concluded that there was a remainder tract not subject to the easement, but they reached different final value conclusions. The County's appraiser attributed $4,492 as the value of the direct taking with no consequential damages. Mako's appraiser attributed $220,500 to the direct taking and $176,400 as consequential damages to the remainder. The jury returned a verdict of $233,100 for Mako, without splitting the amount between direct and consequential damages. The County appealed, arguing that there was no "remainder" because the entire property was affected by the easement and grant of access.

The court of appeals began by noting that, in assessing whether an award of consequential damages is appropriate, Georgia law defines the remainder as "property not taken" and "the owner's land not involved in the easement." Georgia law also provides that the rights of owners of realty include title both downwards and upwards indefinitely.

The court next explained that the purpose of separating the different types of damages is to avoid a double recovery for the effects of the easement or partial taking on the owner's property value. Here, however, neither appraiser used a method of calculating damages that would have resulted in a double recovery. Both appraisers calculated the value of the "direct damages" as the value of the air rights, and they calculated the value of the "consequential damages" as the effect on the property on the ground. Thus, even if the easement indeed covered the entire property as the County argues, the consequential damages would not simply disappear; they would still need to be accounted for as part of the market value lost due to the claiming of the easement.

Accordingly, whether the damages are denominated as direct or consequential, the difference between the appraisers' total damage conclusions shows the amount of property value taken by the County from Mako and, therefore, the amount that each appraiser opined that Mako must be paid to be made whole. The jury's verdict was halfway between the appraisers' numbers, so the Court concluded that there was no improper double recovery, and the jury's verdict was left undisturbed.

Troup County v. Mako Development, LLC

Georgia Court of Appeals

October 17, 2019

835 S.E.2d 44

Assessment of taxes against housing development on military base

The United States government owns land in Meade County, South Dakota, that includes Ellsworth Air Force Base. In the 1980s, the government set aside 235 acres within the base for a housing development for base personnel. In 1990, the government provided Hunt Companies a 40-year land lease, agreeing that Hunt would build 828 housing units on the property. For the first 20 years Hunt held the lease, the government managed and maintained the development, and the County did not assess taxes against Hunt during those years.

When the lease ended in August 2011, Hunt began managing the development. Because Hunt was now the manager, the County assessed property taxes in 2011, 2012, and 2013, valuing Hunt's taxable interest in the leasehold at $35,731,200 using the fee simple value of the property. Hunt paid the taxes assessed without invoking the pay-and-protest provisions of South Dakota law. But Hunt then challenged the County's valuations by appealing first to the County Commissioners, then to the circuit court.

Rather than focusing on the County's constitutional authority to tax the leasehold interest altogether, Hunt argued that the County erred by assessing the property at its fee simple value instead of its leasehold value. Following trial, the court found that the methods of valuation employed by the County were inaccurate and unreliable, and observed that the state constitution forbids valuing property owned by the United States. Determining that Hunt owed taxes only on the leasehold interest, the court held that the value of the leasehold was $14-1 million to $15.5 million, varying by year. Neither Hunt nor the County appealed the court's ruling.

Three months later, Hunt filed an application for an abatement and refund of taxes overpaid pursuant to statute. That statute provides six reasons that taxes may be abated or refunded, including that the property is exempt from tax, but a reduction due to an assessment appeal is not one of the reasons. Accordingly, the application was denied by the local commission; even if one of the provisions applied, the commission was not satisfied that the assessment was invalid, inequitable, or unjust.

Hunt appealed the commission's decision to circuit court, which likewise found that none of the six provisions applied. The court also rejected Hunt's argument that it could have elected to pursue either a pay-and-protest suit or apply for abatement and refund. The court noted that the legislature would not have provided two mechanisms to seek the same relief, one with a 30-day limitation period (the pay-and-protest provision) and one with a four-year limitation period (the abatement and refund provision). Hunt appealed to the state supreme court, arguing both that the assessment of Hunt's leasehold interest violates the constitution, and that the circuit court erred by denying the abatement and refund.

The South Dakota Supreme Court quickly dismissed the constitutional argument as not properly before the court. In the earlier valuation litigation, Hunt challenged the assessment as unconstitutional because it was based on the fee simple value of the development. The valuation court ruled in Hunt's favor, reducing the assessment to the value of the leasehold. Because neither party appealed, that decision became final, thereby terminating further litigation on the issue of the value of Hunt's taxable interest.

On the second issue, the court observed that South Dakota law provides two avenues of relief when a tax is improperly levied against a person--pay and protest, and abatement of an erroneous assessment. The pay-and-protest provisions afford taxpayers broad relief within a limited window, while the erroneous assessment provision provides much narrower relief over a longer period of time.

Hunt had relief available, yet it chose not to use the pay-and-protest provision that would have allowed for a refund following a successful valuation appeal. The Court noted that it was "mindful of the enormity of the County's overvaluation of Hunt's leasehold interest," but the Court held that it could not interpret the statute to avoid that result. The circuit court's decision was affirmed.

Abatement Appeal of Hunt Companies, Inc.

South Dakota Supreme Court

May 1, 2019

2019 S.D. 26

Tax assessment of city watershed property requires credible evidence of highest and best use

The City of Newark owns eight parcels in Jefferson Township, New Jersey, consisting of approximately 4,036 acres of vacant land (Subject). Except for 400 acres of open water, which is one of Newark's reservoirs, the property is heavily wooded and is otherwise constrained with steep slopes and rock outcroppings. The property is subject to restrictions of a state law that prohibits the sale of land used for the purpose or protection of a public water supply; the property is also restricted by conservation easements to ensure that the property would "be retained forever and predominantly in its natural forested condition." While the easement deeds prohibit the clear-cutting of timber, they allow selective cutting of timber so long as it is done under the supervision of a state forester and in accordance with an approved forest management plan.

Jefferson conducted a townwide revaluation in 2006, then performed a reassessment again in 2010 due to the recession. In 2009, the watershed property was assessed at $3,500 per acre; it was assessed for $5,000 per acre beginning in 2010. Every Jefferson landowner except Newark had his or her assessment decrease. Newark's assessment increased.

Newark appealed the assessments. At trial, both parties hired appraisers to render an opinion of value for the Subject for each year at issue. Newark's appraiser conferred with a certified forester in developing his value opinion. The parties agreed that the key issue in the dispute was the highest and best use determination for the property.

Newark's appraiser concluded that the highest and best use was for woodland management and sale of the property for purpose of harvesting timber for sale. Accordingly, he considered sales of deed-restricted farmland and arrived at an opinion of value of $ 1,500 per acre. Jefferson's appraiser considered the encumbrances on the property and concluded that its highest and best use would be for recreation, determining the most probable buyer to be a land preservation group or governmental agency. He valued the property as $4,500 to $6,500 per acre, varying by parcel.

The tax court noted that the concept of highest and best use is not only fundamental to valuation but is a crucial determination of market value. Implicit in such an analysis is the assumption that the proposed use be market driven.

Newark's appraiser determined that after the conservation easements the residual rights of use of the property consisted of conservation, timbering, and recreation. After considering the alternatives, the appraiser determined that timbering represented the most viable economic use of the property. In arriving at that conclusion, he determined that such buyers would buy the actual fee of the property rather than buying lumbering rights. He could not, however, find a single sale of land in New Jersey for timbering purposes. Another of Newark's witnesses testified that, to his knowledge, forestry in New Jersey was "pretty much a dead industry."

Jefferson's appraiser agreed that he had never seen a sale in New Jersey of land purchased for timber value. Since highest and best use requires a market for that particular use, when there are no sales in the market, the appraiser cannot conclude that there is demand. Instead, given the conservation easements in place, he concluded that the highest and best use of the property was for active and passive recreation.

In the court's view, once Newark's appraiser determined that there were no sales of land in New Jersey for timbering, he should have eliminated timbering as a potential highest and best use and considered other uses for which there was demand in the marketplace. Because the Court rejected his highest and best use conclusion, it likewise concluded that his evaluation of sales of properties restricted for agricultural purposes was not credible.

Jefferson's appraiser, on the other hand, identified sales of properties where the purchaser was motivated to use the land for active and passive recreation and to preserve the property in perpetuity. However, the court found that the differences between the comparable properties and the subject property were significant. The court concluded that the presence of a conservation easement on the property had a greater impact than the restrictions on the comparables. There is "no logical reason" that a seller would receive the same amount for a property with greater development potential and more possible uses than the subject. Thus, Jefferson's appraiser's conclusion was deemed unreliable.

Neither party presented credible evidence of the value of Newark's watershed property. Consequently, the assessments were affirmed by the court.

City of Newark v. Township of Jefferson

New Jersey Tax Court

October 3, 2019

31 N.J. Tax 303

Loss of visibility not a compensable taking

TLC holds a perpetual easement on land owned by Bay Line Railroad (Bay Line). Bay Line expressly granted TLC the right to advertise using a billboard on Bay Line property near an intersection with Highway 98. The easement deed provides for a 345-square-foot footprint for the billboard site, express ingress and egress, and a line-of-sight restriction that prohibits Bay Line or any other party from erecting a structure that obscures the normal highway view of the billboard. The billboard footprint does not abut the highway, but Bay Line's right-of-way does.

For fifteen years, TLC accessed the billboard by jumping the curb of the highway, since there was no dedicated driveway or curb cut to access the billboard from the highway. Then, the Florida Department of Transportation (FDOT) acquired the necessary right-of-way for construction of a flyover on the highway, which would elevate the highway by more than twenty feet to allow clearance for trains and to facilitate continuous traffic. FDOT conceded that the billboard would no longer be visible from the highway once the flyover was completed.

TLC filed a complaint against FDOT for inverse condemnation, claiming the flyover project violated its rights under the easement for an unobstructed view and access thereto. TLC asserted that the construction was a compensable taking because the billboard would no longer be commercially viable, and there would be no legal entry to the billboard footprint. In turn, FDOT argued that, because the easement did not abut the highway and the deed does not specifically describe how the easement may be accessed, TLC is not entitled to compensation. The trial court agreed with FDOT, finding that TLC had no compensable property right for loss of visibility and did not incur a loss of access. TLC appealed.

On appeal, TLC presented first the question of whether private parties may create a contractual property interest, such as a guarantee of an unobstructed view, for which compensation is due for a taking by a government agency. The court began by noting that Florida law does not recognize visibility as a stand-alone property right. The cohort of compensable property interests in Florida has expanded to include leaseholds, easements, and personal property as well as intangible property like contracts. TLC argued that restrictive covenants should be added to that list.

Landowners may not contract to limit the government's ability to acquire lands for public purposes or force the government to compensate them for damages resulting from a use that does not directly invade their land. Here, the covenant on visibility expresses a building restriction imposed for the benefit of the owner of the easement, TLC. But the deed simply established that Bay Line would not take any actions to obstruct TLC's billboard. Furthermore, there is no inherent right to use public highways for commercial purposes, since no person has a vested right in the maintenance of a public highway in any particular place, and the state owes no person a duty to send traffic past its property. Thus, TLC was not entitled to compensation for loss of visibility.

Unlike visibility, however, Florida law does recognize access as a stand-alone property right. TLC thus argued that, although the footprint did not abut the highway, TLC's ingress and egress rights do abut the highway. The court disagreed, finding that TLC failed to prove that its access to Bay Line's property would be diminished as a result of the flyover. Neither TLC nor Bay Line ever applied to FDOT for a curb cut or other permissible entry from the highway. Furthermore, the flyover plans call for a service road to run parallel to the flyover, which will have a curb cut. Thus, the court held that the flyover project does not result in a denial of TLC's access to the Bay Line property or its easement.

TLC Properties v. Florida Dept, of Transportation

First District Court of Appeals of Florida

January 21, 2020

No. 1D17-5034

Landlord-tenant dispute regarding renewal of sublease agreement

In 2007, the Port Isabel Logistical Offshore Terminal (PILOT) leased 54 acres at Port Isabel, Texas, from the port's Navigation District. In April 2008, PILOT subleased half of the property to Subsea, an engineering and construction firm that manufactures and installs undersea oil and gas pipelines, for use as a spoolbase.

The sublease agreement's initial term terminated on May 31, 2012. Because PILOT would need to renew its prime lease with the Navigation District, the sublease agreement required Subsea to provide written notice to PILOT by March 31, 2012, if Subsea intended to exercise its option to renew the sublease for another five-year term.

Subsea spent over $40 million to improve the property by, among other things, building a dock, building pipe-fabrication facilities, and stabilizing the ground with crushed rock. But after the Deepwater Horizon oil spill in 2010, drilling activity in the Gulf of Mexico slowed dramatically and Subsea's facilities on the property went virtually unused for several years. Accordingly, in early 2012, Subsea sought to renegotiate the terms of the sublease prior to renewal.

Although the evidence was unclear about the communications between PILOT and Subsea, Subsea did not send written notice of its intent to renew the sublease before March 31, 2012. In May 2012, Subsea sent an e-mail to PILOT'S new president stating that Subsea intended to renew the lease. PILOT did not respond to the notice, believing it was untimely and therefore invalid. Nevertheless, PILOT continued to send rent invoices to Subsea for two years, and Subsea paid the invoices. PILOT deemed Subsea to be a holdover tenant in violation of the sublease agreement but never stated as much to Subsea.

In April 2014, PILOT evicted Subsea and demanded Subsea vacate the premises by May 31, but because Subsea believed the sublease had been effectively renewed, it refused to vacate. Both parties sued each other. After a two-week trial, the jury found that the parties did not orally agree to modify the renewal provisions of the sublease, Subsea trespassed on PILOT'S property, and PILOT was entitled to $634,710 in damages for the trespass. Both parties appealed.

On appeal, Subsea contended that PILOT waived its right to complain about the timeliness of the notice of renewal by consciously choosing not to tell Subsea about its position for two years. The court of appeals, though, disagreed that the evidence established that PILOT actually intended to relinquish its right to complain about the timeliness. Further, PILOT'S president had testified that the rent payments it accepted from Subsea after expiration of the initial lease term were in the amount prescribed for a holdover tenant, not for a tenant which had effectively renewed the sublease.

On the issue of trespass damages, the court noted that the jury was instructed to determine damages by calculating the difference between the rent paid by Subsea and the fair market rental value of the premises from June 1, 2014, to December 31, 2016 (just after the date of the trial judgment). Because the jury awarded damages of $634,710, that indicated that the jury found the property had a fair market rent of $1,500 per acre per month, apparently based solely on the testimony of PILOT'S president.

The court observed that a property owner may testify to the value of his property even if the owner is not otherwise qualified as a valuation expert. But in order for a property owner to qualify as a witness to the damages to his property, the testimony must refer to the market, rather than an intrinsic or other value of the property. Under this rule, an owner's valuation testimony fulfills the same role that expert testimony does; however, it is based on personal knowledge instead of expertise. While valuation testimony may not be based solely on speculation, the owner does automatically qualify to provide such testimony.

PILOT'S president testified that he arrived at a market rent for the property using an investment model he learned as a business major in college and based on the amount Subsea spent to construct a dock on the premises using an 11 % rate of return. Subsea, in contrast, hired an appraiser to perform market research; the appraiser determined that the rental values of other properties in the Navigation District ranged from $800 to $1,500 per acre per month, but he was not asked to perform an appraisal, and he did not offer an opinion of the fair market rental value of the premises.

Because a jury has discretion to award damages within the range of evidence presented at trial, and because the damages award fell within the range found by Subsea's expert, the court of appeals concluded that the evidence was legally sufficient to support the damages award, regardless of whether PILOT'S president's testimony was probative.

Subsea 7 Port Isabel, LLC v.

Port Isabel Logistical Offshore Terminal, Inc.

Court of Appeals of Texas,

Corpus Christi-Edinburg

December 19, 2019

No. 13-17-00144-CV

Proving diminished value of leasehold interest in expropriated land

In connection with a roadway construction project in Metairie, the Louisiana Department of Transportation and Development (DOTD) filed suit in 2006 to expropriate land for the project. DOTD sought to permanently take four feet of land and use an additional ten feet during construction.

One of the properties affected was leased to Shell Oil Company in 1957, which assigned its lease in 1998 to Motiva Enterprises (Motiva), a joint venture between Shell and Texaco. The lease gave Motiva the exclusive right to build on the site and to use the site for a gas station. Motiva sued to recover compensation for the full extent of its economic loss, including lost profits.

After the expropriation but before construction began, Shell decided to exit the retail business. Accordingly, Shell sought to divest all the gas stations it owned and operated by packaging all stations in each market into a bulk sale to a third party. Shell solicited bids for the New Orleans market that included the site involved in the expropriation. In December 2007, the winning bidder paid $37 million to acquire the 52 Shell-branded gas stations in that market.

Two years later, in March 2010, Motiva amended its damages claim, asserting that it assigned its rights at a greatly reduced price due to the diminution in value caused by the expropriation and the anticipated loss of economic revenue during construction. In 2017, Motiva supplemented its claim to specifically claim damages to its leasehold interest.

Following a trial, the trial court summarized the case as presenting two issues: a claim for loss of profits, and the effect of the expropriation on the value of the leasehold. The trial court noted that there was evidence of a change in volume at the gas station before and after the taking, but no testimony placed a dollar value on that change. Instead, Motiva offered the testimony of a Shell employee involved in the bulk asset sale, who testified that he thought the site was worth between $2.5 and $5 million, but that Shell only received $800,000 for the site because of the expropriation. Though the witness was involved in negotiating the bulk sale, he had no input into the valuation of the site, and there was no other testimony relating to the value of Motiva's leasehold interest.

The trial court observed that Motiva's value of the property was based on a 10- to 15-year income stream, rather than the value of the property immediately before and immediately after the taking. The trial court therefore ruled in favor of DOTD, and Motiva appealed.

The appeals court noted first that, under Louisiana law, compensable property includes both tangible property and intangible property rights, including a leasehold interest. Damage to an intangible property right that occurs before a property is taken is compensable upon proof that the expropriation caused the damage. However, speculation, conjecture, mere possibility, or unsupported probability are not sufficient to support an award of damages.

Values and damages in condemnation proceedings are not always susceptible of precise proof, but the court held that the value must be deter mined through a recognized method that cannot be fundamentally unfair and unjust. While most Louisiana cases discuss leasehold valuation in the context of a leasehold advantage--when a tenant's contract rent is less than market rent at the time of the taking--that rule is not always exclusively determinative of the lessee's rights.

In this case, there was no evidence of the methodology used to determine the value of the leasehold interest before the expropriation. Further, the $800,000 sale price for the leasehold interest after the expropriation was just an allo cation from a bulk sale. Because Motiva failed to offer any expert testimony regarding the value of the lease before and after the expropriation using accepted methodologies, the court held that Motiva failed to prove with legal certainty the diminished value of its leasehold interest.

Louisiana Dept, of Transportation and

Development v. Motiva Enterprises LLC

Louisiana Court of Appeal, Fifth Circuit

October 2, 2019

279 So. 3d 1076

Benjamin A. Blair, JD, is a partner in the Indianapolis office of the international law firm of Faegre Drinker Biddle & Reath LLP, where his practice focuses on state and local tax litigation for clients across the United States. A frequent speaker and author on taxation and valuation issues, Blair holds a juris doctor from the Indiana University Maurer School of Law, where he also serves as an adjunct professor. Contact: Benjamin.Blair@FaegreDrinker.com
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Title Annotation:Cases in Brief
Author:Blair, Benjamin A.
Publication:Appraisal Journal
Date:Jan 1, 2020
Words:7448
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