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Condemnation Blight and De Facto Takings – De Laus v. State of New York, a Recent Application

The issue of condemnation blight raises very serious concerns for property owners. The phenomenon occurs when property values decrease because of a cloud of condemnation. Indeed, the mere specter of a condemnation proceeding can have a significant impact on property values. This is because property owners are often unable to sell or lease property that may be affected by a condemnation proceeding; it also results from a reluctance to repair or invest in property that is likely to be acquired.

Condemnation blight is different from a de facto taking even though the concepts are very similar. In a de facto taking, the property at issue will be valued as of the date of the taking. Blighted property, on the other hand, will be valued as of the date of the actual orde jure taking. With blighted property, one is supposed to assess the true value of the property as if it had not been the victim of the debilitating effect of the cloud of condemnation. City of Buffalo v Clement Co., 34 AD2d 24 (1970), mod 28 NY2d 241 (1971), infra.

Recently, M. Robert Goldstein, one of the regular authors of this column, was asked to comment on a March 31, 2008 Court of Claims decision rendered in De Laus v State of New York, 2008 NY Slip Op 50991(U), a case where the issue of condemnation blight was central to the court’s decision on the issue of just compensation. “Condemnation ‘Blight’ Applied to Appraisal,” NYLJ, May 15, 2008 at 14, col 3. The effect of condemnation blight on just compensation is an issue that arises infrequently, so the decision, which was written by the Hon. Philip J. Patti, was particularly noteworthy.

In the De Laus case, Judge Patti concluded that the subject property’s value had been diminished by a cloud of condemnation that first arose when a newspaper article was published on October 1, 1998. The article discussed the State’s interest in acquiring the subject for a street widening and realignment project. The actual or de jure date of the taking did not occur until May 25, 2000.

The claimants in the De Laus case successfully persuaded the court that the value of the subject property was lessened by the prolonged period of time from the announcement of the acquisition to the date of taking. The decreased value resulted from an inability to lease the property and from the owners unwillingness to make repairs. The Judge explained that his findings took “into consideration the effect of condemnation blight on the subject throughout the time preceding the subjects ultimate acquisition….” De Laus v State of New York, supra at 8. And, in explaining why he relied on certain sales as opposed to others, Judge Patti wrote that “all occurred at a time preceding or within a reasonable proximity of the State’s incipient acknowledgement of the scope of its…project and the evolved intent to acquire all or a part of the subject.” Id. at 7. It appears that Judge Patti either disregarded sales that occurred after a 1999 public hearing or made adjustments to other sales so they would not take into consideration the blight. The court cited City of Buffalo v Clement Co. 34 AD2d 24 (1970), mod 28 NY2d 241 (1971) for the proposition that it should determine the true value of the property as if the property had not been the victim of the debilitating effect of the cloud of condemnation.

The Clement Co. case is the seminal case in New York on the issue of condemnation blight. The Court of Appeals decision provides a thorough explanation of the difference between the related concepts of blight and de facto takings. In Clement Co., both the trial court and the Appellate Division, Fourth Department, initially found that the condemnor’s acts in 1963 constituted a de facto taking even though the property at issue was not condemned until 1967. But the Court of Appeals ultimately decided that delay created condemnation blight rather than a de facto taking.

The claimant in Clement Co. was a major publisher of nationally circulated magazines. It received a letter from the condemnor advising that an acquisition would be imminent. The claimant relocated its publishing business because of that letter and because of the condemnor’s other miscellaneous acts. At trial, evidence was presented to show that the subject property fell into disrepair and that property values were drastically reduced by the threat of condemnation proceedings. On appeal, the Appellate Division, Fourth Department, affirmed the trial court’s decision and decided that there was a de facto taking despite a physical invasion or direct legal restraint. The Appellate Division believed that there was a taking because “the condemning authority has so interfered with the use of the subject property that essential elements of ownership have been destroyed….” Id. 34 AD2d at 32. The matter was subsequently appealed to the Court of Appeals. That Court decided otherwise. It held that “there was no appropriation which would permit an award of damages prior to the de jure taking.”

Id. 28 AD2d 257.

The Court of Appeals explained that the mere announcement of an impending condemnation coupled with a substantial delay did not translate into an exercise of dominion and control over the property. The Court explained the difference between a de facto taking and condemnation blight as follows:

[A] de facto taking requires a physical ouster of the owner, a legal interference with the physical use, possession or enjoyment of the property or a legal interference with owner’s power or disposition. On the other hand, ‘condemnation blight’ relates to the impact of certain acts upon the value of the subject property. It in no way imports a taking in the constitutional sense, but merely permits of a more realistic valuation of the condemned property in the subsequent de jure proceeding.

Id. at 255

The Court stated that, in situations where the condemnor’s acts cause a diminished property value, the property at issue should be valued as of the date of the de jure taking without considering the loss of value caused by the threat of condemnation. This was more thoroughly explained as follows:

In such cases where true condemnation blight is present, the claimant may introduce evidence of value prior to the onslaught of the ‘affirmative value-depressing acts’ of the authority and compensation shall be based on the value of the property as it would have been at the time of the de jure taking, but for the debilitating threat of condemnation. This, in turn, requires only that there be present some proof of affirmative acts causing a decrease in value and difficulty in arriving at a value using traditional methods.

Thus, when damages are assessed on the claim for the de jure appropriation, the claimant’s property should be evaluated not on its diminished worth caused by the condemnor’s action, but on its value except for such “affirmative value-depressing acts” of the appropriating sovereign. This, it appears, would provide adequate and just compensation.

Id. at 257-58 (citations omitted).

The mere threat of a condemnation proceeding will not entitle a condemnee to claim that property was condemned at a date earlier than that of the de jure taking. But if a party with the power of eminent domain prevents a claimant from deriving a beneficial use from property, then there will be a de facto taking.

In Matter of Keystone Assoc. v Moerdler, 19 NY2d 78 (1966), a statute created a de facto taking when it interfered with a property owner’s right to build or improve property. In that case, the property owner and its tenant were precluded from demolishing and constructing a new office building on property that formerly housed the Metropolitan Opera Association. The preclusion derived from a statute that was passed with the sole intent to preserve the opera house. The statute delegated the power of eminent domain to a private corporation. It also permitted the New York City Superintendent of Buildings to refuse a demolition permit for 180 days if the private corporation deposited $200,000. The Court of Appeals affirmed the lower court decisions that held that the deprivation constituted a taking of property for which just compensation must be paid. It also concluded that the statute improperly sought to place a limit on the amount of just compensation.

In a more recent case, Ward v Bennett, 214 AD2d 741 (1995), the Appellate Division, Second Department, decided that a landowner established a prima facie de facto taking by the City of New York when the City refused to grant the owner a permit to build a one-family home. Under General City Law 35, the City had ten years to condemn certain property after it filed a map in 1944 outlining the lines of a street. If it did not initiate condemnation proceedings to create that street within that time, it was required to grant a building permit. A prima facie de facto taking was established because the City did not grant a building permit fifty years after the filing of the map.

One should be aware that a de facto claim should be asserted as soon as the claim arises. This is because de facto takings can be time barred. Carr v Fleming, 122 AD2d 540 (4D Dept 1986).

We previously explained that most property owners will be reluctant to invest in property that is likely to be condemned. But there are some situations where the opposite is true. A property owner might insist on going forward with planned improvements despite the possibility of condemnation when property is vacant or partially improved. There is no great mystery behind the owners’ motivation. An improved property might fetch a greater condemnation award as compared to vacant property. At least one court referred to the practice of rushing to complete construction as “house planting.” Vitale v State of New York, 33 AD2d 977 (4d Dept 1970). And, in the absence of bad faith, it does not appear to be specifically prohibited. Id.

In Matter of Town of East Hampton [Windmill II Affordable Housing Project (9 Parcels)] (Three P. Corp.), 44 AD3d 963 (2d Dept 2007), for example, a condemnation claimant sought compensation for an incomplete improvement even though the condemnor took the position that the improvement should be disregarded because it was made in bad faith. Our firm represented the condemnor, the Town of East Hampton. The condemnor’s allegation of bad faith rested on the sole fact that the owner made improvements even though it knew that the property was going to be condemned. The trial court’s (Hon. John C. Bivona) award of just compensation included payment for the partially-built improvement. On appeal, the Appellate Division, Second Department affirmed and explained that:

Although the claimant knew, before making improvements upon the property, that the Town of East Hampton had plans to condemn the property, such knowledge, without more, was insufficient to establish that the improvements were constructed in bad faith.

Id. (citations omitted).

It appears that courts will be reluctant to place restrictions on an owner’s use of property prior to a title vesting date. This is not unreasonable, especially when one considers that certain restrictions could give rise to de facto takings.

Reprinted with permission from the June 25, 2008 edition of the New York Law Journal © 2008 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.