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Partial Takings

The condemnation practitioner, as opposed to the tax certiorari practitioner, when dealing with real estate valuation, has to face two separate classes of appropriation – total and partial. While no case in eminent domain is simple, in the total taking scenario, all we have to deal with is the proper compensation to be paid for the taking which usually means, what is the market value of the property taken, i.e., direct damages.

Partial takings, however, are more complicated. Not only are we concerned with the value of the part taken, we must also look into whether or not the part not taken has had its value affected negatively and if so, is it offset by the positive effects of the planned improvement or by a cost-to-cure.

This, of course, leads us to two more inquiries when there is a partial taking. Is there a consequential damage or not? If there is not, the inquiry, as to that, stops there and we are back where we were in the total taking case, i.e., asking what is the value of the property taken. Believe it or not, however, some people, and courts, have made even that question more complicated but we will address that in another column. First, let us address the question of consequential damages.

For the purpose of this discussion, consequential damages are those damages to the property not taken that have been caused by the partial taking. This can be broken down further into two more classes; (1) severance damages and (2) consequential damages that occur by virtue of the planned improvement for which the property was taken. The courts and some practitioners have sometimes used the terms, “consequential damages” and “severance damages” interchangeably but we believe that only creates confusion and the distinction is a useful tool. For the rest of this column, where we discuss it, we shall distinguish between severance damages and consequential damages.

Severance damages are damages that occur simply because the property acquired is no longer a part of what was once the whole property, i.e., it has been severed. It does not matter why the property was acquired. An example would be improved property in which the improvement has been partially acquired and demolished. Left as is, following the demolition, we usually have a smaller building with one side exposed, clearly an untenable situation for the property owner. Assuming, as we must, that most buildings in this condition are unusable, the result of this severance, with nothing intervening, is a total loss of the building and a total loss of value. It does not matter what the property was taken for. The damage is done by the simple act of the partial acquisition.

Of course, in the situation we describe above, because what we are dealing with in the severance or consequential damage claim is not a taking but a damage as opposed to what we deal with in the direct taking, there is the duty to mitigate the damage. That usually takes the form of a cost-to-cure if, in fact, the damage can be cured. Assuming that the building that is left can be used once the side facing the taken portion is sealed up, the cost of sealing up that side is the cost-to-cure that mitigates the damage that would have been the loss of the entire building. It is axiomatic that the cost-to-cure must be less than the consequential damage it is curing. If it were the same or more, as a matter of common sense, it mitigates nothing and who would bother? If the smaller building, for any reason, is less valuable per square foot, FAR or any other unit, we have a combination of a consequential damage, albeit less than if the problem were not cured, plus a cost-to-cure.

Consequential damages, as we are using the term here, are another thing. In this situation, it is not so much the property that is taken that causes the damage but the use to which the taken area is put. One must be careful, however, to understand that it is not the use alone, regardless of the real damage it may cause, that causes the compensable damage, but the use in combination with and for which there was a partial taking of property, causing a damage to the remainder property which must be compensated. (South Buffalo Rwy Co. v. Kirkover, 176 N.Y. 301, 68 N.E. 366; Hill & Aldrich v. Mohawk & Hudson River Rwy Co., 7 N.Y. 152; County of Erie v. Friedenburg, 221 N.Y. 389, 117 N.E. 611; Bohn v. Railway Co., 129 N.Y. 576, 29 N.E. 802). In this category, as the elevated railroad cases tell us, there need be no direct physical taking of corporeal real estate for there to be a consequential damage. The taking of the easements of light, air and/or access are sufficient. (Story v. New York Elevated R.R. Co., 90 N.Y. 122 (1882)).

Be careful, when considering what we have discussed above, to note that not all consequential damages, no matter how real, are compensable. Examples are damages caused by the diversion of traffic or damages to a business (in New York) unless that damage to business can be translated into a loss of rental value.

There is a practical problem in determining consequential damages, using the definition we employ here. Government being what it is and contractors being what they are, more often than not, the valuation trial and certainly, the preparation for it takes place before the construction of the improvement. Of course, some things are self evident. The construction of a sewerage disposal plant, a landfill or a railroad outside your door, for valuation purposes, do not present much of a problem. It does not take much imagination to understand the deleterious effects on property that those projects will cause.

As to those that are not so obvious, resort can be had to what is actually planned. The construction plans for what is proposed are usually available and one can look to them to see whether a road will be built at, below or above the grade of the remaining property when the taking maps do not tell you. They will also tell you if the property, in spite of the taking maps, are left with practical access.

In determining consequential damages caused by the use to which the appropriated property is put, we are guided by two immutable principles of condemnation law. The first is that property must be valued and the right to damages must be set as of the date title vests in the condemnor. (Wolfe v. State of New York, 22 N.Y.2d 292, 292 N.Y.S.2d 635; Kahlen v. State of New York, 223 N.Y. 383, 119 N.E. 883; Buffalo Valley Realty Co. v. State of New York, 273 N.Y. 319, 7 N.E.2d 297; Chester Litho, Inc. v. Palisades Interstate Park Commission, 33 A.D.2d 572, 305 N.Y.S.2d 681).

The second is that damages must be determined, not necessarily on what the condemnor plans to do but on what it has the right to do. (Wolfe v. State of New York, supra; Spinner v. State of New York, 4 A.D.2d 987; Morton v. State of New York, 8 A.D.2d 49; Weber v. State of New York, 25 A.D.2d 584, 267 N.Y.S.2d 152).

The first principle tells us that when we look at the construction plans to determine the condemnor’s intentions, they must be the plans that existed on title vesting date. If not, we resort to the second principle. That construction plans are relevant has been considered by the courts. In Hill & Aldrich v. Hudson River Rwy. Co., 7 N.Y. 152, supra, the Court of Appeals said, “. . . the plan of the road and the mode of its construction must always be

before the appraisers and enter into and modify the assessment of damages.” And in In re Grade Crossing Commissioner of the City of Buffalo, 6 A.D. 327, the Appellate Division said,

“The true rule — the only rule which will do equal justice to all parties — is to determine what will be the effect of the proposed change upon the market value of the property….the proposed plan of improvement must be considered as a whole and the erection of the structure in the street as a part or incident of it; and if such improvement, or any part of it, will diminish the value of appellant’s remaining property, then that fact should be taken into consideration by the commissioners.”

But construction plans change and sometimes they do not yet exist on title vesting date. That is why the second principle must be considered, i.e., we must consider that the condemnor has done everything detrimental that it had the right to do. Remember, there is usually just one valuation trial and we only get one bite at the apple. In the Spinner, Morton and Weber cases, because the State had reserved, in effect, the right to keep the condemnee from the property appropriated, although it was not its current intention, the Courts ruled that for the purposes of valuation, it had, in fact, done so, and found a loss of access to the remainder property. Had it not so ruled, and the State decided, at some later date, after the valuation trial had finished and damages without a loss of access been awarded, for some reason, to deny access to the remainder property, it would have been too late. The value of the remainder would have been totally destroyed by the consequential damage and the owner would have no recourse. He or she would not get a second chance.

One more word of caution. Much has been said and written in regard to partial takings, that the property should (or must) be valued as it was before the appropriation and then as it is after the appropriation, the difference being the value of the property taken plus the consequential damages. Care must be taken to use that concept judiciously because, first, it is not universally true and second, if it were, depending on the circumstances, it could result in the condemnor paying less than the value of what it took. That, however, is a subject that time and room will not allow us to cover here. It will very likely be the subject of a future column.

Reprinted with permission from the December 23, 1998 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.