EMINENT DOMAIN FUNDAMENTALS
COLORADO BAR ASSOCIATION
REAL ESTATE LUNCHEON
PRESENTED BY
LESLIE FIELDS
and
JACK SPERBER
FAEGRE BAKER DANIELS LLP
LESLIE A. FIELDS, ESQ. — A partner with the Denver office of Faegre Baker Daniels LLP,
Ms. Fields practices in the area of land use and eminent domain law representing both private
and governmental entities including: individual landowners, developers, private pipeline
companies, counties, municipalities, and special districts. She is a graduate of the University of
Denver, College of Law (1981) and the University of Denver (1978). Ms. Fields can be reached
at (303) 607-3622, or by email at [email protected]
JACK SPERBER, ESQ. — A partner with the Denver office of Faegre Baker Daniels LLP,
Mr. Sperber represents property owners and condemning entities in eminent domain matters
across the country. He is a graduate of George Washington University National Law Center,
with high honors (1992). Mr. Sperber can be reached at (303) 607-3623, or by email at
[email protected]
I.
CONDEMNATION BASICS
A.
B.
Definitions and Source of Eminent Domain Power
1.
Eminent Domain is the right of the government to take private property
without the owner’s consent for public use upon payment of just
compensation, while Condemnation is the act of doing so.
2.
Eminent Domain is an inherent power of the sovereign. Shoemaker v.
United States, 147 U.S. 282 (1892). The Constitution does not create the
power, but simply places limitations upon its use. City of Thornton v.
Farmers Reservoir & Irrigation Co., 194 Colo. 526, 575 P.2d 382 (1978).
Town of Parker v. Colorado Division of Parks and Outdoor Recreation, 860
P.2d 584 (Colo. App. 1993).
3.
Constitutional Provisions
a.
Fifth Amendment to the United States Constitution:
“. . . nor shall private property be taken for public use, without just
compensation.” Made applicable to the states through the
Fourteenth Amendment of the United States Constitution.
b.
Colorado Constitution Article II, §15 authorizes condemnation by
public entities subject to payment of compensation for “taking or
damage” to property.
Legal Prerequisites to Condemn
1.
Legal Authority
a.
Eminent domain powers may not be exercised by a
governmental entity unless the power has been delegated to it
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by the Legislature. Board of County Comm’rs. v. Intermountain
Rural Electric Assn., 655 P.2d 831 (Colo. 1982), Buck v.
District Court, 199 Colo. 344, 608 P.2d 350 (1980). A statute
must authorize condemnation expressly or by necessary
implication in order for a governmental entity to exercise the
power of eminent domain. Larson v. Sinclair Transp. Co., 2012
CO 36, 284 P.3d 42 (Colo. 2012); Department of Transportation
v. Stapleton, 97 P.3d 938, 941 (Colo. 2004); State Dept. of
Highways v. Denver and Rio Grande Western R.R. Co., 789
P.2d 1088, 1092 (Colo. 1990).
b.
2.
There is a presumption against the delegation of authority to
condemn. If there is a doubt, then there has been no grant of
such power by the state. Beth Medrosh Hagodol v. City of
Aurora, 248 P.2d 732 (Colo. 1952); City of Aurora v.
Commerce Group Corporation, 694 P.2d 382 (Colo. App. 1984).
Statutes are construed narrowly and against the entity asserting
the power, with all doubtful or ambiguous language disregarded.
Coquina Oil Corp. v. Harry Kourlis Ranch, 643 P.2d 519 (Colo.
1982); Town of Parker v. Colorado Division of Parks and
Outdoor Recreation, 860 P.2d 584 (Colo. App. 1993).
Public Use
a.
It is for the Court to determine whether a contemplated use is a
public use or serves a public purpose. See Colorado Const. Art.
II § 15 (whether the contemplated use is really public shall be a
judicial question, and determined as such without regard to any
legislative assertion that the use is public); Silver Dollar Metro.
Dist. v. Goltra, 66 P.3d 170, 174 (Colo. App. 2003) Shaklee v.
District Court, 636 P.2d 715, 717 (Colo. 1981); Thornton
Develop. Auth. v. Upah, 640 F. Supp. 1071, 1076, (D. Colo.
1986).
b.
The definition of public purpose must be sufficiently elastic to
meet new conditions as the needs of society change. Tanner v.
Treasury Tunnel Mining & Reduction Co., 35 Colo. 593, 83 P.
464 (1906).
c.
The condemnor has the burden of proving the taking is not for a
public purpose. C.R.S. §38-1-101(2).
“Public purpose” challenges typically center around whether the
property will truly be used for a public purpose or is instead
being used as a sham to advance private interests. If the primary
purpose underlying a condemnation action is to advance private
interests, the existence of an incidental public benefit does not
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prevent a court from finding ‘bad faith’ and invalidating a
condemning authority’s determination that a particular
acquisition is necessary. Denver West Metropolitan District v.
Geudner, 786 P.2d 434, 436 (Colo. App. 1990). See also City
and County of Denver v. Block 173 Associates, 814 P.2d 824,
829-30 (Colo. 1991); State Board of County Com’rs v. District
Court, 430 P.2d 617, 619 (Colo. 1967); Rabinoff v. District
Court, 360 P.2d 114, 118 (Colo. 1961).
3.
4.
Necessity
a.
Under Colorado law, a condemnor’s determination that there is a
need to acquire certain property is generally not reviewable by a
court, even in the face of considerable evidence that there are
more reasonable and appropriate ways to proceed with the
project which would not impact the landowner as greatly. See
Colorado State Board of Commissioners v. District Court, 163
Colo. 338, 430 P.2d 617, 619 (1967); Accord Lavelle v. Town
of Julesburg, 49 Colo. 290, 294, 112 P. 774, 776 (1911);
Thornton Dev. Auth. v. Upah, 640 F. Supp. 1071, 1076 (D.
Colo. 1986) (interpreting Colorado law); Direct Mail Servs., Inc.
v. Colorado, 557 F. Sup 851, 854 (D. Colo. 1983) (interpreting
Colorado law).
b.
Similarly, a condemnor is generally not required to obtain all
federal, state or local permits prior to the institution of
condemnation proceedings. See Denver Power & Irrigation
Company v. Denver & Rio Grande Ry R.G.R. Co., 30 Colo.
204, 69 P. 568 (1902) and Buck v. District Court, 199 Colo. 344,
608 P.2d 350 (1980). But see Colorado & S. Ry. Co. v. District
Court, 493 P.2d 657 (Colo. 1972) (PUC approval of railroad
crossing condition precedent to filing condemnation case).
Good Faith Negotiations
a.
C.R.S. § 38-1-102(1) indicates that it is only proper to initiate
condemnation proceedings where “the compensation to be paid
for, in respect to property sought to be appropriated or damaged
. . . cannot be agreed upon by the parties interested. . . .”
b.
If the condemning authority fails to prove it engaged in good
faith negotiations and could not agree with the property owner
prior to filing the petition, the case should be dismissed. See,
e.g., City of Thornton v. Farmers Reservoir & Irrig. Co., 575
P.2d 382, 392 (Colo. 1978); Oldtimers Baseball Association of
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Colorado v. Housing Authority of City and County of Denver,
224 P.2d 219, 222 (Colo. 1950); Board of County
Commissioners v. Blosser, 844 P.2d 1237, 1239 (Colo. App.
1992).
c.
C.
Colorado courts have held that the requirement is met where the
party seeking condemnation has made a “reasonable good faith
offer” and has allowed the property owner sufficient time to
respond to the offer. Blosser, 844 P.2d at 1237; City of
Thornton, 575 P.2d at 392; City of Holyoke v. Schlacter Farms,
22 P.3d 960, 963 (Colo. App. 2001).
Condemnation Chronology and Procedure
1.
General Chronology
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
2.
Notice of Intent to Acquire;
Offer;
Negotiations;
Petition;
Answer;
Immediate Possession Hearing;
Discovery and Disclosures;
Valuation Trial;
Verdict or Ascertainment of Award;
Deposit or Abandonment;
Rule and Order and/or Judgment;
Bill of Costs
Apportionment
Notice of Intent to Acquire
a.
C.R.S. §38-1-121 requires that a landowner be notified of the
government’s intent to acquire the property.
b.
If property is valued over $5,000, the notice must advise that the
condemnor will pay the reasonable costs of an appraisal if
submitted to the condemnor within 90 days.
c.
If the landowner fails to submit the appraisal in 90 days, the
condemnor may refuse payment at that time, but will likely be
required to reimburse the landowner at the end of the case as part
of the landowner’s costs. City of Colorado Springs v. Berl, 658
P.2d 280 (Colo. App. 1982); Fowler Irrevocable Trust 1992-1 v.
City of Boulder, 992 P.2d 1188 (Colo. App. 1999).
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d.
3.
Failure to comply with C.R.S. § 38-1-121 does not affect the right
to institute condemnation proceedings or to acquire immediate
possession of the property. But a condemnor must wait 90 days
after the notice before holding a valuation trial, or until it receives
the landowner’s appraisal, whichever first occurs.
Petition in Condemnation - Important Allegations
a.
Citation to statutory authority to condemn.
b.
Reference to the Resolution or Ordinance identifying the project
and declaring that it is for public use.
c.
Declaration that acquisition of the property is necessary for the
project.
d.
Description of the property to be condemned and the scope of the
interest. The legal description of property must be sufficiently
clear to enter the Rule and Order conveying the property and to
evaluate the impacts caused by the taking.
e.
All parties that may have an interest in the property should be
identified so condemnor can obtain clear title.
f.
Treasurer is named when the property is to come off the tax rolls.
Also so a claim can be made for unpaid taxes pursuant to C.R.S. §
39-3-111.
g.
Failure to agree upon a purchase price to establish good faith
negotiations.
h.
If immediate possession of property is required, request in
Petition pursuant to C.R.S. § 38-1-105(6)(a).
i.
Amendment to condemnation pleadings when fairness requires is
governed by C.R.S. § 38-1-104. See also Cucharas Sanitation &
Water Dist. v. Mounsey, 805 P.2d 1177 (Colo. App. 1990);
Colorado Central Railroad Co. v. Allen, 22 P. 605 (1889).
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4.
D.
Answer
a.
Condemnation statutes only contemplate filing of the Petition and
a Cross-Petition by the owner pursuant to C.R.S. § 38-1-109.
b.
Filing an answer is not a statutory requirement. Denver v.
Griffith, 17 Colo. 598, 31 P. 171 (1892). Failure to file an answer
is not grounds for default. Whitehead v. City of Denver, 13 Colo.
App. 134, 56 P. 913 (1899).
c.
Nonetheless, challenges to the right to condemn must be raised in
advance and determined by the Court in limine. Wassenich v.
City and County of Denver, 67 Colo. 456, 186 P. 533 (1919),
Kaschke v. Camfield, 46 Colo. 60, 102 P. 1061 (1909) and Pine
Martin Mining Co. v. Empire Zinc Co., 90 Colo. 529, 11 P.2d 221
(1932).
d.
The Condemnee should file an answer to elect either a
commission or jury on the issue of value. Snider v. Town of
Platteville, 227 P. 548 (Colo. 1924).
Immediate Possession Hearings
1.
C.R.S. § 38-1-105(6)(a) provides in relevant part:
At any stage of . . . any proceedings under this article,
the Court . . . may authorize the petitioner . . ., if not in
possession, to take possession of and use, said
premises during the pendency of and until the final
conclusion of said proceedings . . . (Emphasis added.)
2.
Any challenges to the propriety of the action or the condemnor’s
authority to condemn must be raised and decided at the immediate
possession hearing.
3.
To take possession, the Petitioner is required to deposit an amount
fixed by the Court which “will reimburse Respondents for all damages
and pay the compensation” which will ultimately be awarded following
a valuation trial. C.R.S. § 32-1-105(6)(a); Swift v. Smith, 201 P.2d
609; 613-14 (Colo. 1948); Johnson v. Climax Molybdenum Co., 124
P.2d 929, 931 (Colo. 1942).
4.
The immediate possession hearing is not a valuation trial, and
determination of the deposit amount has no precedential value in
determining the just compensation to be paid. Total v. Farrar, 799
P.2d 463, 465-66 (Colo. App. 1990) (deposit is neither payment nor
6
part payment of ultimate award).. Nonetheless, the Court is required to
make “a determination of value which will be in an amount equal, in all
probability, to compensation which will ultimately be awarded the
landowner. . .” at the valuation trial. Swift, supra, 201 P.2d at 614.
5.
E.
F.
Regardless of the deposit amount, C.R.S. § 38-105(6)(b) indicates that
a landowner is entitled to withdraw no more than 75% of “the highest
valuation evidenced or testimony presented by the petitioner at the
hearing for possession. . . .”
Discovery and Disclosures
1.
Rules of Civil Procedure apply to condemnation actions where statute is
silent or not in conflict: Boxberger v. State Highway Commission, 126
Colo. 526, 251 P.2d 920 (1952); Stalford v. Board of County
Commissioners of Powers County, 128 Colo. 441, 263 P.2d 436 (1953).
2.
Parties often seek exemption from or modification of Rule 16 and 26
deadlines because eminent domain cases are expedited proceedings and
because they focus on expert opinions.
Valuation Trials
1.
2.
Burden of Proof re: Valuation Issues
a.
On owner regarding value of property taken and damages to the
remainder. Jagow v. E-470 Public Highway Authority, 49 P.3d
1151, 1157 (Colo. 2002).
b.
On condemnor regarding special benefits. Board of
Commissioners of Jefferson County v. Noble, 117 Colo. 77, 184
P.2d 142 (1947).
c.
Owner has right to open and close the case.
Court, Commission or Jury
a.
The amount of compensation to be paid is ascertained by either
a Board of Commissioners or a jury. The parties can also
stipulate to a determination by the court. C.R.S. § 38-1-101.
b.
The choice of a jury or commission is a unilateral decision to be
made by the owner of the property being condemned. Sand
Creek Lateral Irrigation Company v. Davis, 29 P. 742 (Colo.
1892).
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c.
It is unclear whether the “owner of the property” refers only to
the fee owner of the property, or whether it also refers to any
other person with an interest in the property. Various statutory
references distinguish between “the owner of the property,”
“parties interested in the action,” “the owner or parties
interested,” and “all parties interested in the property.”
Accordingly, a viable argument can be made that only
“owners,” and not other respondents, may demand a jury.
d.
C.R.S. § 38-1-106 provides that a jury demand needs to be
made before the expiration of the time to appear and answer.
This is distinct from C.R.C.P. 38, which allows for filing of a
jury demand within 10 days of the filing of the last pleading
directed toward an issue triable by jury.
e.
Jurors must own property and reside in the county where the
action is filed. C.R.S. § 38-1-106. See also State Department
of Highways v. Ogden, 638 P.2d 832 (Colo. App. 1981)
(requiring re-trial of case if all jurors are not freeholders). In
contrast, the statutes do not mandate that commissioners reside
in the County in which the Petition is filed. See e.g., C.R.S. §
38-1-101.
f.
Factors in selecting a jury or commission:
(i) Role of the Court. In a jury trial, the court’s role is the same
as in other civil proceedings. In commission trials, the
court is not present, but does provide legal instruction. The
role of the court and commission with respect to motions in
limine and evidentiary issues is not well-defined.
(a)
The court is to decide all issues except just
compensation. C.R.S. § 38-1-101. Accordingly,
the court may decide in limine matters of a legal
nature. State Department of Highways v. Davis,
626 P.2d 661 (Colo. 1981); State Department of
Highways v. Town of Silverthorne, 707 P.2d 1017
(Colo. App. 1985); Fishel v. Denver, 108 P.2d 236
(Colo. 1940).
(b)
Pursuant to C.R.S. § 38-1-105(2), the
Commissioners have authority to make evidentiary
rulings, but may “request the Court to make rulings
upon propriety of the proofs or objections of the
parties.” See City of Westminster v. Jefferson
Center Associates, 958 P.2d 495 (Colo. App.
8
1997); City of Aurora v. Webb, 585 P.2d 288
(1978) and Board of County Commissioners v. Vail
Associates, Ltd., 468 P.2d 842 (1970).
(ii) View of the Property. In a jury trial, a view of the property
by the jury is discretionary with the trial court. In contrast,
C.R.S. § 38-1-105 makes it appear that a property view is
mandatory in commission trials. But see Board of County
Commissioners v. McClure Venture, 594 P.2d 585 (Colo.
App. 1979). (interpreting language as discretionary and
refusing to reverse where one of the three commissioners
did not view the premises.)
(iii) Experience/Sophistication. Commissioners typically have
more relevant and sophisticated real estate experience and
often have served on prior eminent domain commissions.
(iv) Speed/Efficiency. Commission trials typically proceed to
trial more quickly, are conducted with more flexibility, and
are tried more quickly.
(v) Formality. Jury trials are typically more formal and more
strict in their application of rules of evidence.
(vi) Expense. Commissioners receive an hourly rate for their
services commensurate with their occupation or standard
fees in that jurisdiction.
G.
Abandonment
1.
Condemnor may abandon condemnation proceedings at any time before
the owner acquires a vested right to compensation, i.e., until the final
award is paid into the Court Registry. Piz v. Housing Authority of the
City and County of Denver, 289 P.2d 905 (Colo. 1955).
2.
Right to abandon exists even if possession of property has been taken.
Denver & New Orleans v. Lamborn, 8 Colo. 380; 8 P. 582 (1885); Post
Printing & Publicity Co. v. City and County of Denver, 68 Colo. 50,
189 P. 39 (1920).
3.
Nonetheless, the condemnor may be estopped from abandoning if the
owner has changed his position to his detriment. Piz, supra, 289 P.2d
905.
9
4.
H.
Condemnor may be required to pay damages for prior possession and
uses of property. Johnson v. Climax Molybdenum Co., 124 P.2d 929
(Colo. 1942).
Apportionment
1.
C.R.S. § 38-1-105(3) provides for an apportionment hearing after the total
just compensation has been awarded to determine each person’s
entitlement to a portion of the award.
2.
Once the award has been deposited the condemnor has no further interest
in an apportionment proceeding.
3.
Leasehold Issues
a.
The most often-encountered apportionment issue involves
leasehold interests.
b.
Common Law Rules
i.
A leasehold is unquestionably a property right entitled to
compensation if taken or damaged as a result of a
condemnation action. See, e.g., Fibreglas Fabricators,
Inc. v. Kylberg, 799 P.2d 371, 375 (Colo. 1990).
ii.
In the absence of a condemnation clause, a tenant is
usually entitled to compensation for the value of its
leasehold estate and, in partial takings cases, to damages
to the portions of its estate not taken.
iii.
The lessee’s interest in the lease itself if measured by the
difference between market rental rates and the contract
rate provided for in the lease. To the extent the contract
rate is below market, the lessee has a “bonus value” in
the property which can be extended over the life of the
lease and discounted back to present value. See, e.g.,
Montgomery Ward & Co. v. City of Sterling, 523 P.2d
465, 468 (Colo. 1974).
iv.
A tenant is also typically entitled to the value of any
buildings or site improvements it has constructed on the
property. See, e.g., Denver Urban Renewal Authority v.
Steiner American Corp., 500 P.2d 983, 986 (Colo. App.
1972). This is true even when the lease requires the
tenant to remove such improvements at the time the lease
is terminated. See, e.g., Texas Pig Stands, Inc. v.
10
Krueger, 441 S.W.2d 940, 945-46 (Tex. App. 1969);
State v. DeLay, 181 N.E.2d 706, 708-09, 711 (Ohio App.
1959); Tinnerholm v. State, 179 N.Y.S.2d 582, 590
(N.Y. Ct. Cl. 1958). See also Annotation, Eminent
Domain: Measure and Elements of Lessee’s
Compensation for Condemnor’s Taking or Damaging of
Leasehold, 17 A.L.R.4th 337, § 10(a) (1982).
c.
d.
Valuation Trial/Settlement Issues
i.
An apportionment proceeding pursuant to C.R.S. § 38-1105(3) provides a lessee the only basis under Colorado
law to establish the separate value of its leasehold
interests and rights.
ii.
This is because Colorado courts have determined that a
lessee is not entitled to present separate evidence as to
the value of its leasehold interests at the valuation
proceeding or to pursue such claims in a separate action.
See, e.g., Gifford v. City of Colorado Springs, 815 P.2d
1008, 1011 (Colo. App. 1991).
iii.
Because of this, settlements between landowners and
condemnors cannot preclude the rights of lessees to
otherwise obtain their rightful share of the settlement
amount reached. See Montgomery Ward & Company v.
City of Sterling, 523 P.2d 465 (Colo. 1974) and Total
Petroleum v. Farrar, 787 P.2d 164 (Colo. 1990).
Condemnation Clauses
i.
Condemnation clauses can, and often do, change these
common law rules, typically with the lessee waiving
some or all of its constitutional rights to compensation.
ii.
Unfortunately, most condemnation clauses are given
little attention at the time the overall contracts are being
drafted. And they are often drafted by lawyers
unfamiliar with the eminent domain process and how it
may vary from jurisdiction to jurisdiction. Accordingly,
sometimes such clauses create more litigation issues than
they resolve.
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iii.
e.
The law does not look with favor on clauses causing
forfeiture of the lessee’s interest on condemnation. A
lease provision should be construed to avoid surely a
forfeiture if its language and the circumstances possibly
permit. Pennsylvania Avenue Development Corp. v.
One Parcel of Land, 670 F.2d 289, 292 (D.C. Cir. 1981);
Musser v. Bank of America, 964 P.2d 51, 54 n.2 (Nev.
1998); Maxey v. Redevelopment Authority, 388 N.W.2d
795, 806 (Wis. 1980); Mullis v. Division of
Administration, 390 So.2d 473, 474 (Fla. App. 1980).
Traps for the Unwary
i.
Automatic termination clauses
a)
Where a lease indicates that it will automatically
terminate upon the condemnation of the property
and is otherwise silent about allocation of the
award, a lessee may be deemed to have waived all
rights to compensation. Fibreglass Fabricators,
Inc. v. Kylberg, 799 P.2d 371 (Colo. 1990)
(because lease automatically terminated upon the
condemnation of the property, lessee had no
interest in the property and therefore lost all right
to share in the condemnation proceeds). See also
United States v. Right to Use and Occupy 3.38
Acres of Land, 484 F.2d 1140, 1144 (4th Cir.
1973); Wessells v. State, 562 P.2d 1042, 1050
(Alas. 1977); State v. Heslar, 274 N.E.2d 261,
264 (Ind. 1971); In re Site for Library in City of
Minneapolis, 95 N.W.2d 112 (Minn. 1959).
b)
But an automatic termination clause is different
than a clause giving the tenant the option to
terminate. Such an option doesn’t by itself waive
the right to condemnation proceeds, particularly if
the option is not exercised. See, e.g., Musser v.
Bank of America, 964 P.2d 51, 54 (Nev. 1998);
Texaco Refining and Marketing, Inc. v. Crown
Plaza Group, 845 S.W. 2d 340, 342 (Tex. App.
1992); City of Cincinnati v. Spangenberg, 300
N.E. 2d 457, 460 (Ohio App. 1973).
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c)
ii.
In addition, even in the face of true automatic
termination clauses, lessees may retain rights to
share in the condemnation proceeds if additional
provisions allow the lessee to do so. See, e.g.,
United States v. Right to Use and Occupy Three
Acres of Land, 484 F. 2d 1140, 1143 n.3 (4th Cir.
1973); Pennsylvania Avenue Development Corp.
v. One Parcel of Land, 670 F.2d 289, 293-94
(D.C. Cir. 1981); Musser v. Bank of America,
964 P.2d 51, 53-54 (Nev. 1998); Spangenberg,
supra, 300 N.E. 2d at 460; Wayne Co. v. Newo,
Inc., 182 A. 2d 369, 372 (N.J. App. 1962).
Right to Pursue Separate Claims
a)
A clause waiving the right to share in the
condemnation proceeds but allowing the tenant to
pursue separate claims against the condemnor
may be interpreted as precluding any right to
compensation.
b)
This is because, as discussed above, there is
generally no right under Colorado law for a tenant
to directly pursue separate claims.
(1)
See, e.g. Westminster Economic
Development Authority v. Westminster
Plaza, Colorado Court of Appeals No. 00
CA 1176 May 24, 2001 (n.s.o.p.) (finding
that waiver of lessee’s right to share in
award “except for any award made
specifically to tenant by the condemning
entity” for certain enumerated items was a
waiver of all claims to condemnation
award since Colorado’s legal system
doesn’t allow for the separate award of
various interests).
(2)
But see City of Cincinnati v. Spangenberg,
300 N.E.2d 457 (Ohio App. 1973);
Pekofsky v. United States, 180 N.Y.S.
930, 932 (N.Y. Ct. Cl. 1958); United
States v. Right to Use and Occupy 3.38
Acres of Land, 484 F.2d 1140, 1143 n.3
and 1145 (4th Cir. 1973); The Wayne Co.
v. Newo, 182 A.2d 369, 372 (N.J. App.
13
1962)(all recognizing that because lessee
could not separately pursue claims against
the condemnor the parties’ evident intent
in allowing the lessee compensation for
certain items was to allow lessee to
indirectly recover such items from the
condemnor through the apportionment
process).
iii.
Condemnation Clause Formulas v. Valuation Rules
a.
Condemnation clauses addressing how an award
is to be apportioned may control the distribution
between the parties regardless of how the
compensation was determined at a valuation trial
or in a settlement with the condemnor.
b.
In Total v. Farrar, supra, the court enforced a
lease provision indicating that “the Tenant shall
receive and retain that part of the award or price
which is attributable to the improvements,
betterments and all other things situated on the
land that is taken,” even though the landlord and
the condemnor had settled the case based upon a
highest and best use scenario that did not include
any value for the tenant’s improvements.
c.
The Colorado Supreme Court determined that the
parties had agreed that the contributory value of
the improvements was to be determined based
exclusively on its relationship to the leased
premises rather than the entire property owned by
the lessor and that, under that scenario, the
improvements did have value for which the tenant
could recover. Id.
d.
Thus, it is important for both the landlord and
tenant to recognize that what the condemnation
clause provides for may be different than how the
value of the property as a whole is best
maximized, and to plan accordingly for both
phases of the case.
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e.
iv.
The ability to agree by contract how the award
will be disbursed also suggests that the parties
could agree to allocate funds to the tenant for
damages that may not be compensable in a
condemnation case (loss of access, highway
visibility and business losses, etc.).
Condemnation Clause Checklist
A well-drafted and comprehensive condemnation clause
can solve many of the issues that landlords and tenants
often litigate. Such a clause should address at least the
following issues:
a.
How will compensation be divided in the event of
a total taking? How will it be measured? Does
the lease period considered in determining “bonus
value” include options to renew?
b.
Who is entitled to compensation for trade
fixtures? Who is entitled to compensation for
tenant improvements? How will compensation be
measured?
c.
Under what circumstances can either party
terminate the lease? What is the trigger date for
such termination – the date of notice; the date a
case is filed, the date possession is granted or
some other date?
d.
What happens in the event of a partial taking? Is
the tenant entitled to damages to its leasehold
estate and improvements? How will
compensation be measured? Are damages limited
to items compensable under Colorado law, or can
the tenant receive compensation for damages even
if not included in the award?
e.
Who is obligated to rebuild or repair the premises
in the event of a partial taking?
f.
Who will have the burden of proof in an
apportionment proceeding? Will amounts be
equitably divided based on the pro rata value of
the landlord and tenant in relationship to the total
award or based upon the contractual allocation?
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How will those apportionment claims relate to
other interests that may also make a claim by or
through either party (mortgagees, other tenants,
subtenants, easement holders, etc.)?
I.
g.
If the landlord owns more property in the area
(such as in a shopping center complex, etc.) what
property is relevant in determining all of the
issues identified above – only the tenant’s leased
premises, all of the landlord’s property, or
different portions of the property based upon the
relevant issue?
h.
Can termination clauses or other lease provisions
be exercised for the benefit of the condemnor?
Recovery of Costs and Fees
1.
Landowner’s costs, appraisal fees and expert witness fees are recoverable
to the extent they are “are reasonable and necessary” as part of the just
compensation due for the taking; Keller v. Miller, 63 Colo. 304, 165 P.
774 (1917); Department of Highways v. Kelley, 151 Colo. 517, 379 P.2d
386 (1963); City of Colorado Springs v. Berl, 658 P.2d 280 (Colo. App.
1982).
2.
Landowner’s attorney fees generally are recoverable if:
3.
a.
The taking is defeated, resulting in a partial or complete dismissal
of the case. Leadville Water Co. v. Parkville Water District, 164
Colo. 362, 436 P.2d 659 (1967); Dept. of Health v. Hecla Mining
Co., 781 P.2d 122 (Colo. App. 1989); C.R.S. § 38-1122(1)(authorizing attorney fees where condemnor does not have
authority to condemn).
b.
If the landowner receives an award 30% more than the last written
offer made by the condemnor prior to filing the condemnation
proceeding. See C.R.S. § 43-4-506(1)(h)(II)(B) (applies to public
highway authorities); C.R.S.§ 38-1-122(1.5) (applies to most other
condemnors, but certain entities are exempt).
Condemnees are also entitled to interest on the difference between the
original deposit and the just compensation award ultimately received at
trial. Denver Urban Renewal Authority v. Hayutin, 583 P.2d 296
(Colo. App. 1978); E-470 Public Highway Authority v. 455 Co., 997
P.2d 1273 (Colo. App. 1999). See C.R.S. § 38-1-116 for pre-judgment
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interest and C.R.S. § 5-12-102 for post-judgment interest. See also
State Dept. of Highways v. Interstate-Denver West, 781 P.2d 176
(Colo. App. 1989) (allows for annual compounding of interest in a
condemnation case).
J.
II.
Relocation Expenses and Other Forms of Special Compensation
1.
As a general rule, landowners are not entitled to be reimbursed for the
costs of moving personal property, loss of business, or other expenses
associated with the taking of their property.
2.
Where federal funds are involved, actual moving expenses may be
allowed. In addition, minor amounts of money may be available for reestablishment expenses, advertising and search costs, and similar
elements of business damages. See e.g. C.R.S. § 24-56-101, et seq. and
regulations promulgated thereunder. Owners whose property is
condemned for an urban renewal project may also be entitled to a one
time “business interruption” payment capped at $10,000. See C.R.S.
§ 31-25-105.5(4).
3.
Residential owners and tenants in project involving federal funds, may
also receive additional forms of assistance, including rent supplements,
assistance with financing costs, housing of last resort and similar
benefits.
VALUATION CONCEPTS
A.
Reasonable Market Value
1.
B.
“Reasonable market value” means the fair, actual, cash market value of
the property. It is the price the property could have been sold for on
the open market under the usual and ordinary circumstances, that is,
under those circumstances where the owner is willing to sell and the
purchaser is willing to buy, but neither is under an obligation to do so.
See Board of Commissioners of Jefferson County v. Noble, 181 P.2d
142 (1947).
The Larger Parcel
1.
Determining what makes up the larger parcel is an appraisal issue
relevant in eminent domain valuation. The issue dictates the proper
valuation of the part taken since it is generally valued as a part of the
larger parcel and at the same unit price (i.e. per acre, per square foot,
etc.). The larger parcel also defines what property can be considered in
determining damages or special benefits. Finally, the larger parcel is
also important to the issue of highest and best use.
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2.
C.
D.
What property should be included in the larger parcel has traditionally
been defined based upon the “three unities:” unity of title, physical
unity, and unity of use.
Undivided Basis Rule
1.
Colorado law values the condemned property as a single, fee simple
interest without regard to the value of the separate interests to which it
may be subject. See e.g. Montgomery Ward & Co. v. City of Sterling,
523 P.2d 465, 468 (Colo. 1974). The value of the interests held by the
various respondents is then determined at an apportionment hearing
pursuant to C.R.S. §38-1-105(3).
2.
Nonetheless, separate evidence of the value of the various elements that
make up property rights (such as water rights or mineral reserves) may
be introduced as long as one total award is ultimately rendered. See,
City of Gunnison v. McCabe Hereford Ranch, 702 P.2d 768, 770-771
(Colo. App. 1985).
3.
In addition, Colorado’s “undivided basis rule” requires the
consideration of encumbrances adding or subtracting from the
property’s fair market value as a whole. Montgomery Ward & Co.,
supra. See also, City of Englewood v. Reffel, 477 P.2d 361 (Colo.
1970); E-470 Public Highway Auth. v. Jagow, 30 P.3d 798 (Colo. App.
2001)
4.
It may also be appropriate to establish different values for different
portions of the larger parcel in some circumstances. City of
Westminster v. Jefferson Center Associates, 958 P.2d 495, 501-502
(Colo. App. 1997); E-470 Public Highway Authority v. 455 Company,
983 P.2d 149, 156 (Colo. App. 1999); (rev’d on other grounds, 3 P.3d 18
(Colo. 2000) But see Palizzi v. City of Brighton, 228 P.3d 957 (Colo.
2010) (property subject to future dedication properly valued on unified
basis)
Date of Value
1.
C.R.S. § 38-1-114 provides that “the right to compensation . . . shall be
determined initially as of the date the petitioner is authorized by agreement,
stipulation, or court order to take possession or the date of trial or hearing to
assess compensation, whichever is earlier. . .” See also Denver Urban
Renewal Authority v. Hayutin, 583 P.2d 296 (Colo. App. 1978).
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E.
F.
Highest and Best Use
1.
“In determining the market value of the property you should consider the
most advantageous use or uses to which the property might reasonably
and lawfully be put in the future by persons of ordinary prudence and
judgment.” See C.J.I. 4th Civ. 36:6.
2.
The four appraisal criteria for ascertaining highest and best use are: legal
permissibility, physical possibility, financial feasibility, and maximum
profitability.
3.
If the property has a reasonably probability of being rezoned in the future
to a higher use, that fact may be taken into consideration in determining
its present value. City of Aurora v. Webb, 585 P.2d 288, 291 (Colo. App.
1978); Stark v. Poudre School Dist., 560 P.2d 77, 79 (Colo. 1977).
4.
If evidence of the values associated with rezoning is submitted, it is also
appropriate to present evidence regarding the costs associated with
achieving that status. See City of Aurora v. Webb, 585 P.2d 288, 291
(Colo. App. 1978).
Project Influence
1.
The project influence rule generally provides that any enhancement or
depreciation in value caused by the project for which the property is
taken shall be disregarded in determining the market value of the land
taken.
2.
Colorado recognizes the project influence rule in its pattern eminent
domain jury instructions. See C.J.I. Civ. 4th 36:3 (directing the jury, in
determining the market value of property taken, “not to take into
account any increase or decrease in value caused by the proposed
public improvement.”)
3.
Colorado case law also recognizes the rule. See e.g. Goldstein v.
Denver Urban Renewal Auth., 560 P.2d 80, 83 (Colo. 1977)
(recognizing that “the commission is entitled to consider any competent
evidence, apart from certain factors arising from the very fact of
condemnation, which would be considered by a prospective seller or
buyer as tending to affect the present market value of the land.”); Board
of County Com’rs v. Vail Assoc. Ltd., 468 P.2d 842, 847 (Colo. 1970)
(“A landowner is not entitled to recover an increase or enhancement in
value of his land caused by the proposed improvement for which his
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land is being taken.”); Williams v. City and County of Denver, 363
P.2d 171, 174 (Colo. 1961) (“[I]t is obvious that just compensation
cannot include any increment arising from the very fact of acquisition
of the subject property.”)
III.
DAMAGES AND SPECIAL BENEFITS
A.
When a portion of a landowner’s property is taken, just compensation includes
both: (1) compensation for the property actually taken; and (2) compensation
for damages to any remainder property. C.R.S. § 38-1-114(2)(b); La Plata
Elec. Ass’n, Inc. v. Cummins, 728 P.2d 696 (Colo. 1986).
B.
A landowner is entitled to recover all damages that are the natural, necessary
and reasonable result of the taking, as measured by the reduction in the
market value of the remainder of the property, and is entitled to present any
relevant evidence concerning diminution of market value caused by the
taking. La Plata Elec. Ass’n, Inc. v. Cummins, 728 P.2d 696 (Colo. 1986).
C.
The measure of damages is the diminution in value of the residue by reason of
the taking. La Plata Elec. Ass’n v. Cummins, 728 P.2d 696 (Colo. 1986); W.
Slope Gas Co. v. Lake Eldora Corp., 512 P.2d641 (Colo. App. 1973).
D.
Compensable and Noncompensable Damages
i.
Business Losses
a) Loss of business or lost profits are generally not recoverable.
City & County of Denver v. Hinsey, 493 P.2d 348 (Colo.
1972); This rule stems from the belief that when property on
which a business is operating is condemned, the land and not
the business is being taken. Business profits are considered
to be a function of entrepreneurial skill rather than the value
of the land. DURA v. Berglund-Cherne Co., 568 P.2d 478
(Colo. 1977). But see Clare v. Florissant Water & Sanitation
Dist., 879 P.2d 471 (Colo. App. 1994). (business losses
recoverable when business itself is taken.)
b) The business profits rule excludes only profits derived from
a business operating on land, not profits derived from the
land itself. Evidence of profits relating to income derived
from land may be considered, such as farming and ranching
profits. Bd. of County Comm’rs v. Delaney, 592 P.2d 1338
(Colo. 1978).
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ii.
Access
a) A landowner is entitled to compensation for the limitation or
loss of access only if it substantially interferes with or
impairs ingress and egress to and from the property. State
Dep’t of Highways v. Davis, 626 P.2d 661 (Colo. 1981).
b) Mere inconvenience or circuity of travel for ingress or egress
resulting from a public project is not a compensable element
of damages. Shaklee v. Bd. of County Comm’rs, 491 P.2d
1366 (Colo. 1972).
c) The question of whether there has been a substantial
impairment of access is a question of law to be determined
by the court before the valuation trial, generally through an
in limine hearing. Dep’t of Highways v. Interstate-Denver
West, 791 P.2d 1119 (Colo. 1990).
iii.
Loss of View/Aesthetics
a) Loss of view from the residue or aesthetic damages resulting
from a public project are compensable. La Plata Elec. Ass’n,
Inc. v. Cummins, 728 P.2d 696 (Colo. 1986).
b) Presently under Colorado law, a loss of view into the residue
(such as the loss of view from a highway to a commercial
property) is not compensable. See Department of Transp. v.
Marilyn Hickey Ministries, 159 P. 3d 111 (Colo. 2007). But
case law from Utah relied upon by our Supreme Court to
reach this conclusion has subsequently been reversed. Utah
Dept. of Transp. v. Admiral Beverage Corp., 275 P.3d 208
(Utah 2011) (over-ruling Ivers v. Utah Dept. of Transp.)
iv.
Personal Annoyance/Inconvenience
a) The personal annoyance suffered by a landowner as a result
of a taking or the infringement of the owner’s personal
enjoyment in use of the remainder are not compensable. CJI
– Civ. 4th 36:5 provides:
Infringement of the owner’s personal pleasure or
enjoyment in the use of the residue or even the
owner’s annoyance or discomfort do not
constitute compensable damages. Neither does
the fact that the residue may be less desirable for
certain purposes. Such matters are not
compensable except as they are a natural,
21
necessary and reasonable result of the residue
being severed from the land actually taken or of
the uses expected to be made of the land actually
taken, and are measurable by a reduction in the
market value of the residue.
E.
Special Benefits
1.
Special benefits are only applicable in partial taking cases. C.R.S. §
38-1-114(2)(c).
2.
General versus Special Benefits:
3.
a.
A general benefit is a benefit that results to the owner in
common with the public. General benefits that accrue to the
residue by reason of the improvement may not be considered by
the jury or commission in arriving at the market value of the
residue after the taking. Western Slope Gas Co. v. Lake Eldora
Corp., 512 P.2d 641 (Colo. App. 1973).
b.
Special benefits which may be set off against damages are those
that accrue directly to the residue of the tract as a result of the
construction of the public project and that benefit directly and
particularly that residue from which the condemned property
interest are taken. Western Slope Gas Co. v. Lake Eldora Corp.,
512 P.2d 641 (Colo. App. 1973).
Non-Highway/Non-Regional Transportation District Cases:
a.
4.
Highway/Regional Transportation District Cases:
a.
5.
Benefits can be offset against damages to the remainder, but not
against the value of the property taken. C.R.S. § 38-1-114(1).
Benefits can offset all damages and up to 50% of the
compensation owed for the property actually taken.
C.R.S. § 38-1-114(2).
Valuation of Special Benefits
a.
Special benefits must be capable of being estimated in terms of
money, and they must add to the present market value of the
subject property. Denver Joint Stock Land Bank v. Bd. of
County Comm’rs, 98 P.2d 283 (Colo. 1940).
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b.
Remote, speculative or hypothetical benefits may not be
considered by the commission. Future special benefits may only
be considered if there is sufficient certainty that they will
actually occur. Denver Joint Stock Land Bank v. Bd. of County
Comm’rs, 98 P.2d 283 (Colo. 1940).
dms.us.52967788.01
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