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Measure and Elements of Compensation

The Fifth Amendment of the U.S constitution protects private property rights.  A government can take private property for a public use upon payment of just compensation.  In acquisition, there is a contractual obligation to pay compensation or damages.  To exercise the power of eminent domain, a government must prove four elements set forth in the Fifth Amendment.  They are:

  • Acquisition is of private property;
  • Property must be acquired;
  • Acquisition must be for public use; and
  • Just compensation must be awarded.

Property subject to acquisition includes not only real property but also personal property.  Public uses for which the government exercises its power of eminent domain include such things as schools, roads, libraries, police stations and fire stations.  Just compensation is the full indemnity for the loss or damage sustained by the owner of property taken under the power of eminent domain.  The measure used is fair market value at the time of acquisition.  When property is taken under eminent domain, the measure of just compensation is the fair market value of the property to be ascertained as of the date of taking.  Just compensation includes a recovery for all damages, past, present, and prospective.  The damages analysis is not limited to the time of the alleged taking[i].  The burden of proving damage is upon the owners of the land taken[ii].  The measure of damages is the fair market value of the property as of the date of taking.  It is determined by assessing what a willing buyer and a willing seller would agree to negotiate.  Fair market value is that value assigned by parties freely negotiating under normal market conditions based on all surrounding circumstances at the time of the taking[iii].

The landowner is to be compensated for the fair market value of his property upon the basis of the property’s highest and best use[iv].  Just compensation includes all elements of value that are inherent in the property.  However, it does not exceed market value fairly determined.  The sum required to be paid to the owner does not depend upon the uses to which s/he has devoted his/her land.  The sum is to be arrived at on just consideration of all the uses for which the land is suitable.  The highest and most profitable use for which the property is used and needed or likely to be needed in the reasonably near future is to be considered[v].

The guiding principle in determining just compensation is the reimbursement to the owner for the property taken.  The property owner is entitled to be put in as good a position pecuniarily as if his/her property had not been taken[vi].

Where land is appropriated for a temporary use, the measure of compensation is what the property is worth for the time when it is taken.  The measure of damages for a temporary taking of property for a public purpose is the rental value of such property during the period when it is taken[vii].  Where only part of property is taken, best measure of compensation is a combination of the fair market value of the part taken, together with the decrease in the fair market value of the untaken part measured immediately before and immediately after the taking[viii].

When the property value is reduced because of alterations after acquisition and before the condemnation action is heard, the condemnee is entitled to a higher value as of the time of the taking.  However, a condemnee is not entitled to the higher value when the land value increases after the taking and before the condemnation action[ix].

Factors to be considered in determining the highest and best use of property are:

  • market demand;
  • proximity to areas already developed in a compatible manner with the intended use;
  • economic development in the area;
  • specific plans of businesses and individuals;
  • actions already taken to develop land for that use;
  • scarcity of land available for that use;
  • negotiations with buyers interested in property taken for the particular use;
  • absence of offers to buy property made by buyers who have put it to the use urged; and
  • the use to which the property is being put at the time of the taking[x].

Generally, the rights of a landowner fall into two categories: general rights, which a landowner has in common with the public, and special rights, which a landowner holds by virtue of ownership of the property.  Land must be valued in rem, not in personam[xi].  However, when the land sought to be taken in eminent domain is adaptable for a special purpose or use, that fact may be considered as an element of value.  Uniqueness is a quality of property which allows the landowner enhanced compensation[xii].

When a delay in payment occurs, something more than fair market value is to be awarded.  This additional element of compensation is termed reasonable interest.  Just compensation in the constitutional sense is fair market value at the time of taking plus interest from that date to the date of payment[xiii].

[i] Ridge Line, Inc. v. United States, 346 F.3d 1346, 1352 (Fed. Cir. 2003).

[ii] United States v. Smith, 355 F.2d 807, 809 (5th Cir. Ala. 1966).

[iii] State by Com’r of Transp. v. Hope Road Associates, 266 N.J. Super. 633 (App.Div. 1993).

[iv] United States v. 1291.83 Acres of Land, 411 F.2d 1081, 1084 (6th Cir. Ky. 1969).

[v] United States v. 1291.83 Acres of Land, 411 F.2d 1081 (6th Cir. Ky. 1969).

[vi] United States v. Virginia Electric & Power Co., 365 U.S. 624 (U.S. 1961).

[vii] United States v. 883.89 Acres of Land, 314 F. Supp. 238, 242 (W.D. Ark. 1970).

[viii] Arkansas Louisiana Gas Co. v. James, 15 Ark. App. 184, 188 (Ark. Ct. App. 1985).

[ix] State Highway Comm’r v. Jones, 27 N.J. 257 (N.J. 1958).

[x] Exxon Pipeline Co. v. Hill, 788 So. 2d 1154 (La. May 15, 2001).

[xi] United States v. Pennsylvania Salt Mfg. Co., 16 F.2d 476 (D. Pa. 1926).

[xii] Metro. Atlanta Rapid Transit Auth. v. Leibowitz, 264 Ga. 486 (Ga. 1994).

[xiii] United States v. 278.59 Acres of Land, 364 F.2d 63, 65 (5th Cir. Fla. 1966).

Inside Measure and Elements of Compensation