2015 luep legal seminar charlottesville, virginia may 29, 2015 andrew r. mcroberts, esquire sands...

Private Property Rights and Eminent Domain in

Virginia: Clarity or Chaos?

2015 LUEP LEGAL SEMINARCHARLOTTESVILLE, VIRGINIA

MAY 29, 2015

Andrew R. McRoberts, EsquireSands Anderson PC

1111 East Main Street, Suite 2400Richmond, Virginia 23219

804-783-7211

“In this world nothing can be said to be certain, except death and taxes.”

- Benjamin Franklin

Ben Franklin was partly correct. In addition to taxes, a couple of other inalienable (perhaps inevitable) governmental powers could be added, including police powers (like zoning) and yes, eminent domain.

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“The only difference between death and taxes is that death doesn't get worse every time Congress meets.”

- Will Rogers

Common Law Rights in Real Property

At common law, real property ownership is sometimes described as a “bundle of sticks” – different rights and obligations that come with the real property.

This includes the right of possession, right to exclude others, right to mine the property, right to the airspace above, and more.

This also includes the real property being subject to the inalienable powers of government, which include taxation, police powers (such as zoning), and eminent domain. One could add sovereign immunity.

Common Law Rights in Real Property

Taxes are an inalienable right of government, and all real property is subject to government taxation.

In Virginia, real property is segregated to local governments for taxation.

In most Virginia localities, the real property tax is the vast majority of the revenues.

Real property is owned subject to taxation.

Inalienable Governmental Powers:Taxation

Police powers of government allow laws and ordinances that protect the health, safety and welfare of the community – define and punish crimes, prevent nuisances, regulate animals, and adopt zoning regulations.

Zoning is a legal descendant of the anti-nuisance laws of the 19th c. and earlier, necessary to support the “health, safety and welfare.”

Real property is owned subject to zoning and other police powers.

Inalienable Governmental Powers:

Police Powers

The power of eminent domain is inherent in the ownership of real property.

Eminent domain is the power of government to take real property for public purposes, and pay just compensation therefor.

State and local governments, authorities and public service corporations (railroad, power, telephone companies) have the power of eminent domain.

Theory is that the interest in real property is taken and replaced with cash.


Eminent Domain

Article I, Section 11 of the Constitution of Virginia provides that no person shall be deprived of property without due process of law and that the General Assembly shall not pass any law whereby private property shall be taken or damaged for public uses, without just compensation.

Fourteenth Amendment to the U.S. Constitution provides, among many other things, that no property shall be taken without just compensation.


Eminent Domain

Article I, Section 11 is self-executing and permits a property owner to enforce the constitutional right to just compensation in a common law action that is not a tort action but a contract action and, therefore, is not barred by the doctrine of sovereign immunity.

Note that the constitution does not say a lot. Common law and statutes fill in the gaps on the power of eminent domain.


Eminent Domain

Before the Kelo case, the law of eminent domain was fairly stable, largely the same for many years.

Damages included value difference before and after take, plus damages to residue, if any, over value enhancement from the project.

No damages allowed for lost profits (too speculative) or lost access, unless remaining access is “unreasonable.”

Predominant public purpose required. While economic development could be public purpose, that other public purposes had to be served also. Legislative determinations of public purpose given deference, presumed correct. Government could promise companies access roads, infrastructure…

Law of Eminent Domain in Virginia:Pre-Kelo

Commonwealth of VirginiaOffice of Governor Bob McDonnell

FOR IMMEDIATE RELEASEMarch 6, 2012

Governor McDonnell Announces Rolls-Royce Eyes Expanding Footprint in Virginia with New High-Tech Manufacturing Facility

RICHMOND – Governor Bob McDonnell today announced that Rolls-Royce, the global power systems company, is considering a new advanced manufacturing facility at its Crosspointe location near Richmond, Va. The new factory would be an advanced blade manufacturing capability involving high-precision turbine blades for some of the world’s most sophisticated aircraft engines built by the company. Significant growth in the company’s aero engine order book provides the stimulus for this and other Rolls-Royce investments being made in America.

Speaking about the Rolls-Royce announcement, Governor Bob McDonnell remarked, “…transformational for the Commonwealth. …precisely the kind of high-tech investment in our future we need and want in Virginia. ….

Law of Eminent Domain in Virginia:Pre-Kelo

Despite its tough set of facts, Kelo was a well-decided case legally, since the issue was whether the federal constitution limited the local government’s power to condemn for an economic development purpose. U.S. Supreme Court noted, however, that the states could place restrictions on local government powers. That set off a firestorm.

Many states, including Virginia, began to amend their eminent domain statutes to restrict condemnation for economic development purposes. These had not been adopted long, and had yet to be tested in court, when a call for a constitutional amendment arose.

Law of Eminent Domain in Virginia:

Reaction to Kelo

“That the General Assembly shall pass no law whereby private property, the right to which is fundamental, shall be damaged or taken except for public use. No private property shall be damaged or taken for public use without just compensation to the owner thereof. No more private property may be taken than necessary to achieve the stated public use. Just compensation shall be no less than the value of the property taken, lost profits and lost access, and damages to the residue caused by the taking. The terms “lost profits” and “lost access” are to be defined by the General Assembly. …


Constitutional Amendment

… A public service company, public service corporation, or railroad exercises the power of eminent domain for public use when such exercise is for the authorized provision of utility, common carrier, or railroad services. In all other cases, a taking or damaging of private property is not for public use if the primary use is for private gain, private benefit, private enterprise, increasing jobs, increasing tax revenue, or economic development, except for the elimination of a public nuisance existing on the property. The condemnor bears the burden of proving that the use is public, without a presumption that it is.” Va. Const. Art. 1, §11.


Constitutional Amendment

After adoption of the constitutional amendment and its ratification by the voters, statutes were amended to define what was meant by “lost access” and “lost profits,” since these were never compensable before, and the constitutional amendment left these items for the General Assembly to define. Statutes had already been amended describing “public use” in a more narrow way, and the constitutional amendment tightened it further.

Note: Difference between public purpose and public use.


Enacting Statutes for Constitutional Amendment

§ 25.1-100, definition of lost profits:

"Lost profits" means a loss of business profits, as defined in § 25.2-230.1, subject to adjustment using generally accepted accounting principles consistently applied, from a business or farm operation for a period not to exceed (i) three years from the date of valuation if less than the entire parcel of property is taken or (ii) one year from the date of valuation if the entire parcel of property is taken that is suffered as a result of a taking of the property on which the business or farm operation is located, provided (i) (a) the business is owned by the owner of the property taken, or by a tenant whose leasehold interest grants the tenant exclusive possession of substantially all the property taken, or …


Lost Profits and Lost Access

§ 25.1-100, definition of “lost profits” continued…… (ii) (b) the farm operation is operated by the owner of the property taken, or by a tenant using for a farm operation the property taken, to the extent that the loss is determined and proven pursuant to subsection C of § 25.1-230.1. This definition of the term "lost profits" shall not create any new right or remedy or diminish any existing right or remedy other than to allow the body determining just compensation to consider lost profits in awarding just compensation if a person asserts a right to lost profits as an element of damage in a claim for compensation.



§ 25.1-100, definition of “lost access”:

"Lost access" means a material impairment of direct access to property, a portion of which has been taken or damaged as set out in subsection B of § 25.1-230.1. This definition of the term "lost access" shall not diminish any existing right or remedy, and shall not create any new right or remedy other than to allow the body determining just compensation to consider a change in access in awarding just compensation.



§ 25.1-230.1. Lost access and lost profits.

A. For purposes of this section:"Business" shall have the same meaning as set forth in § 25.1-400."Business profit" means the average net income for federal income tax purposes for the three years immediately prior to the valuation date of a business or farm operation located on the property taken."Direct access" means ingress or egress on or off a public road, street, or highway at a location where the property adjoins that road, street, or highway."Farm operation" shall have the same meaning as set forth in § 25.1-400.



§ 25.1-230.1. Lost access and lost profits, cont’d.

B. The body determining just compensation shall include in its determination of damage to the residue any loss in market value of the remaining property from lost access caused by the taking or damaging of the property. The body determining just compensation shall ascertain any reduction in value for lost access, if any, that may accrue to the residue (i) beyond the enhancement in value, if any, to such residue as provided in subdivision A 1 of § 25.1-230, or (ii) beyond the peculiar benefits, if any, to such other property as provided in subdivision A 2 of § 25.1-230, by reason of the taking and use by the petitioner. …




B. … If such peculiar benefit or enhancement in value shall exceed the reduction in value, there shall be no recovery against the landowner for such excess. The body determining just compensation may not consider an injury or benefit that the property owner experiences in common with the general community, including off-site circuity of travel and diversion of traffic, arising from an exercise of the police power. The body determining just compensation shall ensure that any compensation awarded for lost access shall not be duplicated in the compensation otherwise awarded to the owner of the property taken or damaged.




[Burden of Proof – ]

C. … [O]wner of a business or farm operation [claiming lost profits must prove] with reasonable certainty the amount of the loss and that the loss is directly and proximately caused by the taking of the property through the exercise of eminent domain and the following conditions are met:[These are all potential defenses to claim for lost profits]




C. … 1. The loss cannot be reasonably prevented by a relocation of the business or farm operation, or by taking steps and adopting procedures that a reasonably prudent person would take and adopt;2. The loss will not be included in relocation assistance provided pursuant to Chapter 4 (§ 25.1-400 et seq.);3. Compensation for the loss will not be duplicated in the compensation otherwise awarded to the owner of the property taken or damaged; and4. The loss shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.




D. Any and all liability for lost access and lost profits shall be established and made a part of the award of just compensation for damage to the residue of the property taken or damaged, and any and all liability for lost profits shall be set forth specifically in the award. In a partial acquisition, in the event that the owner of the property being condemned and the owner of the business or farm operation claiming lost profits are the same, then any enhancement or peculiar benefit shall be offset against both damage to the residue and lost profits.




E. It shall not be a requirement of any bona fide effort to purchase the property pursuant to § 25.1-204 or 33.2-1001 that the petitioner include any liability for lost profits in a written offer to purchase the property.




F. In any proceeding in which the owner of a business or farm operation seeks to recover lost profits, the owner shall provide the condemning authority with all federal income tax returns, if any, relating to the business or farm operation for which the owner seeks lost profits for a period of three years prior to the valuation date and for each year thereafter during the pendency of the condemnation proceeding. The condemning authority shall not divulge the information provided pursuant to this subsection except in connection with the condemnation proceeding.




G. Nothing in this section is intended to provide for compensation for inverse condemnation claims for temporary interference with or interruption of a business or farm operation other than that which is directly and proximately caused by a taking or damaging of property through the exercise of eminent domain.



2015: SB 1435 Eminent domain; lost profits and just compensation.Requires that any and all liability for lost profits claimed in an action for compensation pursuant to a taking under eminent domain be set forth specifically in the award for just compensation and that in a partial acquisition, in the event that the owner of the property being condemned and the owner of the business or farm operation claiming lost profits are the same, then any enhancement shall be offset against both damage to the residue and lost profits. The bill also defines lost profits as a loss of business profits for a period not to exceed three years from the date of valuation if there is a partial taking and for a period not to exceed one year from the date of valuation if the entire parcel of property is taken.



§ 25.1-203. Authority of certain condemnors to inspect property; reimbursement for damages; notice prior to entry. —

A. In connection with any project wherein the power of eminent domain may be exercised, any locality or any petitioner exercising the procedure set forth in Chapter 3 (§ 25.1-300 et seq.) of this title, acting through its duly authorized officers, agents or employees, may enter upon any property without the written permission of its owner if (i) the petitioner has requested the owner's permission to inspect the property as provided in subsection B, (ii) the owner's written permission is not received prior to the date entry is proposed, and (iii) the petitioner has given the owner notice of intent to enter as provided in subsection C. …. [procedural requirements]


Access to Property Before Take

Article I, Section 11 of the Constitution of Virginia confers upon a property owner a right to just compensation if the government takes or damages his property for public use. A property owner may enforce this constitutional right through an inverse condemnation suit. Kitchen v. City of Newport News, 275 Va. 378, 386, 657 S.E.2d 132, 136 (2008). For the government to take or damage property within the meaning of Article I, Section 11, it need not “actually invade or disturb the property”; rather, it need only “adversely affect[] the [property owner's] ability to exercise a right connected to the property.” Id. (quoting Richmeade, L.P. v. City of Richmond, 267 Va. 598, 602, 594 S.E.2d 606, 609 (2004)).


Inverse Condemnation

When a property owner brings an action under Article I, Section 11 of the Constitution of Virginia, for the taking or damaging of his property for a public use, he is entitled to be paid “such amount as would have been awarded if the property had been condemned under the eminent domain statute.” Burns v. Board of Supervisors, 218 Va. 625, 627, 238 S.E.2d 823, 825 (1977).

An inverse condemnation action is brought under the Declaratory Judgments article of Va. Code Title 8.01. If the court determines a taking has occurred, a condemnation jury determines the damages. Va. Code § 8.01-187.


Inverse Condemnation

Thank You!

Andrew R. McRobertsSands Anderson PC

1111 East Main Street, P.O. Box 1998Richmond, Virginia 23218-1998

(804) [email protected]

www.VaLocalityLaw.com

mailto:[email protected]

http://www.valocalitylaw.com/

2015 luep legal seminar charlottesville, virginia may 29, 2015 andrew r. mcroberts, esquire sands...

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real property ownership

ownership of real property

real property tax

private property

law of eminent domain

power of eminent domain

power of government

police powers of government