A number of small used car dealerships along a busy corridor in Prince Georges County outside Washington D.C. recently scored a victory in the Maryland Special Court of Appeals, reported the Washington Post. Although the county council passed a law in 2003 banning car dealerships of less than 25,000 square feet and argued that they had to go to make room for a new arts district, the court ruled in favor of the dealerships.
Banning small dealerships, wrote the judge, "is not rationally related to a possible legitimate business purpose." An appeal was thought to be unlikely based on reported comments from the county council chairman.
Two courts, two very different opinions
For many, this decision is viewed as a welcome change from last year's landmark Kelo case, which addressed the meaning of "public use." In Kelo v. City of New London, the U.S. Supreme Court, in a 5-4 decision, ruled that a municipality has the right to seize non-blighted private property and give it to private developers for pursuit of economic redevelopment. Such redevelopment, said the Court, is consistent with "public use."
What's an auto dealer - and there's no shortage of dealers involved in eminent domain cases - supposed to think and do? For some answers, the C&CR called up attorney Leslie Fields who heads law firm Faegre & Benson LLP's eminent domain practice in Colorado.
State legislators neuter "Kelo" and eminent domain authority
Ms. Fields told us there's been a huge Kelo backlash. More than 28 states are currently passing legislation to either outlaw or make it more difficult to condemn private property for economic gain and private development projects, according to a National Law Journal article she cited in an article she co-authored in the Nov. 2005 issue of Trends, Faegre's business law magazine. "Even though the court case purportedly expands the definition of public use in order to justify a taking, the backlash may well result in local jurisdictions limiting their own powers on eminent domain," says her article.
Dealers - be prepared to fight
Ms. Fields emphasizes that condemnation law is generally very specialized and can vary from state to state. In Colorado, for example, land must be blighted to seize it; it's not enough to just be located in a redevelopment area. If you have a very significant asset at stake, get a lawyer early on with expertise in condemnation matters, she suggests. If it's simply a matter of value that you disagree with after receiving a condemnation notice, you may be able to negotiate at this point. Some jurisdictions are required to pay the reasonable price of appraisal.
Find out too what it takes to raise challenges in your jurisdiction. In Colorado, you must appear at a hearing if you want to raise one of the following challenges: 1) the entity didn't negotiate in good faith; 2) the entity that brought the condemnation action doesn't have the legal authority to condemn; 3) proper public use is not there.
The C&CR asked Ms. Fields what dealers in the market for property can do to help avoid potential eminent domain issues down the road. Whoever is performing your due diligence, she says, should understand land use regulations and:
- Ask about land use in the jurisdiction where the property is located and request to see the master plans.
-Find out if the property is in a redevelopment or urban renewal area.
-Ask if there are any plans in the foreseeable future to condemn the land for any public project.
"If the answer to any of these questions is yes, it would definitely warrant further investigating to find out if the property could be forcibly acquired," says Ms. Fields. "There's risk even if they say the plan is not for 10 more years."
E.D. also affects lease terms
Eminent domain is not a problem for property owners alone; it also affects lessees. The government pays for the entire interest being taken, regardless of how it's divided between lessor and lessee. Lessees must cover this issue in their lease if they want to share in the condemnation proceeds, says Ms. Fields. Condemnation clauses can vary depending on the circumstances. "In drafting or reviewing a condemnation clause (for either the lessor or the lessee), a lawyer should be consulted," she says.