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Condemnation – “Value-Subtracted”
by Ron Davis

Owners of a prime piece of New Jersey commercial property are disappointed with the compensation they are getting from the property’s condemnation.

The property is located in Montville, and the condemnation results from a decision by the town’s elected officials. They decided several years ago to preserve the property as “open space.”

The property owners had bought the 42 acres in 1996, planning to develop them as either a shopping center or an office complex. But previous owners had already contended with governmental actions that had applied flood-control regulations on nearly half of the 42 acres.

Nevertheless, the current owners bought the property, apparently thinking that they would be fairly compensated if they were denied its use for commercial development. So when local government finally decided to condemn the property, only the amount of payment was at stake. But by that time, however, the government had adopted stricter environmental controls on such properties.

The owners nevertheless rejected the first offer of $780,000. That meant that Montville’s elected officials had to adopt the condemnation process. A local judge then ordered the town to deposit with the court $1,286,000, representing an estimate of fair payment.

A commission later fixed compensation for the property at $1,348,000. The property owners appealed that suggested award.

After further negotiations, the town of Montville agreed to pay the property owners $2,648,500 “as just compensation.” The property owners responded by hiring an appraisal expert, who valued the property at $8,275,000. That appraisal was based on construction there of commercial buildings, representing “the highest and best use of the land.” That figure, however, did not take into account any of the environmental regulations previously adopted.

Those regulations had divided the property into two zones: In zone one, no development was possible because of flood-control directives. Zone two also had certain restrictions as a result of potential problems in zone one.

A New Jersey court ruled in favor of the town of Montville, explaining that previous agreements do not give the property owners the right to receive any compensation other than what the condemnation law requires. The court added, “Nothing supports [the property owners’] right to be compensated for the loss in property value caused by more stringent environmental regulations adopted…before the date of taking.” (Township of Montville v. MCA Associates, L.P., 2008 WL 3822061 [N.J. Super. A.D.])

Decision: September 2008
Published: October 2008



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