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What is a 1031 or 1033 Tax Exchange?

This tax expert’s article below provides a good distinction and clarification on how to handle tax issues related to real property situations.  It does not describe how to handle eminent domain relocation payments, where many of our clients have questions.  Relocation payments, within eminent domain and condemnation, are mostly related to personal property and other expenses for relocating a business or household.  We are continuing our search for answers to tax related questions on relocation payments.  Please check back with us.

I look forward to your return.

For Eminent domain relocation payments and taxes, please see our posting at

http://eminentdomainandbusinessrelocationconsulting.com/?p=1696

Regards,

Martyn

 

After years of conducting tens of thousands of successful 1031 exchanges, we found that there are a number of frequently asked questions related to this type of transaction…

Equity and Gain

Is my tax based on my equity or my taxable gain?

Tax is calculated upon the taxable gain. Gain and equity are two separate and distinct items. To determine your gain, identify your original purchase price, deduct any depreciation which has been previously reported, then add the value of any improvements which have been made to the property. The resulting figure will reflect your cost or tax basis. Your gain is then calculated by subtracting the cost basis from the net sales price.

Deferring All Gain

Is there a simple rule for structuring an exchange where all the taxable gain will be deferred?

Yes, the gain will be totally deferred if you:

1) Purchase a replacement property which is equal to or greater in value than the net selling price of your relinquished (exchange) property, and
2) Move all equity from one property to the other.

Definition of Like-Kind

What are the rules regarding the exchange of like-kind properties? May I exchange a vacant parcel of land for an improved property or a rental house for a multiple-unit building?

Yes, “like-kind” refers more to the type of investment than to the type of property. Think in terms of investment real estate for investment real estate, business assets for business assets, etc.

Simultaneous Exchange Pitfalls

Is it possible to complete a simultaneous exchange without an intermediary or an exchange agreement?

While it may be possible, it may not be wise. With the Safe Harbor addition of qualified intermediaries in the Treasury Regulations and the recent adoption of good funds laws in several states, it is very difficult to close a simultaneous exchange without the benefit of either an intermediary or exchange agreement. Since two closing entities cannot hold the same exchange funds on the same day, serious constructive receipt and other legal issues arise for the Exchangor attempting such a simultaneous transaction. The addition of the intermediary Safe Harbor was an effort to abate the practice of attempting these marginal transactions. It is the view of most tax professionals that an exchange completed without an intermediary or an exchange agreement will not qualify for deferred gain treatment. And if already completed, the transaction would not pass an IRS examination due to constructive receipt and structural exchange discrepancies. The investment in a qualified intermediary is insignificant in comparison to the tax risk associated with attempting an exchange, which could be easily disqualified.

Property Conversion

How long must I wait before I can convert an investment property into my personal residence?

A few years ago the Internal Revenue Service proposed a one-year holding period before investment property could be converted, sold or transferred. Congress never adopted this proposal, so therefore no definitive holding period exists currently. However, this should not be interpreted as an unwritten approval to convert investment property at any time. Because the one-year period clearly reflects the intent of the IRS, most tax practitioners advise their clients to hold property at least one year before converting it into a personal residence.

Remember, intent is very important. It should be your intention at the time of acquisition to hold the property for its productive use in a trade or business or for its investment potential.

Involuntary Conversion

What if my property was involuntarily converted by a disaster or I was required to sell due to a governmental or eminent domain action?

Involuntary conversion is addressed within Section 1033 of the Internal Revenue Code. If your property is converted involuntarily, the time frame for reinvestment is extended to 24 months from the end of the tax year in which the property was converted. You may also apply for a 12-month reinvestment extension.

Facilitators and Intermediaries

Is there a difference between facilitators?

Most definitely. As in any professional discipline, the capability of facilitators will vary based upon their exchange knowledge, experience and real estate and/or tax familiarity.

Facilitators and Fees

Should fees be a factor in selecting a facilitator?

Yes. However, they should be considered only after first determining each facilitator’s ability to complete a qualifying transaction. This can be accomplished by researching their reputation, knowledge and level of experience.

Personal Residence Exchanges

Do the exchange rules differ between investment properties and personal residences? If I sell my personal residence, what is the time frame in which I must reinvest in another home and what must I spend on the new residence to defer gain taxes?

The rules for personal residence rollovers were formerly found in Section 1034 of the Internal Revenue Code. You may remember that those rules dictated that you had to reinvest the proceeds from the sale of your personal residence within 24 months before or after the sale, and you had to acquire a property which reflected a value equal to or greater than the value of the residence sold. These rules were discontinued with the passage of the 1997 Tax Reform Act. Currently, if a personal residence is sold, provided that residence was occupied by the taxpayer for at least two of the last five years, up to $250,000 (single) and $500,000 (married) of capital gain is exempt from taxation.

Exchanging and Improvements

May I exchange my equity in an investment property and use the proceeds to complete an improvement on a vacant lot I currently own?

Although the attempt to move equity from one investment property to another is a key element of tax deferred exchanging, you may not exchange into property you already own.

Related Parties

May I exchange into a property that is being sold by a relative?

Yes. However, any exchange between related parties requires a two-year holding period for both parties.

Partnership or Partial Interests

If I am an owner of investment property in conjunction with others, may I exchange only my partial interest in the property?

Yes. Partial interests qualify for exchanging within the scope of Section 1031. However, if your interest is not in the property but actually an interest in the partnership which owns the property, your exchange would not qualify. This is because partnership interests are excepted from Section 1031. But don’t be confused! If the entire partnership desired to stay together and exchange their property for a replacement, that would qualify.

Another caveat. Those individuals or groups owning partnership interests, who desire to complete an exchange and have for tax purposes made an election under IRC Section 761(a), can qualify for deferred gain treatment under Section 1031. This can be a tricky issue! See elsewhere in this publication for more information. Then, only undertake this election with proper tax counsel and only with the election by all partners!

Reverse Exchanges

Are reverse exchanges considered legal?

Although reverse exchanges were deliberately omitted from Section 1031, they can still be accomplished with the aid of an experienced intermediary. Since reverses are considered an aggressive form of exchanging, your intermediary and tax advisor should assist you with exchange and tax planning based upon successful reverse exchange case law.

The Taxation Section of the American Bar Association has submitted suggested guidelines for the IRS in evaluating reverse exchanges and issuing new regulations. Although it is unknown when the IRS will make a definitive reverse exchange ruling, one is expected in the future.

Identification

Why are the identification rules so time restrictive? Is there any flexibility within them?

The current identification rules represent a compromise which was proposed by the IRS and adopted in 1984. Prior to that time there were no time-related guidelines. The current 45-day provision was created to eliminate questions about the time period for identification and there is absolutely no flexibility written into the rule and no extensions are available.

In a delayed exchange, is there any limit to property value when identifying by using the 200% rule?

Yes. Although you may identify any three properties of any value under the three property rule, when using the 200% rule there is a restriction. It is when identifying four or more properties, the total aggregate value of the properties identified must not exceed more than 200% of the value of the relinquished property.

An additional exception exists for those whose identification does not qualify under the three property or two hundred percent rules. The 95% exception allows the identification of any number of properties, provided the total aggregate value of the properties acquired totals at least 95% of the properties identified.

Should identifications be made to the intermediary or to an attorney or escrow or title company?

Identifications may be made to any party listed above. However, many times the escrow holder is not equipped to receive your identification if they have not yet opened an escrow. Therefore it is easier and safer to identify through the intermediary, provided the identification is postmarked or received within the 45-day identification period.

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Disclaimer- Martyn L. Daniel represents both private parties and public agencies and provides these blog entries as a general overview on eminent domain related news.

When A Condemnation Action Is Abandoned

 

The power of eminent domain, or condemnation, is an awesome power reserved to the government in the Constitution. It permits a landowner’s property to be taken, without his consent, provided that just compensation is paid for the taking.

The condemnation statute provides that a landowner is entitled to compensation, too, if a condemnation action is instituted–and later abandoned–by the government.

In a recent decision of the Appellate Division, this provision for reimbursement was explored.

A municipality had instituted condemnation, but the landowner resisted, retaining attorneys and challenging the action. Thereafter the municipality determined to abandon the action, and the landowner petitioned the court to award him reimbursement of his legal fees, which exceeded $400,000.

The trial judge granted a portion of the request, but denied the majority of the fees because the landowner did not prove the abandonment was triggered by the strategies or arguments used by the lawyers in resisting the condemnation.

YOU BE THE JUDGE: If a condemnation is abandoned, is a landowner entitled to reimbursement of legal fees or not?

The Appellate Division reversed, holding that a landowner need not show causality between his efforts and the abandonment. A landlowner’s entitlement to recover costs and legal fees is not contingent on the success of any defense strategy. A landowner need only show the action was abandoned and that the expenses were in direct response to being named as a defendant in a condemnation.

The decision points out that a courtroom can bring justice and may be the only way to protect your rights. Bornstein Law Firm knows courtrooms; we have harnessed the power of the law in courtrooms to bring justice for our clients for decades in Little Ferry, Wyckoff, Mahwah, Midland Park, Montvale and throughout Bergen County, in Little Falls, Ringwood, Passaic, Little Falls and elsewhere in Passaic County, in Livingston, West Caldwell, Roseland, Millburn, Livingston and throughout Essex County, in Whippany, Montville, Jefferson, Madison and Long Valley and Mendham in Morris County, in Murray Hill, Kenilworth, Mountainside and Cranford in Union County, in Manalapan, Manasquan and Little Silver in Monmouth County, in Metuchen and Middlesex in Middlesex County, in Kearny, Bayonne, Union City and North Bergen in Hudson County, in Hightstown, Hamilton Township, Frenchtown and Princeton in Mercer County and throughout the State of New Jersey, as well as New York City. Please contact us to discuss how we can help you in a new lawsuit or provide a “second opinion” about your pending lawsuit. There is no obligation for the initial consultation.

Author, Samuel D. Bornstein, is associated with the law firm (http://www.bornsteinlawfirm.com/) and has 40 years of experience in representing individuals and a wide variety of businesses from Fortune 100 companies that need specialized assistance to smaller companies that look to the firm as their “in house” lawyer for general day-to-day advice. The firm is experienced with transactional work and litigation, emphasizing corporate and partnership operations, employment and workplace law, professional negligence, malpractice matters, immigration, civil rights and real state matters and insurance defense.

Disclaimer- Martyn L. Daniel represents both private parties and public agencies and provides these blog entries as a general overview on eminent domain related news.

Commercial Property Appraisals And Property Valuation In Atlanta GA And The Southeast US – How Much Is My Property Worth? Frequently Asked Questions

 

There exist many reasons for seeking professional valuation of your commercial property, from preparing to sell to seeking funds or investment to upgrade. Commercial property appraisals should be approached with the expert assistance of a licensed appraisal professional – who can most effectively and properly execute a property valuation in the Atlanta GA or surrounding area.

Following are some important considerations to note, and answers to frequently asked questions, provided by Fletcher and Company. Fletcher & Company is a full service land, residential, industrial and commercial Georgia Real Estate Appraisal Firm providing property appraisal reviews, appraisal reports and industrial property valuation throughout the southeast U.S. appraisal coverage area, including Tennessee, North Carolina, South Carolina, Alabama, Florida and Georgia, and metropolitan areas in and around Atlanta including Roswell, Macon, Columbus, Griffin, Lawrenceville, Douglasville, and Fort Valley.

1.  What is the range of services a commercial appraiser should provide?

A truly comprehensive professional appraisal services firm should provide the following services:

Appraisals for federal and non-federal related transaction lending situations

Tax assessment review, advice and appraisals

Advice in eminent domain and condemnation property transactions

Dispute resolution – divorce, estate settlements, property partition suits, foreclosures and zoning issues

Feasibility studies

Capitalization rate studies

Market rent and trend studies

Expert witness testimony

Land utilization studies

2.  What property types are typically covered by a commercial property valuation agency?

Commercial appraisal service providers in the Atlanta, GA area typically provide coverage for:

Apartment Buildings & Complexes

Office & Retail Condominiums

Industrial Condominiums

Hotels and Motels

Industrial Buildings

Mixed-Use

Self-Storage Facilities

Shopping Centers

Office Buildings

Retail Buildings

Subdivisions (Commercial, Residential, Industrial)

Mobile Home Parks

Vacant Land

Farms

Restaurants

Nursing Homes

Gasoline/Convenience Stores

Resort Property

Religious Facilities

School Facilities

Single-Family Residential

2-4 Unit Multi-Family Residential

Rock Quarries

Golf Courses

Hangars

Marinas

Car Washes

3.  When hiring an appraiser, what questions should I ask?

To be confident and sure that the commercial appraisal firm you’re considering is qualified and experienced in their work, the following questions are appropriate:

What type of professional designations do you have and from whom?

Are you licensed or certified in the states you practice?

Like any job you are contracting out, it pays to compare the resumes of appraisers whom you are interested in having prepare a bid. This is the first place to start.

4.  What appraisal approaches will be used in appraising my property?

The three most commonly accepted valuation approaches to value are the “cost approach”, the “sales comparison approach” and the “income approach”.

The cost approach combines the value of the land and depreciated site improvements with the depreciated value of the building. The sales comparison approach compares the property to others and adjusts for differences. The income approach takes market rents, subtracts a vacancy allowance and expenses, and takes the resulting net income and turns that into value using a capitalization rate.

It is rare that all three commercial property valuation approaches are done, and isn’t typically required. Appraisal theory has largely discredited the cost approach as reflective of market value and commercial appraisers seldom provide it except in newer construction and special purpose properties.

The sales comparison and income approaches are the primary valuation methods used for commercial properties. Even then, there are times when one of these approaches does not reflect the market and although it might be performed, it is given little or no weight in deciding on the final value conclusion.

5.  How are approaches to value selected for use in preparing a bid?

Fees for professional commercial appraisers will typically reflect the cost to perform two approaches to value, usually the sales comparison and income approaches. Even if a particular approach is not performed, time is still invested in searching and analyzing data. This occurs most frequently in areas where too few comparable sales occur. There are times when a third party, such as a lender, will require the cost approach to be performed. Let your appraiser know beforehand if this is the case.

6.  If I don’t like the appraised value, what can I do about it?

That depends upon many things. The best place to start is to speak with the appraiser(s) who signed the report. It’s possible that he/she may have overlooked one or more important factors which affect the value of your property; if you mention it in your conversation, you may find the appraiser willing to reconsider the value conclusion. Of course, if you are not their client (such as when your bank orders the appraisal), they are not required to speak about the appraisal and may be in violation of the licensing law or professional standards if they do so.

It’s important to remember that the appraiser is an unbiased third party. Their job is to find out the good and the bad about a property and report it, not to favor a direction. The better appraisals are round-tabled by professional review staff and carefully scrutinized before they are released, so you get the benefit and knowledge of more people than just those involved with the report.

If you are still dissatisfied, you can get a second opinion by hiring another appraiser or insist that a review appraisal be performed on the original report. If there is a large discrepancy in value, you or a third party may be able to negotiate an intermediate position.

7.  How much do commercial property appraisals cost?

Every appraisal is different, so fees are quoted individually on a per job basis. Generally, prices depend on the number of properties and the complexity of the assignment, though appraisals used as evidence in court cases command a higher price. Fees are normally calculated based on the number of hours it takes to do a report and the fee structure of the personnel involved, with modification for overtime if a rush assignment is required.

8.  Why do special purpose properties cost more?

Special purpose properties require research of a wider trade radius, sometimes the entire United States! Fees are based on time estimates, so the more time that is invested in finding comparable properties, the higher the fee. Also, the market analysis section of the report many times requires a greater amount of research time and it is not uncommon to have to purchase studies performed by industry experts to properly show the dynamics affecting the property type.

9.  What is a typical turnaround time?

Commercial appraisal delivery times typically range from two to four weeks, depending upon the complexity of the property and your needs. It requires one to two weeks to do the research, verify the factual nature of the information, perform a market study of the area and write the report. Typically, delivery times less than two weeks are rush orders and they command a price premium.

10.  How can I help shorten the turnaround time?

The number one way to help shorten the turnaround time is to provide your commercial or residential property appraiser with the written information they need as soon as possible. Copies of leases, deeds, rent rolls, income and expense statements and other items listed on our engagement letter are the needed as soon as possible. Delay in providing one or more of the necessary items will almost always result in a delay in the appraisal process.

11.  If you don’t come up with the value I want, do I have to pay for the appraisal?

Appraisers must maintain a third party position to your transaction. No appraiser can accept an assignment where bias could be interpreted. USPAP has a phrase used verbatim by many appraisal firms on their letters of transmittals:

“Our assignment was not based on the reporting of a predetermined value, a direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result or the occurrence of a subsequent event directly related to the value opinion.”

USPAP is very clear on this issue. Appraisers cannot be advocates for any client. Although it may seem unusual to some users to have to pay for a report that did not provide them a favorable outcome, appraisers governed by appraisal licensing laws must remain objective.

If there is any uncertainty in the value, clients should have the appraiser perform a restricted appraisal first and then upgrade the report to a summary or self-contained if the value is satisfactory. This is acceptable appraisal practice and one not often suggested by an appraiser.

12.  Why are the fees for commercial appraisals so much higher than residential appraisals?

There are many reasons why there is such a great discrepancy. The most important difference is the amount of time it takes to prepare each type of report. Most skilled residential appraisers can do a residential report in a half-day whereas a skilled commercial appraiser needs at least a week.

Residential reports are on a common form with a standardized property type whereas commercial appraisals are mainly free-form documents with information that varies with the property type, market and client needs. Special use commercial properties take longer and can have a multi-state data search radius, thus making it more time intensive and costly to perform than more common property types such as office and apartments.

13.  I paid my lender for the appraisal, therefore I should own it.

The appraisal is legally owned by the client, unless the lender “releases its interest” in the document, typically in writing to us. If the lender ordered it, they own it. If you just want a copy of the appraisal, under the Equal Credit Opportunity Act you can be given a copy of it upon written request of the lender.

14.  If I didn’t order the appraisal, can I find out the appraised value?

Only if you ask the person who originated the order and they provide permission in writing. However, most appraisal companies cannot give you this information because it would violate the ethical standards governing their appraisal practice.

It doesn’t make sense to me to hire you (the appraiser) if I don’t know you’ll come up with the value I need. Can you give me a guarantee?

It is a violation of state laws and the appraisal licensing laws to provide a value opinion without doing an appraisal. Although a guarantee can’t typically be given, in some cases a restricted appraisal can be performed that will tell you what the property is worth. If the value opinion is acceptable, the report can be upgraded to a summary or self-contained format for a higher fee.

15.  I paid for the appraisal. Why am I not entitled to get a copy?

The client is the person who engages the services of the appraiser, usually in the form of an engagement letter. Many times the lender is the one who issues and/or signs an engagement letter, making them the client. It does not matter who pays the bill. Only the client and those whom he has specifically authorized are allowed to receive a copy of the report from the appraiser. If the person who pays the bill is not the client, verbal or written permission is required for the appraiser to release the appraisal to anyone else.

16.  My lender said I need to get an “MAI appraisal”. What is it?

The term MAI, which stands for “Member Appraisal Institute”, is a registered trademark of the Appraisal Institute. The Appraisal Institute is a trade organization. There is no such thing as an “MAI appraisal.” Persons requesting an “MAI appraisal” mean that the report should be prepared by an MAI designated member of the Appraisal Institute. Each appraiser needs to be judged by his/her merits rather than the association to which they belong. *Note – it is considered discriminatory by FIRREA to consider or not consider an appraiser for an assignment based on a trade designation. Fletcher & Company houses three appraisers that are associate members of the appraisal institute and one appraiser that is a CCIM candidate.

17.  Will the market value equal assessed value?

While most states support the concept that assessed value approximate estimated market value; in practice, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of improvements, or when properties in the vicinity have not been reassessed for an extended period.

18.  Shouldn’t market value approximate replacement cost?

Market value is based on what a willing buyer likely would pay a willing seller for a particular property, with neither being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind. Rarely are they the same number.

19.  My broker performed a market valuation. Why do I need an appraiser to perform one?

There are many reasons why valuations are required to be done by appraisers. First and foremost, the appraiser is an independent, third party. Many times, the appraiser is the only one in the transaction that does not have a vested interest in the outcome. This is the reason for the creation of the appraisal industry in the 1930’s. Another important difference between a broker’s valuation and that performed by an appraiser is that a licensed appraiser is bound by USPAP, whereas a broker is not.

20.  What are the differences between an informal appraisal and a formal one?

Those outside the appraisal profession have different interpretations of formal and informal reports. When a client simply wants “a number” and not a long document, he/she will often call it an informal appraisal. Those outside the appraisal field often refer to the old “letter of opinion” report as an informal report, although terms such as “update appraisal”, “recertification of value” and “evaluation of real property collateral” have also been used. When USPAP became effective in the late 1980’s, appraisers no longer used this terminology because a letter of opinion and the derivatives above became a violation of multiple USPAP regulations. Now known as the restricted report format, appraisers are required to do substantially more work to issue this type of report.

21.  I’m told there are three types of “formal” reports I can usually order. What’s the difference?

The final appraisal product delivered to you depends on the type of report specified by your agreement. The parameters of the three types of appraisal reports are defined by USPAP. The primary difference is in the terms describe, summarize and state. Describe means to provide a comprehensive level of detail, summarize is providing a more concise presentation of the information and state means to provide a minimal presentation of the information.

For “formal” reports, USPAP dictates that appraisers can issue three types of reports.

Self-Contained:

In this report option, the appraiser provides all of his/her data and rationale that was used in the development of the appraisal. All conclusions and data sources are fully disclosed and discussed. Two practical tests can be used to determine if a report is a self-contained document:

1. The content of the report fully describes the data, reasoning and each conclusion to such a degree that there is no need to consult other data sources or to inquire how the appraiser reached a conclusion.

2. Information sources cited within the report are included in the document, within reason. Citing a book does not require the inclusion of the book in the addenda, but market studies or other material articles cited in a report should be included, especially if the appraiser relied upon them for supporting important conclusions. This is the type of report most often needed for commercial property lending.

Summary:

In the summary report, the appraiser summarizes his/her findings rather than fully describing them. This is a much shorter report than a self contained and many lenders accept this reporting type. Most residential appraisals are done on forms that are summary reports along with non-complex commercial assignments. The appraiser may summarize the data and his/her conclusions without explaining the full reasoning behind them.

Restricted Report:

This is the shortest type of report. A restricted report only states the conclusions of the appraiser with no explanation on how they were derived. Restricted reports are generally used internally or when a value must be reported quickly. Many clients order restricted reports when time is of the essence and then have them upgraded to a summary or self contained in the future.

An important caveat is that USPAP does not allow a restricted report to be used by anyone other than the client or someone intimately familiar with the property, so if the appraisal will be viewed by other third parties, a summary or self-contained report must be prepared. Appraisers cannot “recertify” this type of report to any other lender.

22.  What type of report do I need?

The appraiser is in the best position to tell you what type of report you need. He/she is required by USPAP to determine the scope of the assignment, the function of the appraisal and use of the report. To do that, he/she will need to understand your needs, so the appraiser is in the best position to recommend one or more of the above choices and to counsel you on what choice(s) would be inappropriate.

23.  What is the difference between a valuation and an appraisal?

The words valuation and appraisal are used interchangeably. There is no difference between them. The confusion began when lenders started using the term “evaluations” in the early 1990’s, implying that they were not appraisals. Soon, the “e” in evaluations was omitted. This issue has been addressed at length by the appraisal community and the Appraisal Foundation (the creators of USPAP) and an evaluation was found to be an appraisal. As discussed earlier, there are six possible combinations of appraisal and report; evaluations are not among them.

Fletcher & Company is the leading provider of Atlanta Commercial Appraisal Services in the Southeastern US. Virginia Konrad writes and comments about Internet business news and information on a regular basis, publishing material across several news channels and social media outlets, including Northern Virginia Business News.

Disclaimer- Martyn L. Daniel represents both private parties and public agencies and provides these blog entries as a general overview on eminent domain related news.

If your property is threatened by condemnation

 

Municipalities can acquire private property through the power of eminent domain.  Recently the Supreme Court reviewed whether a municipality can exercise that power to slow residential development.

In the case, defendant owned a tract zoned for residential use.  Defendant proposed to construct 23 single family homes in accordance with the zoning.

Defendant obtained final subdivision approval and did a significant amount of site preparation.

Thereafter, the municipal governing body decided to acquire defendant’s lands for open space.  When attempts at a voluntary acquisition failed, the municipality filed a notice of taking and sued in condemnation.

The landowner-developer resisted, claiming the real municipal purpose was not to increase open space, but to slow residential development.

The trial court agreed with the landowner and dismissed the condemnation proceedings.

The matter was reviewed by the Supreme Court.

YOU BE THE JUDGE: Can private property be condemned for open space and to slow development?

The Supreme Court observed that the preservation of open space was a legitimate governmental concern.  Further, it was not inconsistent with that concern if a municipality sought to slow residential growth to limit overcrowded schools, traffic congestion and environmental problems associated with development.

Of course, in condemnation, the landowner was entitled to the value of the lands with those subdivision approvals which had been obtained.

The decision points out that a courtroom can bring justice and may be the only way to protect your rights. We know courtrooms; we have harnessed the power of the law in courtrooms to bring justice for our clients for decades. Please contact us to discuss how we can help you in a new lawsuit or provide a “second opinion” about your pending lawsuit. There is no obligation for the initial consultation.

The New Jersey Law Firm and its attorneys are dedicated to client-driven results and protecting individual rights and business interests. For 40 years, the Law Firm has been recognized for sound legal judgment, immigration laws, real estate cases, litigation, contracts and advocacy in serving the transactional needs of both individual and business clients. If you need assistance with business or corporate formation and operations, or you seek legal advice about insurance defense, arbitrations, wrongful termination, environmental issues, bankruptcy, insurance, civil rights and other litigation alternatives, the Law Firm has the comprehensive experience, foresight, skills and talent to assist you to safeguard your assets, interest and investments. The New Jersey Law Firm’s highly devoted, motivated, experienced, skilled lawyers/attorneys and effective legal professionals are always there to assist you.

Author, Samuel D. Bornstein, is associated with the law firm (http://www.bornsteinlawfirm.com/) and has 40 years of experience in representing individuals and a wide variety of businesses from Fortune 100 companies that need specialized assistance to smaller companies that look to the firm as their “in house” lawyer for general day-to-day advice. The firm is experienced with transactional work and litigation, emphasizing corporate and partnership operations, employment and workplace law, professional negligence, malpractice matters, immigration, civil rights and real state matters and insurance defense.

Disclaimer- Martyn L. Daniel represents both private parties and public agencies and provides these blog entries as a general overview on eminent domain related news.

Can I Get Business Damages for Eminent Domain?

 

If you are a Florida business owner being threatened with an eminent domain condemnation, you may be very aware of how critical the risk to your business can be.  For many businesses, your shopfront is your business.  Walk-up traffic, drive-by traffic, association with a community or complementary businesses can all be mainstays of your client base. An eminent domain condemnation of your property threatens all of these. You can probably think of several successful businesses that moved and never survived, even if their new location was supposedly “better.” As all of these things are going through your mind, you may wonder whether the full compensation promised you in the Florida constitution includes these potential losses.

Business Damages not Constitutional

Unfortunately, business damages are not considered part of the constitutionally guaranteed “just” or “full” compensation. Lost profits, lost goodwill, loss of walk-up traffic, and other types of business losses are not considered “property” in the sense that guarantees compensation under the terms of the constitution.  Instead, they are considered intangibles that can sometimes be compensated “by legislative grace.”  In other words, sometimes business damages are granted by specific laws, but they are not generally guaranteed.

Specific Guarantees for Business Damages

In Florida, there is a very specific definition of when a business is eligible for damages.  In order for your business to qualify for business damages, all the following must be true:

The eminent domain condemnation must be a “partial taking,” which takes only part of the property The remainder (not taken part of the property) is also part of the business The property is being taken for a qualifying “right of way” including roads and water-related improvements The portion of the property to be taken damages or destroys a business established in its current location for at least five years The property owner is also the business owner Losing the taken property is the cause of business damageIf all of these are true, then your business may qualify for business damages.  Whether you qualify for business damages will be determined at the eminent domain hearing, but the exact amount of damages will not be determined until a later hearing.

Other Ways to Be Compensated for Business Losses

The above determination for business damages is very strict, and only a small number of businesses affected by eminent domain actually qualify.  However, there are other methods of receiving compensation for damage to your business.  If your business is properly appraised, fair market value will include the likely or potential loss to your business based on losing your current property.  This is done by considering the value of your land at its “highest and best use” and considering the cost of producing a comparable building at a new site.  In addition, an appraiser will factor in the cost of any equipment that must be replaced or moved.

For business owners, it is especially important to ensure you receive every measure of compensation for your business property. To learn more about getting the most for your property, visit the website of the Florida Property Rights Law Firm, P.A.

Disclaimer- Martyn L. Daniel represents both private parties and public agencies and provides these blog entries as a general overview on eminent domain related news.

Eminent Domain and Severance Damages

 

Eminent domain is the power of the government to take private property for public use.  The government is obligated to pay the property owner appropriate monetary compensation for their property, in a process called condemnation.  When invoked, eminent domain often takes entire properties, but there are some occasions in which only part of the property is taken (condemned).  For many projects, eminent domain is used only to condemn parts of properties.

Reasons include:

New road construction Road widening Parks UtilitiesIn this case, the condemning authority must pay not only the value of the part of the property that is taken, but must also pay for the impact on the rest of the property caused by the loss of the portion.  This is known as severance damages.

Effects of Partial Loss on Property ValuesThere are many ways in which the loss of a portion of property can affect the value of the remaining property.

Some of these losses are:

Loss of frontage road or easement Nonconformity with zoning ordinances after loss Loss of available parking space Loss of architectural and natural beautyWhen a road widening or improvement project requires the condemnation of the front of a residential property, there are many ways in which the remaining property may be decreased in value.  Setback from the road (which is likely to be busier following widening) is reduced, which will affect the resale value of the house.  Old-growth trees may have to be removed, along with hedges or fences that blocked the road from the front of the house.

Likewise, the value of a business may also suffer from a partial taking.  It may lose parking spaces, aesthetic arbors, benches, outside dining areas, even part of the building as a result of the partial taking.  All of these may impact the viability of a business, and should be included as part of severance damages.

Partial Loss and Possible Non-ViabilityIf the property is not considered viable for its current use following the condemnation, then a cure must be part of the eminent domain settlement.  Examples of non-viable properties are businesses with too few parking spaces, or structures where part of the building must be torn down as part of the condemnation.  In these cases, the condemning authority and the property owner can both present cures to make the property viable again after the condemnation, such as rebuilding or modifying a house, rearranging parking spaces, creating a patio area on top of a restaurant to compensate for one lost out front, etc.

In some cases, once the partial taking is affected, the remaining property may violate zoning ordinances.  For example, a house may no longer have a legal setback from the widened road.  This will depreciate the remaining property further, increasing compensation, and in some cases it may mean that the condemning authority must compensate the property owner for the full property.  In other cases, the zoning authority may grant a variance for that property which may restore some of the value.

If you live in Florida and need more information about eminent domain, or how to calculate severance damages in the case of a partial condemnation, please visit the website for The Florida Property Law Firm, P.A. to learn more.

Martyn Daniel Eminent Domain Specialist