The university won a major court victory for its $6.3 billion plan to build a satellite campus in Harlem.
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North Tarrant Express and Eminent Domain
TxDOT’s filing of eminent domain on the North Tarrant Express may be the positive aspect this project needs for right of way acquisition.
Eminent domain provides a set of rules that the property owners, tenants, and the public agency (TxDOT) have to follow. These rules make the acquisition process smoother and often more fair for the property owner and tenants.
Eminent domain regulations spell-out how fair market value is determined for the properties and what relocation benefits are available to the tenants.
Even with regulations in place, there can still be significant differences in the interpretation of these rules. Typically, these obstacles involve the disparity in property values and relocation costs. However, eminent domain regulations are in place to help all parties involved to reach bilateral goals resulting in a quicker and fairer outcome.
Martyn Daniel has helped hundreds of businesses successfully relocate; often to more prosperous locations. Martyn offers one-on-one consulting services, group workshops and online seminars for clients who need the relevant facts to make an educated decision.
To schedule a free 15-minute no obligation call with Martyn, please click here for an appointment https://my.timedriver.com/F8VSS .
Eminent Domain Condemnation
What Property and Business Owners Need to Know About Eminent Domain or Condemnation
Property Owners:
When a public agency is taking your property for a new right-of-way or other public use, with the use of Eminent Domain or Condemnation, you have the right to receive the fair market value for your property.
Eminent domain is the law that gives the public agency the right to take your property for public use.
Condemnation is the action taken by the public agency to force you to sell your property by taking you to court where issues such as property value will be determined.
A real property appraiser will evaluate the fair market value. The government agency condemning your property will hire an appraiser to help them determine the fair market value, which will be the basis of their offer to purchase your property.
The property owner can also hire their own appraiser to do the same.
Any differences (which are common) between the two appraisers’ evaluations of fair market value can be negotiated between the two parties, mediated, or taken to court.
Business Owners:
Business owners located on property being taken by use of Eminent Domain, have the right to relocation benefits, if the condemning public agency is using federal funds in the project, or they have elected to pay relocation benefits.
Usually relocation benefits follow the relocation guidelines of the Federal Highway Administration (FHWA), Federal Transit Authority (FTA) or the Federal Aviation Administration (FAA). The relocation guidelines are very similar among the three federal agencies.
Often, your state or local public agency has adopted one of the Federal Agency guidelines to use on their projects.
The public agency will provide a relocation agent to work with you on determining your eligible relocation benefits.
As part of your relocation benefits, you have the right to hire a professional to help you plan your relocation.
Martyn Daniel has helped hundreds of businesses successfully relocate while following eminent domain relocation guidelines, with the use of his consulting services, coaching services, and group workshops, to provide each business with the knowledge to make educated decisions.
Eminent Domain Step-by-Step Process
Eminent Domain
The Step-by-Step Process
This is a brief and typical step-by-step eminent domain process for a commercial property with business tenants:
Acquisition
- The public agency determines the properties they need for their project. This may be the entire property, known as a full take or they may need only a portion of the property, known as a partial take.
- The property owner is contacted by the agency to let them know of the agency’s intent to purchase the property.
- The agency contacts the property owner to schedule a time for a walk-through of the property with the agency’s appraiser.
- The agency relocation agent contacts the tenants that occupy the property to gather business information and describe the relocation benefits.
- The agency appraiser and relocation agent walk the property to gather information to formulate the value and to differentiate between real property and personal property.
- The agency makes an offer to the property owner based on their appraisal and the agency’s determination of the property’s fair market value.
- The property owner either accepts the agency’s offer or begins negotiations by providing a counteroffer with their reasoning for a different value.
- The agency reviews property owner’s counteroffer.
- If a settlement on the property is not reached, mediation is scheduled and the agency files condemnation.
- Early possession and use of the property is requested by the agency.
- When possession and use is granted, the agency releases funds to the property owner based on the agency’s original offer.
- A court date is set to hear the condemnation case.
- If mediation does not settle the case, the agency makes a final offer 30 days before trial. Legal fees are awarded to the property owner if the court settlement is 10% over the agency’s final 30 day offer.
- The court determines the fair market value of the property.
- The agency submits any increased amounts to the court for the property owner.
- The property title is transferred from the property owner to the public agency.
Relocation
- Relocation eligibility begins at the time of the offer to the property owner. Shortly after the offer is made to the property owner, the tenants are notified of their relocation eligibility and given a date when they must vacate.
- The agency’s relocation agent acquires moving bids for each tenant.
- Each tenant finds their new location.
- The tenants relocate to their new location.
- The agency pays costs they determine are eligible to the business.
These are the main steps of the eminent domain process. Each of them can have many important parts to them that will have an influence on the success of your property sale or business relocation.
Martyn would be happy to answers your questions with a one-on-one conversation, email, or with one of his Eminent Domain Workshops.
Right of Way
What You Need to Know about Right-of-Way
Right of way is real estate owned by the government. When the government needs your property for a new or expanding project, their right of way will adjust to accommodate their project by taking your property. The government has the right to purchase your property with the use of eminent domain to acquire their needed right of way.
The engineers designing the government project determine the right of way needed. As a property owner, you should be invited to offer your input on the design concepts at local public meetings. The intentions of these meetings are to take in community questions and comments for design considerations, as well as, fulfilling a requirement for preparing the environmental impact statement, which is a necessary part of the eminent domain process. However, when asking participants in my recent eminent domain workshop on their experience with these meetings, they all replied that they attended every meeting offered, and none of their input was incorporated into the design. Nonetheless, you will want to attend these public meetings to at least become better informed about the project and how the new right of way will affect you or your property.
Eminent Domain, Condemnation, Relocation, and Compensation Workshop
Property and Business Owners Learn About Eminent Domain
Businesses and property owners in Battle Ground, Washington facing eminent domain, condemnation, and relocation caused by a highway widening, are getting help by attending an Eminent Domain Workshop.
Whether a business is relocating, or a property owner or business is reconfiguring their existing location, the best practices for getting compensation for their costs from the government agency are similar. To cover both subjects, this workshop has been designed as follows:
The goals of the workshop are to:
- Help participants prepare a plan that is best for them using the knowledge of what compensation, or benefits are, and are not, available to them from the public agency
- Improve what items and amounts will be paid to them from the public agency
- Minimize business downtime
- Minimize their time spent on the eminent domain process
The agenda for this three-hour workshop follows:
- How to plan based on knowledge of which costs are eligible and ineligible for payment from the public agency
- Learn the importance of staying within the eminent domain guidelines
- How to avoid the pitfalls of common mistakes made in eminent domain
- How to plan, prepare, and submit costs to improve the approval and compensation of costs from the public agency
- How to plan to minimize downtime, and be paid, by the public agency for the extra costs related to minimizing downtime
- Learn what to do, and not do yourself. When, where, and who to seek for assistance, and who will the public agency pay for assisting you
- Questions and answers on your situation
Purpose of Workshop
The purpose of this workshop is to give these businesses and property owners a condensed education about the eminent domain process, more than would be received from other sources, so participants can make informed decisions. The workshop will not cover all of the details and decisions that will face each individual, however, participants will receive valuable, relevant, and usable information that will improve their outcome with the eminent domain process well beyond the value of their time and cost of the workshop.
An additional and important advantage for the workshop participants is they will begin networking together, which will help them compare notes during the eminent domain process, to help maintain consistent treatment. This is helpful because, as much as they try, the public agency does not always treat everyone the same. This particularly happens when the agency has several agents working on the project, agents are reassigned to other projects, or because the agents do not fully understand your needs or situation.
Martyn guarantees each participant’s satisfaction of attending the workshop with a full refund at the end of the workshop to anyone not satisfied.
Are you and your neighbors facing eminent domain?
Improved Eminent domain success can be achieved by attending a workshop. You can also participate in the design of a workshop for your group’s specific needs, location, and situation. Businesses and property owners will be more successful with eminent domain when they begin planning early, before they loose their options and benefits while waiting.
I-15 Core Project – Eminent Domain and Business Relocations
Business Relocation
The I-15 Core expansion adds several new lanes and revised intersections spanning 24 miles starting in the town of Lehi and heading south passing through American Fork, Pleasant Grove, Orem, Provo, Springville, and Spanish Fork.
For the size of this project, there are relatively few businesses having to relocate. What I see is a good effort by the design team to utilize the existing right of way, already owned by the Utah Department of Transportation (UDOT), avoiding significant impacts to businesses and property owners.
There are a large number of partial, or strip takings, which minimizes the typical impact on businesses on a project of this size. Strip takings may create some severance damages resulting in UDOT making cost-to-cure payments to solve problems and make a property functional after the new right of way severs the properties. This will likely create some business relocations, which sometimes show up when the impact to the property is understood by the property owner or the business tenant.
Although minimal, there are some full acquisitions of commercial properties were UDOT is using eminent domain to force the sale of the property. This has triggered business relocations with the use of UDOT’s Acquisition and Relocation Guidelines.
UDOT’s guidelines closely follow the Federal Highway Administration’s (FHWA) Acquisition and Relocation Guidelines. However, UDOT has enhanced the federal guidelines by increasing payments in two areas, the in-lieu payment category, and the reestablishment category.
The in-lieu payment, which is a one-time payment to businesses based on their average annual income, was increased from the FHWA limit of $20,000 to a maximum payment of $75,000. The in-lieu payment requires the business to wave all of their rights to other relocation benefits, which can be a significant sacrifice for a business even at the increased level.
The increased reestablishment category, which FHWA limits at $10,000, UDOT increased to $50,000. The reestablishment category covers a certain number of business cost reimbursements that are in addition to the moving, reinstallation, and other costs related to the business relocation.
Eminent Domain Definition
Eminent Domain Definition
Have you noticed that all of the definitions of eminent domain read the same? Does that mean there is only one definition? No, it means they’re all from one point of view and they’re not from a positive point of view unless you are planning to condemn property for a public project.
Here’s my definition of eminent domain from a positive point of view of a commercial property owner or business owner: Eminent domain is your right to government funds to help you continue to do business, as well or better, at a new location.
And from the point of view of a home owner: Eminent domain is your right to government funds to help you continue to live in harmony, as well or better, at a new location.
If you are facing eminent domain, start the process with a positive and proactive approach. There are many positive opportunities within eminent domain, some will be obvious and others will be hidden waiting to be discovered.
Atlantic Yards’ Developer Races a Court Hearing, a Bond Deadline and Opponents
Bruce C. Ratner faces multiple deadlines for his Brooklyn project, which includes an $800 million arena for the New Jersey Nets.
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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
https://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.
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