Category Archives: Businesses

Businesses, Eminent Domain, Property Owners, Public Agencies

Will My Business Have the Necessary Support to Plan My Eminent Domain Relocation?

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eminent domain moving van

 

 

When a business must relocate due to eminent domain, help from the agency is available but there are limitations to that assistance which business owners need to know.

When faced with eminent domain, an agent is assigned to each relocating business.

 

The agent’s services include:

  1. An explanation of eligible reimbursement categories for relocation costs
  2. Answering questions
  3. Obtaining moving bids
  4. Submitting relocation reimbursement claims

 

It is important to note that the agent is not required to plan for the move.  Planning the details of the move is the responsibility of the business owner.

And that can be a problem.

A business owner must maintain his business operations before the move occurs. It is important that the operation continues to produce goods and services to minimize unprofitable down-time. No business owner wants to lose much needed revenue before and during the relocation negotiation process. Employees and other operational expenses still need to be paid.

But the inevitable will occur…the business will need to relocate to make way for whatever improvement is to be in the space the business now occupies.

So planning a proper move is vital to a seamless relocation.

A business owner must find a new location for the business; however, other than providing real estate listings, the agent does not assist with this vital aspect of the eminent domain process.

One major obstacle that business owners face is that they are not typically versed in construction details.  A business owner may find a good location for the business but the building may not be turnkey.  If for example, machinery must be moved, special considerations must be made to ensure that the new location can house the machines.

How will a business owner know if the new site needs major upgrades to accommodate relocating machinery and/or office equipment?

Hiring an attorney will certainly help the business owner understand his legal rights but will these individuals have construction knowledge?  Will they know if a business owner needs additional plumbing to accommodate special equipment?  Will an attorney recognize that a relocating business owner has an opportunity to replace older equipment with updated equipment and can use relocation benefits to make this positive change?

An agent will submit a relocation claim to the agency for reimbursement but the business owner is responsible for recognizing the opportunity for any upgrades and must also plan for a seamless transition.

No two businesses are the same. Every business is unique so a ‘one size fits all’ approach to relocation will not work.  Unfortunately, the agent does not have the time to spend with each business owner to plan individual moves. But more importantly, it is not just about relocating from one space to another…it is about making the move to the new location better than the last.

Many relocating businesses often have the opportunity to make improvements that might have been planned on paper but never initiated at the original site due to lack of space, time or available funding. So relocating to a new site can often mean a fresh start and a chance to make key strategic improvements to the overall business plan.

But again, even improvement planning is the responsibility of the business owner.  The agent is only responsible for ensuring that the right-of-way is cleared and that the owner has the information available to act on the move.

In the case of the Trimet eminent domain case in Portland to make way for light rail, the agent ensures that each business owner receives an Acquisition and Relocation brochure. This is a rather informative document which offers an explanation of terms such as ‘valuation’, ‘just compensation’, and ‘condemnation’.  Again, the document is simply an explanation of what the business owner is required to know but it is a ‘one size fits all’ brochure. And because each business is unique in its service or product, its culture, its size, and its needs, a personalized review of every business is needed but not a requirement by the agent. (Incidentally, an agent may be assigned to more than one business.  If an owner has ever tried to reach other government agencies, such as the IRS for example, to ask questions, all any representative can really do is reiterate IRS rules and code.)

In some cases, if a relocation agent cannot respond to a business owner’s question, the agent has to take the owner’s question to the headquarters to further clarify the question.  For a busy owner trying to keep the business going before the relocation transpires, any time delays could have a negative impact on the operations.

If your business must be relocated due to eminent domain, think about the best use of your time as the business owner.  Will you have the support you need to make the best move possible for you and your business? Think about putting a team in place to help you find the best location for your business.

If you are faced with eminent domain, begin to plan early.  Draw up a list of locations you feel may be ideal for your business. Think about what you want to accomplish…do you want a larger facility or do you want to add a warehouse or a work area?  Will you have equipment which needs to be moved and will that equipment fit in the new location?

 

 

 

 

 

Businesses, Eminent Domain

City Prepares to Seize Willet’s Point Properties – Following URA Guidelines?

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Willet's Point RedevelopmentA February 11th, 2011 article in The Epoch Times entitled, City Prepares to Seize Willet’s Point Properties,  reported on 9 Queens, NY business owners who gathered at a press conference expressing concern that their properties would be taken by the City to make way for the Willet’s Point Redevelopment Project.

“The eminent domain law gives the city the power to force owners into selling private land to the city for public use. Property owners will not be left completely in the lurch, however, as they will be compensated with a fair market value determined by a judge. The EDC has also provided career training and relocation to some owners who have willingly sold their properties.

The crux of the matter remains whether the redevelopment of Willets Point is in the interest of the public, as mandated by the eminent domain law.

The city plans to replace the mishmash of auto recycling and repair shops with housing developments, retailspace, a hotel, and parkland.”

I find it very interesting that relocation benefits are only being offered to the cooperative property owners.  Most public projects using eminent domain will offer relocation benefits by following the Federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA).

The URA provides relocation benefits and guidelines to all eligible property owners and tenants within the public project’s area and makes no distinction between those that are cooperative and non-cooperative.  Those guidelines, in part, spell out how both sides will address relocation costs and the rights and responsibilities of each side.

Businesses can successfully relocate and have actually improved their businesses when relocating under these guidelines.  Without them, a business is left with incurring significant relocation costs which they often cannot afford.  Many would say this is an unfair burden to put onto a business owner while the general public is benefiting from their losses.  That’s why these URA guidelines where developed in 1970.

Having helped several hundred businesses relocate from projects using eminent domain, my experience has revealed that the public agencies that follow the URA have had better success with clearing their needed right of way in a timely and equitable fashion for all.

It would be interesting to see if the Economic Development Corp. would find more cooperation and improved success for their project if they adopted these relocation guidelines.

Businesses, Property Owners

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

  1. 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.
  2. The property owner is contacted by the agency to let them know of the agency’s intent to purchase the property.
  3. The agency contacts the property owner to schedule a time for a walk-through of the property with the agency’s appraiser.
  4. The agency relocation agent contacts the tenants that occupy the property to gather business information and describe the relocation benefits.
  5. 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.
  6. 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.
  7. The property owner either accepts the agency’s offer or begins negotiations by providing a counteroffer with their reasoning for a different value.
  8. The agency reviews property owner’s counteroffer.
  9. If a settlement on the property is not reached, mediation is scheduled and the agency files condemnation.
  10. Early possession and use of the property is requested by the agency.
  11. When possession and use is granted, the agency releases funds to the property owner based on the agency’s original offer.
  12. A court date is set to hear the condemnation case.
  13. 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.
  14. The court determines the fair market value of the property.
  15. The agency submits any increased amounts to the court for the property owner.
  16. The property title is transferred from the property owner to the public agency.

 

Relocation

  1. 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.
  2. The agency’s relocation agent acquires moving bids for each tenant.
  3. Each tenant finds their new location.
  4. The tenants relocate to their new location.
  5. 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.

About Martyn, Businesses, Eminent Domain, Property Owners

Eminent Domain, Condemnation, Relocation, and Compensation Workshop

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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:

  1. 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
  2. Improve what items and amounts will be paid to them from the public agency
  3. Minimize business downtime
  4. 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.

Appraisers, Attorneys, Businesses, Eminent Domain, Property Owners

What is a 1031 or 1033 Tax Exchange?

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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.

Appraisers, Attorneys, business relocation, Businesses, Condemnation, Eminent Domain, Property Owners

Eminent Domain and Severance Damages

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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 Utilities. In 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 Values. There 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 of available parking space, Loss of architectural and natural beauty.  When 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-Viability –  If 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.