Daily Development for Wednesday, April 21, 2010
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

Another excellent submission from Ira Meislik

EMINENT DOMAIN; NOTICE OF INTENT: The mere receipt of notice that a condemning authority is considering the purchase of an owner's property does not preclude the owner from continuing with its development and construction of the property.  It does not require that the owner notify zoning authorities of the NOI in connection with a use variance application.   If condemnation later takes place, the value of any such improvements must be considered in awarding just compensation for the condemnation of the property.

New Jersey Schools Construction Corporation v. Lopez, 2010 WL 936111 (N.J. Super. App. Div. 2010); February 19, 2010.

Right after taking title to its property, the new owner demolished a building on the property. The owner then used the property as a parking lot, but intended to develop the property as a mixed use building. The planning board denied the owner's application because a use variance was needed. Around the time the owner applied for a use variance, the New Jersey Schools Construction Corporation (SCC) adopted a facilities management plan calling for the acquisition of property for construction of a school. The SCC sent the property owner a Notice of Intent (NOI) advising the owner that it was considering such a purchase. The NOI clearly stated that it was not to be construed as an offer to purchase the property. Several weeks later, the owner appeared before the zoning board in connection with its variance application. The owner did not disclose that it received the NOI from SCC. The owner's variance application was approved and it commenced construction of the mixed use building. The
n, the municipality's board of education approved the acquisition of the property.

By the time the municipality made an offer to buy the property, the building was 80 percent complete. The municipality's offer, which valued the land without the new improvements, was rejected. The lower court rejected the municipality's claim that the value of the new improvements should have been excluded from any price determination. The parties settled and set the property's value with the improvements, subject to the municipality's right to appeal the inclusion of the improvements in the property's valuation.

The municipality appealed, arguing that the value of the improvements should have been excluded from the determination of "just compensation" for the taking, because the owner had received the NOI before it received its zoning approvals and it failed to disclose that fact to the zoning board.

The Appellate Division found that the owner's receipt of an NOI was not sufficient notice of the municipality's imminent intent to condemn the property so as to trigger the owner's obligation to either notify the zoning board or abandon development of the property. The Court held that a property owner may continue to utilize and develop its property even though it is aware of condemnation plans, and that "plotting and planning in anticipation of condemnation without physical appropriation or interference does not constitute a taking." A property owner is entitled to just compensation for the value of improvements unless the improvements are made in bad faith for the sole purpose of enhancing a condemnation award. In this case, the lower court found that there was no clear indication of the municipality's intent to condemn the owner's property and therefore the owner's zoning board application and construction were not in bad faith.

The Court agreed with the owner that the NOI was only a notification that the property was one of many properties being considered for acquisition and not evidence of imminent condemnation. Further, it noted that the NOI specifically stated that it was not to be construed as a formal offer to purchase the owner's property and that the SCC may have decided not to acquire the property. In addition, the condemnation complaint was not filed until fifteen months after the NOI was sent and after the zoning board approvals were received. Therefore, the Court agreed that the owner's construction of improvements was not in bad faith and that the value of the improvements had to be considered in awarding just compensation for the condemnation of the property.

Editor’s Comment 1: The case is particularly noteworthy because of the issue of whether the owner was obligated to notify the zoning commission of the NOI, particularly in connection with a request for a discretionary action (use variance) where the zoning authorities are authorized to take into account a variety of factors in determining whether to issue the variance, one of which usually is stated to be something like “the overall public interest.” 

Editor’s comment 2: On the other hand, could the zoning authorities refuse to grant a variance on the sole ground that the school district had the parcel in mind for acquisition, and therefore it was desirable to control possible condemnation damages?  One assumes not.  Is there a middle ground?  If not, then perhaps the pendency of the condemnation is none of the zoning authority’s business. 

The Reporter for this item was Ira Meislik of the New Jersey Bar.

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