Daily Development for
Monday, May 12, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

INVERSE CONDEMNATION; COMPENSABLE INTEREST; OPTION TO PURCHASE: Although a purchase option is a compensable interest in the taking of real property, the claimant must prove the terms of the option with adequate specificity in order to recover any damages.

Mount Juneau Enterprises, Inc. v. The City and Borough of Juneau, 923 P.2d 768 (Alaska 1996).

This unusual and complicated case arose from the plaintiff's failed efforts to build a tram to the top of Mount Juneau. The first claim arose out of the defendant's taking of a tunnel that was part of land of a mining company that the plaintiff had an option to purchase. The plaintiff later exercised the option.

The "taking" occurred when the City obtained a transfer of rights from an electric utility that had an easement to run electric lines in the tunnel. The City incorporated the tunnel into the public reservoir system. It was clear to all that the ownership of the public utility's easement rights did not entitle the City to make this use of the property. Finding that the defendant had acted in good faith but under the mistaken belief that there was no need to exercise eminent domain powers, the court found that the defendant had trespassed upon the tunnel property, but that since the trespass had occurred before the plaintiff owned it, the plaintiff's predecessor, not the plaintiff, had the only claim for damages. (The predecessor was not in court). Further, although the defendant had inversely condemned the title to the property, the plaintiff was not entitled to any compensation because at the time the City carried out the inverse condemnation the plaintiff was the owner of the tunnel.

The court did conclude, however, the plaintiff might be entitled to compensation for the taking of its option to the extent it resulted in a diminution of the option's value. It indicated that there is a developing trend to recognize options as compensable interests in inverse condemnation cases, citing authority in California, Nevada, Oregon and Washington. But here the plaintiff, who had Since the plaintiff did not prove the terms of the option with adequate specificity, it was not entitled to any damages. As the court reports the facts, the plaintiff was hopelessly vague about the option, not knowing whether it was oral or written, not able to say whether he gave value for it, knowing nothing of its terms, and not even able to say whether it was a true option or a right of first refusal.

Comment: The notion that an option is a compensable property interest is an interesting one, as options generally are treated as "mere contracts" for many legal purposes. This case provides a good lesson for real estate developers to be packrats. Few, of course, are. They expect their lawyers to be, however.

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