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Eminent domain (United States, the Philippines), compulsory purchase (United Kingdom, New Zealand, Ireland), resumption/compulsory acquisition (Australia), or expropriation (South Africa, Canada) is the power to take private property for public use by a state or national government. However, it can be legislatively delegated by the state to municipalities, government subdivisions, or even private persons or corporations when they are authorized to exercise functions of public character.
The property may be taken either for government use or by delegation to third parties who will devote it to public or civic use or, in some cases, economic development. The most common uses of property taken by eminent domain are for government buildings and other facilities, public utilities, highways, and railroads; however, it may also be taken for reasons of public safety, as in the case of Centralia, Pennsylvania. Some jurisdictions require that the condemnor offer to purchase the property before resorting to the use of eminent domain.
The term "condemnation" is used to describe the formal act of the exercise of the power of eminent domain to transfer title to the property from its private owner to the government. This use of the word should not be confused with its sense of a declaration that property is uninhabitable due to defects.
Condemnation via eminent domain indicates the government is taking ownership of the property or some lesser interest in it, such as an easement. After the condemnation action is filed the amount of just compensation is determined in trial. However, in some cases, the property owner challenges the right to take because the proposed taking is not for "public use", or the condemnor is not legislatively authorized to take the subject property, or has not followed the proper substantive or procedural steps as required by law.
The exercise of eminent domain is not limited to real property. Governments may also condemn personal property. Governments can even condemn intangible property such as contract rights, patents, trade secrets, and copyrights. Even the taking of professional sports team's franchise has been held by the California Supreme Court to be within the purview of the "public use" constitutional limitation, although eventually, that taking was not permitted because it was deemed to violate the interstate commerce clause of the U.S. Constitution.
The practice of condemnation was transplanted into the American colonies with the common law. In the early years, unimproved land could be taken without compensation; this practice was accepted because land was so abundant that it could be cheaply replaced. When it came time to draft the United States Constitution, differing views on eminent domain were voiced. Thomas Jefferson favored eliminating all remnants of feudalism, and pushed for allodial ownership. James Madison, who wrote the Fifth Amendment to the United States Constitution, had a more moderate view, and struck a compromise that sought to at least protect property rights somewhat by explicitly mandating compensation and using the term "public use" rather than "public purpose," "public interest", or "public benefit".
The Fifth Amendment imposes limitations on the exercise of eminent domain: the taking must be for public use and just compensation must be paid. Some historians have suggested that these limitations on the taking power were inspired by the need to permit the army to secure mounts, fodder and provisions from local ranchers and the perceived need to assure them compensation for such takings.
Similarly, soldiers forcibly sought housing in whatever homes were near their military assignments. To address the latter problem, the Third Amendment was enacted in 1791 as part of the US Constitution's Bill of Rights. It provided that the quartering of soldiers on private property could not take place in peacetime without the landowner's consent. It also required that, in wartime, established law had to be followed in housing troops on private property. Presumably, this would mandate "just compensation," a requirement for the exercise of eminent domain in general per the Fifth Amendment. All U.S. states have legislation specifying eminent domain procedures within their respective territories.
The power of governments to take private real or personal property has always existed in the United States, being an inherent attribute of sovereignty. This power reposes in the legislative branch of the government and may not be exercised unless the legislature has authorized its use by statutes that specify who may use it and for what purposes. The legislature may delegate the power to private entities like public utilities or railroads, and even to individuals for the purpose of acquiring access to their landlocked land. Its use was limited by the Takings Clause in the Fifth Amendment to the U.S. Constitution in 1791, which reads, "...nor shall private property be taken for public use, without just compensation." The Fifth Amendment did not create the national government's right to use the eminent domain power, it simply limited it to public use.
The U.S. Supreme Court has consistently deferred to the right of states to make their own determinations of public use, although the reason why the constitutional term "public use" should not be subject to federal judicial interpretation like other constitutional terms has not been explained. In 1832 the Supreme Court ruled that eminent domain could be used to allow a mill owner to expand his dam and operations by flooding an upstream neighbor. The court opinion stated that a public use does not have to mean public occupation of the land; it can mean a public benefit.[9] In Clark vs. Nash (1905), the Supreme Court acknowledged that different parts of the country have unique circumstances and the definition of public use thus varied with the facts of the case. It ruled a farmer could expand his irrigation ditch across another farmer's land (with compensation), because that farmer was entitled to "the flow of the waters of the said Fort Canyon Creek... and the uses of the said waters... [is] a public use." Here, in recognizing the arid climate and geography of Utah, the Court indicated the farmer not adjacent to the river had as much right as the farmer who was, to access the waters.[10] However, until the 14th Amendment was ratified in 1868, the limitations on eminent domain specified in the Fifth Amendment applied only to the federal government and not to the states. That view ended in 1896 when in the Chicago, Burlington & Quincy Railroad v. Chicago case the court held that the eminent domain provisions of the Fifth Amendment were incorporated in the Due Process Clause of the Fourteenth Amendment and thus were now binding on the states, or in other words, when the states take private property they are required to devote it to a public use and compensate the property owner for his loss. This was the beginning of what is now known as the "selective incorporation" doctrine.
An expansive interpretation of eminent domain was reaffirmed in Berman v. Parker (1954), in which the U.S. Supreme Court reviewed an effort by the District of Columbia to take and raze blighted structures, in order to eliminate slums in the Southwest Washington area. After the taking, held the court, the taken and razed land could be transferred to private redevelopers who would construct condominiums, private office buildings and a shopping center. The Supreme Court ruled against the owners of a non-blighted property within the area on the grounds that the project should be judged on its plans as a whole, not on a parcel by parcel basis. In Hawaii Housing Authority v. Midkiff (1984), the Supreme Court approved the use of eminent domain to transfer a land lessor's title to its tenants who owned and occupied homes built on the leased land. The court's justification was to break up a housing oligopoly, and thereby lower or stabilize home prices, although in reality, following the Midkiff decision, home prices on Oahu escalated dramatically, more than doubling within a few years.
The Supreme Court's decision in Kelo v. City of New London, 545 U.S. 469 (2005) affirmed the authority of New London, Connecticut, to take non-blighted private property by eminent domain, and then transfer it for a dollar a year to a private developer solely for the purpose of increasing municipal revenues. This 5-4 decision received heavy press coverage and inspired a public outcry criticizing eminent domain powers as too broad. In reaction to Kelo, several states enacted or are consideringstate legislation that would further define and restrict the power of eminent domain. The Supreme Courts of Illinois, Michigan (County of Wayne v. Hathcock [2004]), Ohio (Norwood, Ohio v. Horney [2006]), Oklahoma, and South Carolina have recently ruled to disallow such takings under their state constitutions.
The redevelopment in New London, the subject of the Kelo decision, proved to be a failure and as of 2012 (seven years after the court's decision) nothing has been built on the taken land in spite of the expenditure of over $80 million in public funds. The Pfizer corporation, which owned a $300 million research facility in the area, and would have been the primary beneficiary of the additional development, announced in 2009 that it would close its facility, and did so shortly before the expiration of its 10-year tax abatement agreement with the city. The facility was subsequently purchased in 2010 for just $55 million by General Dynamics Electric Boat.
American libertarians argue that eminent domain is unnecessary. Bruce L. Benson notes that utilities, for instance, have a variety of methods at their disposal, such as option contracts and dummy buyers, to obtain the contiguous parcels of land needed to build pipelines, roads, and so forth. These methods are routinely used to acquire land needed for shopping malls and other large developments. Walter Block argues that the problem of recalcitrant landowners ("holdouts") who refuse reasonable offers for the sale of their land is solved in the long term by the fact that their failure to accumulate wealth through such trades will give them a relative disadvantage in attempting to accumulate more land. Thus, the vast majority of land will tend to fall into the control of those who are willing to make profitable exchanges.
Compensation
American courts have held that the preferred measure of "just compensation" is "fair market value," i.e., the price that a willing but unpressured buyer would pay a willing but unpressured seller in a voluntary transaction, with both parties fully informed of the property's good and bad features. Also, this approach takes into account the property's highest and best use (i.e., its most profitable use) which is not necessarily its current use or the use mandated by current zoning if there is a reasonable probability of zone change.
This measure of compensation has been severely criticized because it omits from consideration a variety of incidental economic losses that a taking of land inflicts on its owners when they are evicted from their homes and businesses. The most egregious example of such uncompensated losses is provided by the American law that denies any compensation to owners of businesses that are destroyed when land on which they are located is taken, and the business cannot relocate. A small minority of states have provided by statute that at least some business losses are compensable.
Also, attorneys' and appraisers' fees are not recoverable (except in Florida) so the owners of the taken property never recover the full value of the taken land, even if they prevail in the valuation trial, because a part of their recovery must be used to pay their lawyers and appraisers. Some states do provide for limited recovery of such litigation expenses, typically when the owners' recovery substantially exceeds the amount of the condemnor's pretrial offer or the evidence presented by the condemnor at trial by a specified percentage. Also, when a condemnation action is abandoned, the owners are typically entitled (by statute) to be paid reasonable attorneys' and appraisers' fee they had to incur in defending the condemnation action while it was pending.
When payment of compensation is delayed, the owner of the taken land is entitled to receive interest on the award of compensation, that accrues from the time of taking to the time of payment. The interest must be reasonable, so that when prevailing market rates of interest exceed the statutory rate (as in inflationary times), the former have to be used.
The U.S. Supreme Court takes the position that unlike the determination of what is a "public use," the determination of compensation is a judicial, not legislative, function, but legislatures are free to provide for more liberal awards of compensation than the constitutional minimum determined by courts.
In cases of partial takings of land, the owners are entitled to compensation for the taken part, plus severance damages (the diminution of value of what remains of their property after the taking). If the partial taking creates special benefits (i.e., it causes an increase in the value of the remaining land) their value is offset against compensation, with the majority of states allowing such offsets only against severance damages, so in those states, the owner always gets paid for the taken land. When a partial taking causes impairment of access to the remainder land, that gives rise to a contentious issue because courts take the position that diminution in value caused by impaired access is compensable only when the impairment is substantial. Traffic regulations that affect access (one-way streets, median dividers, etc.) are deemed exercises of the police power and are not compensable.
In addition to fee simple titles, all interests in property (easements, leaseholds, etc.) are compensable. The measure of value of a leasehold is the amount by which prevailing comparable rentals in the area exceed the actual contracted-for rent. This amount is known as "bonus value" of a lease. It is calculated over the remaining life of the lease and then reduced to its present value. The measure of compensation for an easement is the difference in the value of the subject land as unencumbered and as encumbered by the easement.
In determining value, zoning and other land-use regulations are considered, but if it appears that there is a reasonable probability of zone change to a higher use, that may be shown and in that case the owner is entitled to an additional increment of value (the extra amount over and above the value under current zoning, that the market would pay now because of the probability of future rezoning).
The appraisal profession recognizes several different methods of calculating value, but courts are largely stuck in the convention of using three valuation approaches: (a) market data analysis or comparable sales value, (b) the capitalization of rentals, and (c) the reproduction-less-depreciation approach under which the cost of reproducing the improvements on the property is estimated and then depreciated to allow for wear and tear and functional or economic obsolescence. The value of the land is then added to the value of the reproduced, depreciated improvements. Some states allow compensation as the cost of reproduction without depreciation, but only in cases where the subject property, though privately owned, performs an important public or charitable function.
The U.S. Supreme Court has indicated (U.S. v. Cors) that it is not its intention to make a "fetish" out of market value as the measure of compensation, and that other approaches may be used when conventional methods do not work, or if applied, would create an injustice (Pewee Coal v. United States). But this appears to be a hortatory, rather than doctrinal statement. These situations, however, are extremely rare.
Studies in several parts of the country (California, Georgia, Minnesota, New York and Utah) have demonstrated that condemning agencies frequently undercompensate property owners, and that those owners who reject the pre-litigation offers and go to court tend to recover substantially higher awards, whether by judges or juries.[citation needed]
Tax implications
When private property is destroyed, stolen, condemned, or disposed of, the owner may receive a payment in property or money in the form of insurance or a condemnation award. If property is compulsorily or involuntarily converted into money (as in eminent domain) the proceeds can be reinvested without payment of capital gains tax provided it is reinvested in property similar or related in service or use to the property so converted, no capital gain shall be recognized.
Bush Executive Order
On June 23, 2006, the first anniversary of the Kelo decision (see above), President George W. Bush issued Executive Order 13406 which stated in Section I that the federal government must limit its use of taking private property for "public use" with "just compensation," which is also stated in the constitution, for the "purpose of benefiting the general public." The order limits this use by stating that it may not be used "for the purpose of advancing the economic interest of private parties to be given ownership or use of the property taken." However, eminent domain is more often exercised by local and state governments, albeit often with funds obtained from the federal government.
