Real Estate Law
Coping with Kelo

By Steven J. Eagle and Lauren A. Perotti

This article examines the legislative and judicial responses to Kelo v. City of New London (545 U.S. 469 (2005)), which held that takings for economic development satisfy the public use requirement of the Fifth Amendment. A majority of states have responded to the decision by adopting statutes that limit the scope of public use, address just compensation for the taking, or institute procedural reforms for takings.

In Kelo, Justice John Paul Stevens wrote that "public use" is to be defined broadly with great deference given to the legislative determinations in the field. He determined that the redevelopment plan for the City of New London, Connecticut, "unquestionably" served a public purpose. Concluding that economic development is a "traditional and long-accepted function of government," the Court refused to distinguish it from other recognized public purposes or to require the city to prove with "reasonable certainty" that the hoped-for benefits actually would occur.

In response, several states have adopted inclusionary laws, which affirmatively define those public purposes for which eminent domain is permissible. Other states have adopted purely exclusionary rules, which generally prohibit the taking of private property through eminent domain for transfer to another private party. However, these exclu-sionary rules typically contain an exception for properties characterized by blight, as narrowly defined, or for trans-fers to regulated utility companies and common carriers. Other states have sought to address the issue of eminent domain abuse by enacting procedural reforms, either freestanding or in conjunction with substantive changes. Yet other states have sought to limit the potential for abuse of eminent domain by requiring compensation above fair market value, the awarding of attorney fees for owners successfully challenging a public use designation, or the prior owner’s right of first refusal in the event that condemned property is to be sold because it no longer is needed for a public use.

Limiting the scope of "public use." Arizona, Iowa, Kentucky, and Wyoming, to name a few states, define pub-lic use as the "possession, occupation, and enjoyment" of property by the general public or governmental enti-ties/public agencies. This would seem to rule out mere governmental fee-simple ownership with private parties in possession under long-term leases.

Nineteen states employing inclusive or hybrid definitions also include in their definitions of public use specific types of projects explicitly approved by statute. Some states have created lists of types of projects that would qualify as public uses. The advantage of this approach is that individual states may provide with specificity which projects are public uses according to the needs of the state. Conversely, the states may place limitations on certain public uses not deemed to be as important in the state as in other states.

Every state employing the inclusive or hybrid approach specifies when transfer of land condemned through emi-nent domain to a private party is a permitted public use. Generally, all states allow property to be taken for private use or control when the owner or controlling entity is a common carrier or utility provider. The most notable differ-ences among the states utilizing inclusive and hybrid definitions of public use occur when discussing other permitted public uses of property acquired through eminent domain and transferred to private parties.

Several states define public use by way of listing those transfers from public to private use that are specifically prohibited as impermissible uses, such as economic redevelopment. Many states, by providing blight removal as an allowed public use, appear to imply that eminent domain may not be used for other transfers to private parties. Other states, especially with exclusionary definitions of public use, list blight removal as an exception to a general prohibi-tion on transfer of condemned property to private parties.

Several states incorporate intent language into their exclusionary public use definitions. Such measures require judges to examine the subjective motivations of city officials, which is undesirable because intent is very difficult to prove as a factual matter. Also, such inquiries are intrusive and contrary to the general principle that courts do not examine legislative motivation.

Most states have enacted exceptions to general prohibitions on eminent domain takings for transfer to private en-tities. To avoid confusion, states explicitly have exempted public utilities and public projects such as schools and public buildings from laws against private ownership of land acquired through eminent domain.

The most common exception to exclusionary rules is an exception for blight. This "vague, amorphous term" marks conditions dangerous to health or safety but more generally is "a rhetorical device that enabled renewal advo-cates to reorganize property ownership by declaring certain real estate dangerous to the future of the city" (Wendell E. Pritchett, "The ‘Public Menace’ of Blight: Urban Renewal and the Private Uses of Eminent Domain," Yale Law and Policy Review 21 (2003)). States with exclusionary rules as well as inclusionary rules typically have some sort of provision for the elimination of blighted areas, however defined by the state. Both kinds of approaches indicate, although they differ by means, that the taking of private property for transfer to a private individual is acceptable, provided the neighborhood meets a certain standard of undesirability to the community.

Just compensation. Just compensation requires that condemnees be paid the fair market value of their parcels. It does not include the owner’s sentimental value, commercial goodwill or customization for a particular business, or the many costs associated with moving. The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 has a partially ameliorative effect. However, state and local projects not employing any form of federal assistance are exempt from the act’s provisions requiring payment for moving expenses, business reestablishment, and other relocations costs. To address this issue, several states have enacted provisions seeking to limit or reduce the impact legitimate state-based projects may have on property owners.

Several states require enhanced compensation, typically expressed as an additional percentage of fair market value. These provisions seemingly address the notion that "fair market value" is not always "fair" to the seller.

States providing condemnees with rights of first refusal should the condemnor subsequently resell their property may do so, in part, to prevent agencies from accumulating too much land for public projects in the anticipation of reselling unused land later for a profit. The right of first refusal laws also recognize the idiosyncratic value owners place on their properties.

Like the right of first refusal, provisions on conversion create obstacles to the redevelopment authority seeking a quick, profitable turnaround on surplus property. However, conversion limitations also could create administrative guardians and impose heavy holding costs on localities if the public project becomes obsolete sooner than anticipated and no alternative public use for the land is found.

Procedural reforms. Several states have combined public use definitions with procedural reforms to address perceived eminent domain abuse.

Addressing the judicial tone of deference adopted by the Kelo majority, several states now require condemning agencies to make a stronger showing and prove to a court that their proposed use is a public one. Other measures require localities to form redevelopment plans that are subject to certain time or other restrictions. Other states have enacted provisions seemingly designed to prevent stealth condemnation by setting certain requirements for offers and notice to property owners.

FOR MORE INFORMATION ABOUT THE REAL PROPERTY, TRUST AND ESTATE LAW SECTION
- This article is an abridged and edited version of one that originally appeared on page 799 of Real Property, Trust, and Estate Law Journal, Winter 2008 (42:4).
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Steven J. Eagle is a professor of law at George Mason University School of Law in Arlington, Virginia; he may be reached at seagle@gmu.edu. Lauren A. Perotti is a 2009 graduate from the law school; she may be reached at lperotti@gmu.edu.

Copyright 2009

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