General Practice, Solo & Small Firm DivisionMagazine

 
Volume 17, Number 2
March 2000

REAL ESTATE LAW

POWER LINES AND PROPERTY VALUES THE GOOD, THE BAD, AND THE UGLY

BY DAVID R. BOLTON AND KENT A. SICK

This article begins with a review of scientific and appraisal writings since 1993 on the subject of electromagnetic field radiation (EMF) and their effect on real property values. There is a brief examination of current cases, statutes, and municipal regulations, as well as a summary of recent literature and surveys determining the percentage of decreases in property values. Finally, the authors explore the pros and cons of corridor valuation for expansion of existing utility easements, with an emphasis on the right-of-way marketing efforts of several major utility companies and using corridor sales data as opposed to traditional "at the fence" methods.

Review of Original Conclusions. In 1993, at the time of the original article, scientific findings on the issue of negative health effects were inconclusive. However, public perception that EMFs were harmful uniformly drove the values of adjacent property downwards. Emerging case law at the time supported the admissibility of expert testimony based on "fear in the market place" diminishing the prices of affected properties.

Since 1993, there have been significant developments. Real estate professionals continue to conclude that power lines are bad for property values. On the case law front, there is continuing support for the admissibility of expert appraisal evidence based on "fear in the market place," but there is growing criticism of testimony deemed to be "junk science," fueled by the Daubert and Robinson opinions.

Municipal Regulations and Statutes: More Bad News. Since the original article, this author has become aware of building setback requirements from high voltage overhead electric transmission lines (HVOETLs) imposed by some Texas municipalities that convert effective easements from theory to undeniable reality in some jurisdictions. For instance, one town mandates that no building be constructed within 100 feet of the edge of the right-of-way or easement of any high voltage electrical transmission line. A purchaser comparing properties affected by these regulation-imposed effective easements would pay less for them than for other competing properties unaffected by such setbacks.

In addition, Chapter 752 of the Texas Health and Safety Code sets out a host of prohibited activities in and around power lines, such as restrictions on operation of certain types of machinery near the line without posting a warning. The legislature declared violations of this chapter a criminal offense. Perhaps the most damaging provision is the one that establishes civil liability to the power line company for any contacts with the line caused by violations of the statute.

In 1984, a federal court sitting in Texas concluded that the "all liability incurred" language of the statute provided full indemnity to an electric utility for claims arising out of any violation, including liability for the electric utility's own negligence. In 1991, a Texas appeals court held the language extended even to the "violator" being responsible for the power line operator's attorney fees, costs, and interest.

A Quick Case Review. The author's first look at power lines and diminished property values in 1993 contained synopses of three cases standing for the proposition that fear in the minds of potential purchasers of real estate was an admissible element of damages in a statutory condemnation proceeding. These cases, Criscuola from New York, Ryan from Kansas, and Daley from California, have survived the appellate process and continue to be controlling law in their respective jurisdictions.

One important distinction has been drawn from this principle of law, however, at least in California. In San Diego Gas & Electric Co. v. Superior Court, a landowner tried to make a claim for inverse condemnation caused by a pre-existing power line based on a diminution in value of his property due to fear in the marketplace of EMFs. The court declined to accept that Daley controlled, and held that while fear in the marketplace was an element of damages in a conventional condemnation, such fear could not create a new cause of action for inverse condemnation when the power line in question already exists.

Newer Issues: Utility Cor-ridors Can Be Extremely Valuable. A new industry has emerged requiring the use of right-of-way corridors for communication lines and fiber optic cables. Acquiring rights for communication lines by condemning entities has been fairly rare until recently. As the need for communication lines increased, the utility companies have begun to acquire these property rights. The valuation issue is now becoming a factor. The position taken by most companies with the power of eminent domain is that the value of the property rights is the pro rata share of the easement value as determined by the "at the fence" (ATF) prices.

From a pure appraisal perspective, this method does not conform with generally accepted appraisal practices set forth in the Uniform Standards of Professional App-raisal Practices. The foundation of proper appraisal methodology is an analysis of a property's value based on its highest and best use. In the evaluation of a taking of additional property rights within an existing right-of-way corridor, rarely can the highest and best use be anything other than for those types of uses that are already found within the corridor. That being the case, those property rights being acquired must be appraised based on their highest and best use. ATF prices rarely have anything to do with the market value of property rights within the established corridor. The proper method for appraising properties within a corridor is to use market data occurring within a corridor.

Usually forgotten are the underlying rights of ownership of the landowner. When a utility company has obtained the right of way and created a corridor, but has not obtained a specific property right, then the value to the property owner should be appraised based on its highest and best use. This conclusion necessitates that market data (sale and lease) within utility corridors be used for comparison purposes. It is inappropriate to use ATF prices when evaluating the rights of ownership within the corridor for a condemning authority and ignore the data and evaluation methods used when the same rights are sold or leased to users of corridor properties.

Arguments Against Corridor Valuation Theory. The rule in Texas has been that market data involving entities with the power of eminent domain are inadmissible to determine just compensation, because such transactions are not at arms-length. There are obvious inequities raised when a utility company is allowed to take using one valuation method and sell based on another. This fact, considered along with the rationale behind the prohibition against sales involving condemnors, suggests that an argument exists for the extension of the existing law. But what about when a condemnor is advertising to sell a right-of-way, or the right to use a right-of-way? Potential purchasers are not compelled to buy at that condemnor's price; they can condemn their own right-of-way elsewhere or purchase from some other supplier.

At least one Texas case, Bauer v. Lavaca-Navidad Reiver Authority, indicates that if a landowner demonstrates that the highest and best use of desired property is for an easement corridor, then corridor sales are appropriate data to consider in the appraisal problem. The court found that sales of easement rights-of-way within such corridors were relevant and admissible, provided the sales did not involve entities with the power of eminent domain. The holding of Bauer leaves open the right of landowners to claim an easement corridor as highest and best use and hints that an appraiser may consider sales from condemning entities of corridor rights-of-way when determining value for this property.

The current argument against using market data involving a party having the power of eminent domain predominates. The inherent inequity of this rule in the context of corridor valuation, however, calls for modification of existing Texas law. Regardless, appraisers ought to acknowledge market reality. Another argument commonly urged by condemnor utility companies is that they created the corridors through the original acquisition such that any future benefit would accrue to their rights of ownership. The third emerging argument against corridor valuation is that usually the underlying property owner possesses only a small portion of the corridor and that value is only created when the whole corridor is assembled. Again, the value should be determined by analyzing market data.

David R. Bolton, MAI, owns David R. Bolton Inc., in Austin, Texas. Kent A. Sick is an attorney in Austin, Texas

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