Assume that a local public agency needs an operating industrial property to expand its public-works yard. The potential acquisition property has operated as a manufacturing and warehousing center for several decades without interruption. The subject property is not subject to a cleanup order from any regulatory agency, and the owner has neither investigated nor is aware of the presence of any hazardous substance on, in, or near his property. The owner refuses the agency’s requests for testing on the property prior to the exercise of eminent domain for expropriation of the land and improvements.
Rather than incur the expense of a precondemnation entry order, the agency decides to proceed in exercising eminent domain to acquire the site. In conducting investigations on the property, the agency detects significant levels of perchloroethylene triggering a hazardous substance-remediation order. The remediation method and associated costs, use, and risk chosen by the agency based upon its self-imposed construction deadline will exceed 90 percent of the current value of the subject property. The agency maintains that the owner must pay for the remediation through an acquisition price reduction. The owner is adamant that he should not bear the cost of the remediation because the cleanup order was only occasioned by the public project that the property is being taken for and at an expedited schedule. Who’s right?
One of the most problematic issues in the area of eminent domain has to do with environmental contamination, either real or perceived, found during expropriation. Who pays for the costs of assessment, remediation, and/or diminution in value (if any) associated with the subject property and the project as proposed? Is it the condemning agency, or is it the property owner? Is it a combination of both?
Eminent-domain proceedings are determined either by a jury, by a judge, by condemnation commissioners or, if the parties agree, by arbitration. The Fifth and Fourteenth Amendments to the U.S. Constitution protect private-property owners and promise that they are paid just compensation for property that is taken for public use.
The challenge to the real-estate appraiser involved in such a matter is to estimate what the just compensation ought to be when there is environmental contamination. The answer depends on which jurisdiction the eminent-domain proceeding takes place in. There are two rules for measuring just compensation—the “before and after” (federal) rule and the “value plus damage” (state) rule.