But what if the industrial building uses a parking lot across the street and that parking lot is being taken? Or what if the parking area on the same block is owned by a different entity, and leased to the owner of Blackacre? There would be legal and factual issues as to the existence of the larger parcel and whether the owner of Blackacre would be entitled to severance damages under these hypotheticals.
The Traditional Three Unities Test
Typically, the question of what the larger parcel consists of can be decided based on the legal parcel from which the part is being taken. But where the owner has several legal parcels, the courts have developed a test for whether the several parcels are part of the “larger parcel.” That test is typically called the “three unities test.” The three unities test provides that two or more parcels may be regarded as one larger parcel for eminent domain and valuation purposes if there is (1) unity of ownership or title; (2) contiguity; and (3) unity of use. This test has been recognized across the country, including, without limitation, such major jurisdictions as California, Illinois, and Washington. When the land is actually in use, the most important factor in the three unities test is the unity of use.
In some states, the three unities test has been substantially relaxed, provided the property owner can show an integrated use between the parcel being condemned and the remainder parcel. California is one such jurisdiction. For example, in Los Angeles v. Wolfe, the property owner owned an office building which, by city ordinance, was required to have parking. While the building itself did not have a parking lot, the owner had purchased noncontiguous property on which it operated a parking lot. When the city condemned the parking lot, the owner sought severance damages for the injury to the noncontiguous office building. While the California Supreme Court acknowledged the rule that physical contiguity is generally required for an award of severance damages, it found that exceptions had developed and that “[e]ach relevant fact must be analyzed and all of the facts considered in order to determine unity in a condemnee’s claim for severance damages.” Finding a “larger parcel” existed, the court later said of its decision in Wolfe that the “conclusion depended, in large part, on the obvious interdependence between the two parcels mandated by the city’s zoning ordinances.”
The California Supreme Court in Neumann also discussed various cases in which the unity of title and contiguity of the parcels were relaxed in addressing whether severance damages may be awarded based on a prospective integrated use of several parcels. The court found that a prospective integrated use was sufficient to create a “larger parcel,” even though the parcels were not yet used together:
Because severance damages are intended to compensate the property owner for the destruction of the integrity of his land, the property owner must be able to demonstrate both how his property functions as an integrated unit and how the value of what remains has been injured by the taking of a part. In the case of a single parcel of property devoted to a unitary use, the impairment is usually self-evident: in the case of a dairy farm, for example, if all the pasturage is condemned, the value of what remains may be significantly impaired. When, however, more than one parcel is at issue, the manner in which the parcels form a unified whole may not be immediately apparent. The Legislature has framed the question of whether property should be viewed as an integrated whole in terms of whether the land remaining after the taking forms part of a “larger parcel”; the issue is one of law for decision by the court.
(collecting cases, internal citations omitted). The California Supreme Court in Neuman concluded “that such separate legal parcels may be aggregated and considered as one ‘larger parcel’ when the owner establishes a reasonable probability that all of the contiguous commonly owned lots will be available for development or use as an integrated economic unit in the reasonably foreseeable future.”
California is not alone in recognizing that prospective uses, as the United States Court of Appeals for the Seventh Circuit, among other jurisdictions, has similarly permitted evidence of a prospective use in determining the severance damages.
Question of Law or Fact?
States and federal eminent domain law differ on whether the question of larger parcel is a legal issue for the court or a fact issue for the jury. In some states, such as Idaho and Hawaii, among others, the question whether two pieces of land constitute a single parcel is a practical one for the jury, which should consider evidence on the use and appearance of the land, its legal divisions, and the intent of its owner. In other states, such as Illinois and California, among others, it is a question of law.
In federal court, the issue has been determined depend upon whether the proposed uses have been demonstrated to be practicable, and the usual standard in federal court is that the trial judge will screen the evidence concerning potential uses. For instance, the Fifth Circuit, Seventh Circuit, and Eighth Circuit are in accord, with the Eighth Circuit summarizing the key evaluation as follows:
First, the trial judge should screen the evidence concerning potential uses. Then, the trial judge should decide whether the landowner has produced credible evidence that a potential use is reasonably practicable and reasonably probable within the near future. If credible evidence of the potential use is produced, the jury then decides whether the property’s suitability for this use enhances its market value, and, if so, by how much. The trial judge’s screening of the evidence does not require an extensive and detailed review of all the evidence. Rather, the judge need only find that there is credible evidence that the property is adaptable to the use and that there will be a need or demand for such use in the near future.
(internal citations and quotations omitted).
Real estate litigation practitioners should review these “larger parcel” issues in their own jurisdiction, including the proof that will be necessary, in order to ensure they are prepared to address these unique and important valuation issues.