May 01, 2003

Damages to the Remainder - Loss of Parking Spaces in Condemnation Actions (2003, 17:03)

Damages to the Remainder - Loss of Parking Spaces in Condemnation Actions

Probate and Property, May/June 2003, Volume 17, Number 3

By Warren C. Herlong Jr. and J. Casey Pipes
Warren C. Herlong Jr. and J. Casey Pipes are members of Helmsing, Leach, Herlong, Newman & Rouse, P.C., in Mobile, Alabama.

Many governmental condemnations take only a portion of a landowner’s property, rather than the parcel as a whole. A highway-widening project, for example, might require only a 20-foot strip fronting the roadway. In such a partial taking situation, a landowner is typically entitled not only to the value of the property taken but also to the damages sustained by the remainder of the property because of the taking.

This article focuses on partial takings that result in a loss of parking spaces. Parking spaces are lost not only when all or part of a parking lot is taken, but available parking may also be reduced when greenspace, storm water retention and detention areas, and even undeveloped land are taken. Essentially every taking of property whose highest and best use would require parking spaces should be considered, at least in part, as a loss-of-parking-spaces type of taking.

In some jurisdictions the landowner or tenant may recover damages to the loss of goodwill of a business or for the recovery of business losses in partial takings cases. Although this article is limited to the issues relating to damages to the remainder of the property, the same types of evidence may also be applicable to an analysis of damages to the goodwill of a business or a loss of business. See City of San Diego v. Sobke, 76 Cal. Rptr. 2d 9 (Cal. Ct. App. 1998).

Practical Considerations in Assessing Damages

Damages to the remainder of the property are usually measured as of the date of the taking. Under this system, evidence of damages is received and damages are assessed before they are necessarily realized. The laws of many states have addressed this situation by not allowing speculative, remote, or uncertain damages to support an award of damages to the remainder. In the context of lost parking spaces, this means that evidence of damages to the remainder must be supported by credible and sufficient evidence.

Two main categories of factors should be addressed to determine whether the loss of parking spaces will damage the remainder of the property—zoning and market analysis. Additional considerations and factors may be presented by the specific property at issue and by the specific taking.

Resources to be consulted to determine damage to the remainder include traffic engineers, civil engineers, real estate agents, real estate appraisers, site acquisition specialists, economists, and other professionals. In addition to these expert witnesses, an owner or tenant may testify as to the decreased value of the remainder. See State ex rel. Missouri Highway & Transp. Comm’n v. McDonald’s Corp., 896 S.W.2d 652, 655 (Mo. Ct. App. 1995).

Zoning

One common problem caused by condemnation of parking spaces is nonconformity of the remaining lot or structure with applicable zoning codes. A partial taking of any portion of a piece of property may violate zoning requirements such as minimum set-backs from roads, minimum property width at the building line, or minimum lot size. A partial taking may also reduce the number of parking spaces below the minimum required for the existing building or use. If a condemnation leaves the property without the required minimum number of parking spaces for the existing building, then the lot or the building will be in violation of the zoningordinances.

Under most zoning ordinances, existing lots and structures that become nonconforming because of a condemnation are given “grandfathered” status and are allowed to remain as legal nonconforming structures or lots. This status, of course, reduces the damages to the remainder of the property by not requiring the immediate destruction of the structure or the immediate cessation of business on the lot. Most zoning ordinances, however, impose limitations on the sale, further development, renovation, expansion, or change in the use of legal nonconforming structures and lots. These restrictions should be considered in determining the damage to the remainder of the property because the restrictions may affect a prospective purchaser’s decision to buy that property or the price to be paid. See Howell v. State Highway Comm’n, 573 So. 2d 754, 757-58 (Miss. 1990) (partial taking affected additions to the existing structure); Mall, Inc. v. Comm’r of Transp., No. 54-2859, 1998 WL 573254 (Conn. Super. Ct. Aug. 25, 1998) (lost parking spaces restricted mall’s ability to expand).

The loss of parking spaces may affect property value even if the remainder of the property still meets the minimum zoning code requirements. If the zoning code requires a minimum number of spaces, for example, the landowner could not expand the size of a business structure because the remaining parking spaces would be inadequate for the increased structure. See Commonwealth Dep’t of Transp. v. Fairbrook Bus. Park Assocs., 418 S.E.2d 874, 878 (Va. 1992).

Because property taken by condemnation is typically valued at its highest and best use, the remainder may be damaged by a taking even though the present use of the property was not damaged. If the highest and best use of a vacant lot is a shopping mall or some other use that requires parking spaces, the loss of undeveloped property can be seen as a loss of potential parking spaces. See Smith v. Shaker, 493 N.E.2d 981, 982-83 (Ohio Ct. App. 1985) (“The loss of parking spaces is a factor to be considered in determining the fair market value of this undeveloped property”); Lee v. Dep’t of Transp., 380 S.E.2d 726, 727 (Ga. Ct. App. 1989) (city’s denial of permit for shopping center based on inadequate number of parking spaces after condemnation action).

In Shaker, the property at issue was undeveloped but was suitable for use as a shopping center and was zoned for shopping center use. The Shaker court reversed the trial court for improperly excluding an expert’s opinion that the remainder was less valuable because the shopping center would have to be smaller to meet the parking requirements of the zoning ordinance after the taking. Shaker, 493 N.E.2d at 983. Similarly in Lee, the court held that the landowner was entitled to recover “the difference between the building he could have built but for the direct result of the condemnation . . . and the building he was limited to as a direct consequence of the taking.” Lee, 380 S.E.2d at 727–28.

Market Analysis

A reduction in parking spaces may have a negative effect on the property’s fair market value even without causing a zoning violation. A particular type of business or a specific piece of property may need more parking capacity than that required by the zoning code. The market will recognize this reality by reflecting a higher price for certain properties that have more parking.

Sometimes the loss of parking spaces may change the highest and best use of the remainder of the property to something less valuable than that of the original parcel. See Carpet Barn v. State, 786 P.2d 770, 773 (Utah Ct. App. 1990) (expert for landowner testified that the condemnor’s actions changed the highest and best use of the property from commercial to light industrial). Even if the highest and best use of the remainder of the property is unchanged by the taking, the per acre value of the remaining land may be decreased because of market conditions.

Courts have recognized several different methods for determining the market price for the remainder of the land. Some landowners have successfully used the income capitalization approach to prove that the remainder is less valuable than before the taking because the income produced by the business located on the property would decline as a result of the lost parking spaces. See In re Appeal of Condemnation Award to 89–2 Realty, 566 A.2d 979, 982 (Vt. 1989).

Although the income capitalization approach may not be an acceptable method of appraisal in some states or admissible as independent evidence of value, it may be admissible to support expert testimony or other evidence of the decreased value of the remainder. Likewise, lost business profits may be admissible to show the decreased value of the remainder of the property even in jurisdictions where lost business profits are not usually allowed or where they are allowed but only in different circumstances than those existing in the pending case. See Dep’t of Transp. v. George, 414 S.E.2d 307, 309 (Ga. Ct. App. 1991).

When the remainder is leased for commercial purposes, the landowner may present evidence from current or prospective tenants about intentions not to enter into a lease or not to renew the lease, or not to renegotiate the lease, or simply to terminate the lease because of inadequate parking resulting from the taking of spaces. See McDonald’s Corp., 896 S.W.2d at 655. The terms of the lease itself may set certain minimum parking requirements that, if not met, may entitle the tenant to a reduction in rent or an early termination of the lease. See Yazoo Props. v. Katz and Besthoff No. 284, 644 So. 2d 429, 430 (Miss. 1994). Although evidence of the landowner’s lost rents may not be admissible in some jurisdictions as independent evidence of damages to the landowner, it may be used as evidence that the value of the remainder has been decreased by the taking. See Continental Corp. v. Dep’t of Transp., 366 S.E.2d 160 (Ga. Ct. App. 1988).

In Martabano v. State, 502 N.Y.S.2d 508 (N.Y. App. Div. 1986), the Supreme Court of New York approved of the trial court’s use of the income capitalization approach in arriving at severance damages, but reversed the trial court’s determination that the property suffered only a 5% reduction in retail value. Id. at 510. The court awarded severance damages based on a 10% reduction in rental value, finding that the landowner’s expert appraiser’s opinion was supported by an analysis of the zoning code and a national study concerning parking needs, whereas the condemning agency’s expert’s opinion was of “questionable quality.” Id. This case is unique, but it does highlight the fact that the decrease in value of the remainder because of the loss of parking is as much a battle of the experts as the valuation of the land actually taken.

When analyzing damages to the remainder or business damages, an expert usually cannot base his opinion on the presumption that customers or employees can park on someone else’s property. See Sarasota County v. Burdette, 479 So. 2d 763, 766 (Fla. Dist. Ct. App. 1985); but see Lake County Pub. Bldg. Comm’n v. LaSalle Nat’l Bank, 531 N.E.2d 110 (Ill. App. Ct. 1988) (noting that public parking was available nearby).

The market will dictate the highest and best use of the remainder and the value of the remainder, and the loss of parking spaces may have a dramatic effect on both these items. If the remainder is worth less than it was worth before the taking, then the remainder has sustained severance damages in the amount of the decrease.

Mitigation (Cost to Cure)

If a reduction in parking spaces causes severance damages to the remainder of the property, either by way of a zoning violation or by market factors, the landowner’s recovery of these damages may be limited to the cost to cure these damages. Suppose, for example, the landowner’s loss of 10 parking spaces causes $20,000 in severance damages to the remainder. Assume further, however, that the landowner can regain parking spaces by redesigning the parking lot at a cost of $5,000. In this example, the landowner would be entitled to recover only the $5,000 cost to cure instead of the $20,000 severance damages because a willing buyer would presumably view the property as being worth $5,000 less than it was before the taking instead of being worth $20,000 less. The cost to cure is simply a way of factoring in the same analysis the market would employ in deciding the fair market value of the remainder.

As the above example suggests, one common form of mitigation in the loss of parking spaces is to re-stripe the parking lot or redesign the parking facilities to increase the number of spots available in a given amount of space. See Lake County, 531 N.E.2d at 115. Simply narrowing each parking space may result in increasing the number of parking spaces available to the pre-taking number. Of course, the narrowed parking spaces must still meet all applicable zoning and building codes. Parking facilities must also be designed safely and conveniently to accommodate the public’s ingress, egress, and parking needs. Therefore, in most cases, only a qualified engineer will be able to competently redesign the parking facilities to ensure safe and convenient vehicular travel. If this method of mitigation were used, the landowner would be entitled to the cost to redesign and implement the change.

Mitigation for lost parking facilities may also come in the form of building multi-level parking decks or in acquiring additional property. See Dep’t of Transp. v. Old Nat’l Inn, Inc., 345 S.E.2d 853, 856 (Ga. Ct. App. 1986). In Old National Inn, a 5–4 majority held that the availability of substitute land may be considered in determining the fair market value of the remainder of the property. Id. at 857. “Obviously, the consequential damage [to the remainder] would be greater if that land, which would adequately serve the purpose intended for the taken land, was not available and the condemnee was left with either having to build a parking deck or being precluded from expanding and so losing future growth.” Id. With this form of mitigation, the landowner would be entitled to recover the cost of acquiring the property, if any, and designing and building the new parking facilities.

Another method of mitigating severance damages is to expand the parking facilities to other areas on the remainder. Evidence of this form of mitigation must, however, take into account the loss of the property that is now to be used for parking. See Armadillo Partners, Inc. v. State of Fla. Dep’t of Transp., 780 So. 2d 234, 235 (Fla. Dist. Ct. App. 2001) (stating that when “property outside the parcel taken is converted to parking to effect a cure of severance damages, the loss of that property must be taken into account in determining severance damages”). If the loss of this property is not taken into account, the expert’s opinion is properly excluded. Id. The loss of other property for mitigation purposes includes, but is not necessarily limited to, the value of the land. Id. at 236. Additional factors adding to the cost to cure include the adverse effects of the “cure” on the remainder of the land, such as the further intrusion on the remainder and the loss of building or business expansion capabilities because of the use of this land for parking. See Williams v. State Dep’t of Transp., 579 So. 2d 226, 228 (Fla. Dist. Ct. App. 1991), disapproved in part on other grounds, Broward County v. Patel, 641 So. 2d 40, 45 (Fla. 1994).

The method of mitigation or cure must be reasonable and capable of being realized. In Department of Transportation v. Arnold, 530 S.E.2d 767 (Ga. Ct. App. 2000), the court upheld the trial court’s refusal to charge the jury on mitigation of damages when the only evidence of mitigation was to replace the lost parking spaces with new spaces on the slope easement being acquired by the condemning agency. Id. at 772. Because this alleged mitigation option was not supported by evidence that the slope easement would never be changed, or that the parking facilities would be permanently allowed to remain in the slope easement, the court held that there was “no evidence from which the jury could have determined that reasonable mitigatory options existed in fact and not mere theory.” Id.

The proposed cure or mitigation option may be dependent on the landowner’s receiving a permit from a governmental agency, but the condemning agency must present sufficient evidence of the likelihood that the permit would be issued. Fodera Enters. v. State, 714 N.Y.S.2d 113, 116 (N.Y. App. Div. 2000) (dictum). In that case, the court further suggested that the cost of applying for the permit would be recoverable as part of the cost to cure the property.

Just as important as determining the amount of severance damages sustained by the remainder of the property is the analysis of the cost to cure those damages. If the cost to cure the damages exceeds the damages themselves, then the landowner is entitled to recover severance damages. If the cost to cure is less than the amount of severance damages, then the landowner’s recovery of severance damages will be the cost to cure these damages. For this reason it is of equal importance to review the available mitigation alternatives and costs to implement these alternatives as it is to look for severance damages.

Conclusion

When governmental condemnations take only a portion of the property, the owner is entitled to compensation not only for the lost portion but also for damages to the remainder. Damages to the remainder may come from many different sources, including the loss of parking spaces, as discussed in this article. The loss of parking spaces has a unique effect on the value of the remainder because of zoning ordinances and market factors that are affected by available parking. These market factors are as applicable to vacant land as they are to fully or only partially developed property. For this reason, any taking in which the highest and best use requires parking spaces should be viewed as a loss-of-parking-space case. Determining the existence and amount of severance damages is only the first step, however. The cost to cure these damages is just as important because even the largest amount of severance damages can be reduced to next to nothing if there is a cheap cure for the problem.