Determining “Just Compensation” in Pennsylvania Eminent Domain Cases

 Any government entity attempting to acquire private property is required to pay “Just Compensation”. Simply put, this is the amount of money the acquiring agency offers to pay the landowner. Offers are normally memorialized in a letter titled: “Estimate of Just Compensation” (EJC) or similar wording. While the word “Just” should mean an offer that is fair, objective and reasonable, many landowners who have received such an ”offer” may disagree.  

Depending on whether the government action is a “full” or “partial” taking, two sections of the Pennsylvania Eminent Domain Code are relevant - the “measure of damages” provision in Section 702 and the “Effect of Condemnation Use On After Value” provision found in Section 706. Section 702(a) provides that “ . . . just compensation shall consist of the difference between the fair market value of the condemnee’s entire property interest immediately before the condemnation and as unaffected by the condemnation and the fair market value of the property interest remaining immediately after the condemnation and as affected by the condemnation.” 

What Section 702(a) means is that the scope of the property interest to be valued is the entire property interest, not just the portion set forth in the declaration of taking. As the Court said in Scranton Penn Furniture Co. v. City of Scranton, 498 A.2d 469 (Pa. Cmwlth. 1985) , “ . . . the “before” and “after” values of the entire property must be taken into consideration.” 

The “fair market value” of a property is also described in the Code as the

“ . . . price which would be agreed to by a willing and informed seller and buyer . . .”, along with several other factors. These factors include the present use of the property, the highest and best reasonably available use of the property, the machinery, equipment and fixtures forming part of the real estate, and other factors that might be offered into evidence as permitted by the Code.

However, neither party to the action will succeed by simply creating dollar amounts from thin air. Each is required to support their idea of “fair market value” with appraisals and estimates of value. This is typically accomplished by any one or three valuation methods.

The Sales Comparison Method (or “Comparable Sales Method”) compares the property at issue to similar properties that have recently been sold in the same area. Often the parties will argue about the properties that were included in - or excluded from - the comparison, or that the comparable sale was too distant in time to be accurate. Arguments also arise when a fairly unique property is involved and it is difficult to find a “sold” property of similar character. 

The Cost Method attempts to determine the fair market value of property based upon the current replacement cost. Generally, this does not mean that a landowner can be paid the original cost for property, unless that original cost is also the current replacement cost. This method also examines the cost to reproduce any improvements (such as outbuildings) on the property, then reduces that cost by the amount of depreciation and other obsolescence concerning those improvements. 

The Income Method is mostly applicable to business properties being subjected to Eminent Domain. This method analyzes the income generated by the property to determine its value. For example, with a rental property, this method calculates the rent received, so long as the rental transaction was at arm’s length and recent enough to be a current market rent. Also, the property must be currently rented or in the case of other  income producing properties, generating cash flow from the location and physical characteristics of the property.

The nature and use of any property subjected to Eminent Domain must be placed under the microscope when deciding which of the three valuation methods is the most appropriate. The nature and use of properties can differ widely – from residential to agricultural to commercial and income properties. There can be unique differences even when properties appear to be similar, for example, residence to residence. Our law firm helps landowners understand which valuation method is best for a particular situation. 

The parties to the controversy are not required to use the same valuation method. For example, a government entity may produce a Cost Method valuation, while the business owner condemnee produces an Income Method valuation. If procedures are correctly followed and filings are timely, both sides can have the opportunity to argue that their method is most accurate. These arguments usually take place first at a Board of Viewers Hearing, then before a judge or jury if the parties continue to disagree.

It’s never too soon to speak with us, but it can be too late. Even if you have been informally contacted by anyone discussing an acquisition of your land, contact us. If you have received a written notice, Estimate of Just Compensation (EJC) or an actual Condemnation notice, you must act now. We welcome you to read the several other articles about Eminent Domain available free on this website. Better yet, call us for a free consultation at 1-800-755-0245 or send an instant message through our website: http://www.puzaklaw.com. We look forward to helping you! 

IMPORTANT: Every case is unique in its facts and circumstances. This article is for general information purposes and is not intended as legal advice for any particular case. We recommend consultation with a lawyer of your choice who can perform a thorough analysis of your situation and the particular rights and remedies that may apply.

©David J. Puzak, Puzak Law Offices, LLC