When property owners are confronted with eminent domain, the situation usually involves the condemnation of a particular piece of real estate that is needed for a public use project. However, property rights and interests are also subject to the power of eminent domain. These include the taking or modification of existing easements, the creation of new easements and riparian rights (apart from appurtenant lands), or the condemnation of a restrictive covenant.
Our firm recently settled a case involving approximately 15 landowners located in the up-scale Grand Harbor subdivision in Blountville, TN. Properties located within this subdivision have restrictive covenants which prevent the land from being developed and used for anything but single family homes.
The Tri-Cities Regional Airport, which abuts the subdivision, proposed to extend a runway which would require the acquisition of property and property rights within the neighboring Grand Harbor subdivision. However, because the airport is subject to the restrictive covenants, before they could proceed with the development of anything other than single family homes, they needed to condemn the restrictive covenants which limited the land use.
The airport proceeded with condemnation and offered property owners $0 in damages. Although the property owners did not have physical property taken from them, the condemnation of the restrictive covenants provided them with the opportunity to pursue just compensation for the diminution of property values resulting from the impending project.
The airport argued that there were no damages because the runway hadn’t been built, and we rightfully argued that once the runway is extended, the property owners located nearest the project would realize a diminution in property values. Therefore, in order to accurately assess damages in this case, we needed to assume that the runway was already built.
We saw sales contract prices 16% below appraised value within the subdivision once buyers were made aware of the proposed project. These comparables in addition to the diminution in value as determined by our appraiser persuaded the airport to provide just compensation to the owners based upon the calculated loss in land values that considered an owners proximity to the project.
One of the most important things to take away from this case is the timing of the damages claim. For those owners who are not losing physical property, just compensation for diminution in value must be pursued when the restrictive covenants are condemned because this condemnation action triggers the right to pursue just compensation under eminent domain law.