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Air Rights in Eminent Domain Proceedings

 Air Rights in Eminent Domain Proceedings

I’ve received numerous inquires from property owners over the years regarding air rights in eminent domain proceedings.  Most recently, an article was written by Erin Durkin of the Daily News discussing another lawsuit stemming from the highly controversial Atlantic Yards Project.  The article discusses how property owner Peter Williams is staking claim to the air above the site, claiming that the Empire State Development Corp. failed to condemn the space when they used eminent domain to acquire his property.  In response to this article, and the inquiries I’ve received over the years, I’d like to share some information regarding air rights in eminent domain proceedings.

Air rights are a component of real estate that require the payment of just compensation when those rights are acquired in an eminent domain proceeding. The issue of air rights generally arises in one of two different configurations. The first configuration involves the acquisition of air rights from a real estate owner by an aviation authority. The second situation involves the acquisition of a parcel of real estate by a condemning authority where the land and a certain distance of airspace over the land is owned by one party and the remaining airspace above that level is owned by another party.

We will address the avigation easement situation first. In this situation, the property is valued under its highest and best use where no avigation easement rights exist. In other words, the owner of the real estate can develop the property to the fullest extent allowed by the appropriate zoning where development can proceed to the highest altitude which that zoning will allow. Next, the property is valued assuming that development for that property is restricted to the altitude limitation imposed by the avigation easement. If the altitude limitation exceeds the highest altitude that the zoning under highest and best use would allow, the value with the avigation easement in place would be the same as the value without the avigation easement resulting in no right to recover just compensation. If, after the imposition of the avigation easement, development is limited, the parcel will be valued based upon that limitation in development. As an example, assume that the avigation easement will not allow the construction of any structures on the area covered by the easement. In the case of a rural airport, this might mean a land value before the easement based upon its potential for commercial development with a land value after the imposition of the easement based upon the limited use of agricultural farming. Using the same assumption but in relationship to an urban airport, the value without the easement will be based upon the ability to develop whatever commercial/industrial/retail use generates the highest value versus a value for the land after the imposition of the easement that can only be used for open storage or parking. The determination of the value in all instances would be made by a qualified appraiser. The amount of just compensation would be the difference in the value of the real estate where development was not limited by the avigation easement versus the value of the real estate where development is restricted.

The second example involving the acquisition of air rights is best explained by example. Assume that a commercial parcel of real estate is being acquired by eminent domain for a proper public use. The parcel to be acquired is owned by two separate owners. One owner owns the land plus the right to build structures up to a certain height. The second owner owns the right to construct improvements from the maximum height enjoyed by the first owner to the height limitation imposed by the zoning designation relating to the highest and best use for the property (air rights). The contributory value of the air rights to the value of the whole parcel is also determined by obtaining two separate appraisals. The first appraisal determines the value of the real estate assuming that all of the land and all of the air rights are owned by a single entity. The second appraisal then determines the value of the land where the most valuable improvement is based upon the height restriction imposed by the air rights agreement. The difference between these two appraisal values is the contributory value of the air rights created by the air rights agreement.

The determination of the value for the parcel of real estate where no air rights agreement exists will be performed in the normal way, usually through the use of the direct sales comparison approach, if sufficient market data is available. Valuing the real estate subject to the air rights agreement can be tricky. Usually, there will probably be very little, if any, market data to utilize for determining the value of the subject parcel subject to the air rights agreement based upon sales of similarly impacted properties. Consequently, the value for the real estate subject to the air rights agreement may need to be determined through the creation of a development cost approach which is also known as the land residual approach.

Written by Dan Biersdorf, principle attorney for Biersdorf & Associates


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