Determining just compensation (or damages) has to start with a determination of the physical extent of the property that is being affected by the taking. Where the condemning authority (condemnor) acquires everything that is owned by the owner, this is not an issue. This is called a total take. Just compensation simply equals the value of the entire property under its highest and best use.
Questions arise when the condemning authority acquires less than all of the property. In this instance, just compensation is determined by valuing all of the owner’s property before the taking (larger parcel) and subtracting the value of the property that the owner has left after the taking (remainder). This calculation is known as the federal rule. The state rule provides a different calculation method, but the just compensation amount remains the same. Where the owner owns just one parcel of land, the larger parcel will simply be that parcel. (Note: there may be times when the property owner will want the larger parcel to be less than the whole parcel.)
When a property owner owns more than one parcel and the taking occurs on only one parcel or parts of more than one parcel, but not all the parcels, the property owner may want the larger parcel to be more than just the parcel from where the taking occurred. Example: a restaurant owner has two parcels. One parcel encompasses the restaurant building, while the other encompasses all of the parking. Where the taking only occurs on the parking parcel, the loss of parking will adversely affect the restaurant building parcel even though none of the taking occurred on that parcel. The damages (or loss in value) to the restaurant building will only be recognized if it is included in the larger parcel.
In the example, the restaurant building is the remainder. Loss of value to a remainder, caused by the taking, is called severance damages or indirect damages. The concept of the larger parcel was created so that owners were not deprived of severance damages which are part of the just compensation owed when a taking on one parcel causes a loss in value on a different parcel. Note, some condemning authorities have sought to combine parcels under the larger parcel theory to decrease overall compensation where severance damages are not involved. Owners should be alert for this improper application of the larger parcel principle.
Combining parcels to form one larger parcel can only occur if three requirements are met relative to all the parcels: 1. common ownership, 2. same use, and 3. contiguity.
Common ownership means all of the parcels must be owned by the same entity. This does not always mean that exactly the same name must be in the titlefor each parcel. One parcel could be titled in an individual’s name, while another could be titled in a corporation where the individual is a major shareholder. Generally, ownership does not include a leasehold interest. Thus, merely being a tenant on a parcel would not satisfy the common ownership requirement for that parcel to be included in the larger parcel.
Same use references the overall coordinated use of the combined parcels. In the restaurant example, one parcel was used for the restaurant building while the other was for parking. Since the parking supported the restaurant, the overall use for the combined parcels is the same. There is some question among jurisdictions whether use is limited to actual use or can also be highest and best use. This will only be an issue where highest and best use is different from actual use. In any event, the claimed severance damages must relate to the claimed same use.
Contiguity refers to the physical relationship of the parcels. If they are physically adjoining each other, contiguity is satisfied. Problems arise when the parcels are not contiguous. In that situation, contiguity will be satisfied if the parcels are clearly being utilized together in the same use. The restaurant example helps explain this. Even if the parking parcel was across the street from the restaurant building, the two parcels would be considered contiguous because they are being utilized together and are physically close to each other. As distance between parcels increases, the risk also grows that the parcels will not be considered contiguous.
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