Association Right to Assessments Not a Compensable Property Interest

In United States v. Land, 11-31167 (5th Cir. 2013), the Fifth Circuit Court of Appeals recently held in a case of first impression that an association’s right to collect assessments is not a compensable property interest under the Fifth Amendment’s Taking Clause.  The Fifth Circuit, therefore, joins the minority view of the federal circuit courts.

A Louisiana condominium association, Mariner’s Cove, sought compensation from the federal government after it condemned 14 units in the Association to facilitate access to a pumping station it needed to construct in the aftermath of Hurricane Katrina. The Association argued that the condemnation of the property under eminent domain rights of the government diminished its assessment base.  The government argued that the consequential loss rule prevents compensation because the loss of the right to assessments was merely incidental to the condemnation.

The Court began its two part analysis of the Takings Clause (which provides that private property shall not be taken for public use without just compensation) by acknowledging that state law governs the issue of whether the Association’s right to collect assessments is a property interest. Under the two – part test, the government is required to provide just compensation if the interest for which compensation is sought is a property interest, and that interest has actually been taken.

The Court cited Louisiana case law recognizing the right to collect assessments as a covenant that runs with the land, and therefore, constitutes a property interest.  Under part two of the test, however, the Court held that no taking had occurred because of the consequential loss rule.  Under this rule, a taking must be directly connected with the physical land.  The Court pointed out that the Association’s right to collect assessments is functionally contractual, and lacks a direct connection with the physical substance of the properties on which the assessments are made (unlike recognized forms of compensable intangible property, such as easements).

Siding with the minority view of the federal courts, the Fifth Circuit noted public policy concerns, such as private covenants might unduly burden the government’s power of eminent domain, and the theory that real covenants are similar to contracts, and contracts purporting to render the exercise of governmental powers a taking are void as against public policy.

Here is the link to the opinion. http://www.ca5.uscourts.gov/opinions/pub/11/11-31167-CV0.wpd.pdf