Eminent Domain Protection

Ask the Experts

Eminent Powers

By Julie E. Blend

Reprinted with permission from CAI’s Common Ground TM magazine, July/August 2014 

Q: Is there anything an association can do to protect itself from eminent domain? —Katy, Texas

A: Eminent domain, an inherent power of government, is limited by the takings clauses found in the U.S. Constitution and state constitutions, which provide that no private property can be taken for public use without just compensation. Most state statutes are designed to protect property rights in a condemnation proceeding; some are more powerful than others. Texas statutes implement procedures to maximize compensation and clarify that condemnation is only lawful if it’s for a public use, as opposed to merely a private purpose.

Property can include land itself or intangible rights connected with land, such as an easement or reversionary interest. Community associations have a property interest in the intangible right to collect assessments. There is disagreement among courts, however, as to whether that right is a compensable property interest. Texas falls within the jurisdiction of the U.S. Fifth Circuit Court of Appeals, which decided in a 2013 case that an association is not entitled to just compensation for the loss of the right to collect assessments. The holding was based upon the consequential loss rule, which requires that the loss be directly connected to the physical land.

Many state statutes specifically address condemnation in the community association context. Texas statutes address condemnation awards for condominiums, including an award to owners for the loss of common element interests and a reallocation of interests. State statutes will control in the event of a conflict with association governing documents. Check your declaration and bylaws for a provision addressing the distribution of a condemnation award. It should specify that owners have a claim to be paid as opposed to only the association having a claim on behalf of owners. For condominiums, the provision should clarify that an owner is entitled to an award for loss of limited common elements, and that the association has a claim on behalf of owners for any general common elements.

In addition to a condemnation provision in your governing documents, the best protection against eminent domain is awareness of government interest in your community. Also, be prepared to substantiate your property’s value with a good appraisal. You should hire an experienced attorney to defend your association in a condemnation proceeding.

Julie E. Blend is a shareholder in the Dallas law firm of Dealey Zimmermann Clark Malouf & Blend.

© Community Associations Institute. The above article is reprinted with permission from Common Ground™ magazine, published by Community Associations Institute. Further reproduction and distribution is prohibited without written consent. Go to www.caionline.org for more information.

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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