Eminent Domain

House being torn downUnder Article 1, Section 21 of the Indiana Constitution states that, “…No person’s property shall be taken by law, without just compensation; nor, except in case of the State, without such compensation first assessed and tendered.” A “taking” of property by the government includes any substantial interference with private property that destroys or impairs the property owner’s use and enjoyment of the property. A taking can include leased property, however, most leases set out how any taking will be handled between the lessor and lessee. A taking can also be found when governmental activity results in damage to property that impairs its use on either a temporary or permanent basis. An actual physical taking of real property is not required for there to be a compensable taking by the government. The general rule is that before any basis for compensable damage may be obtained by an owner of the subject property, either section of the property must have been taken, or a substantial right of use of the property that is special and peculiar to the property has occurred that is not some general inconvenience suffered by the general public. A person having an interest in property that has been or may be acquired for a public use without the procedures of the Eminent Domain Act or any prior law followed is entitled to have the person’s damages assessed under the Act substantially in the manner provided in the Act.

It is well established in Indiana that the basic measure of damages in eminent domain cases is the fair market value of the property at the time of the take. It is mandated that the owner of property taken by the State must be justly compensated. As a general rule, in determining the appropriate amount of damages in an eminent domain action, all of the landowner’s interest is compensable, including the rights of ingress, egress, and air space. The fundamental purpose of our statutory eminent domain scheme is to ensure land owners are given just compensation when their property is taken. However, the determination of the amount constituting just compensation often proves problematic. When land is appropriated under the power of eminent domain, just compensation has been held to be the fair market value of the acquired property at the time of the taking. The concept of fair market value can be defined as the amount for which the condemned land could be sold at the time of the taking assuming a willing buyer and seller, neither of whom are under any compulsion to conclude the sale. However, because of the inherent unique qualities of every condemned parcel of land, Indiana has recognized that the utilization of various appraisal techniques is often necessary to an accurate determination of fair market value. Thus, Indiana has refused to adopt a single method of appraisal to the exclusion of others. Rather, Indiana recognizes three separate methods of appraisal.

In many cases the fair market value can be determined by means of the comparable sales approach. This approach seeks to ascertain the fair market value of the land in question by comparing the selling prices of similar properties. The second recognized method of appraising fair market value is the income or capitalization approach. Essentially, under this method, fair market value is determined by making a capitalization of the net income produced by the property where the income is derived from the intrinsic nature of the land itself and not from a business conducted thereon. Use of the income approach, however, is generally limited to cases such as the present one where evidence of comparable sales is lacking. Finally, when neither the comparable sales nor the income approach are applicable, many states recognize the cost approach as a viable method of determining fair market value. Under the cost approach fair market value is determined by computing the difference between the original cost or cost of reproducing the condemned property and the applicable amount of depreciation. However, use of the cost approach is proper only when the condemned property or structure is unique, the use to which it is put is based upon this uniqueness, and it is reasonable to believe that the owner will replace the building with one similar in character.

When the property as a whole is not taken and the owner seeks severance damages, three basic conditions must exist: there must be simultaneous unity of title (Ownership), unity of use and contiguity. The correct rationale for severance damages has been pronounced as:

The essence of severance damages is the loss in value to the ‘remainder tract’ by reason of a partial taking of land. This is predicated on the enhanced value of the ‘remainder tract’ because of its relationship to the whole prior to the taking.

The proper method of assessing severance damages in Indiana has been expressed as being the difference between the market value of the entire tract and the market value of the residue following the partial taking.

Inverse condemnation is a process provided by statute that allows individuals to be compensated for the loss of property interests taken for public purposes without use of the eminent domain process. Inverse condemnation is not based on tort, but on the constitutional prohibition of the taking of property without just compensation. There are two stages in an action for inverse condemnation. At the first stage, the landowner must show that the landowner has an interest in land which has been taken for public use without having been appropriated under eminent domain laws. If the judge finds that a taking has occurred, the action proceeds to its second stage wherein three (3) appraisers are appointed by the judge and damages are assessed. An action for inverse condemnation is premature until such time as the landowner can establish that his or her property has been deprived of all economically beneficial or productive use. As a general rule, landowners must exhaust available administrative remedies before instituting inverse condemnation proceedings.