Standing up for Landowners. Standing up to Government.

Owning Property Under the Shadow of Condemnation

On Behalf of | Dec 12, 2023 | Firm News |

A significant and uncompensated-for impact of large public infrastructure projects like TXDOT’s IH 45 North Highway Improvement Project on private landowners is the uncertainty of if and when the project is going to move forward and the extent of its impact on one’s property. This uncertainty affects all levels of decisions relating to the sale, development, or leasing of property.

The best course for the landowner is to do what it would do if there was no project. The government cannot be held liable for saying it is going to take your property. Unless and until it takes your property, it is yours to do what you would with it. If, for example, you intended to develop vacant land into an income-producing asset, and you held off on this development in light of TXDOT’s announcement of a project impacting your property, you could not recover from TXDOT for that lost opportunity (or lost income) in the event TXDOT never moved forward with the project. To say the least, land banking for the government is not a good business model.

The difficulty arises because the very existence of the project becomes a problem for the landowner, a problem that market participants may choose to avoid, decreasing demand and therefore price, or require a discount to take on. In leasing, for example, it is typical for the tenant to receive an allowance for build-out of the lease space, which is paid back to the landlord through higher rent. A landlord can’t expect the tenant to be excited about paying to finish out lease space that may not last for the term of the lease due to condemnation.

In the condemnation case, the “project influence” rule protects a landowner from the otherwise deleterious effect this would have on a valuation of its property, but this only addresses the amount government has to pay for the property and fails to compensate the property owner for the diminished operation of the property while under the shadow of the project, which remains uncompensated.

The solution is to minimize the uncertainty of both the scope and timing of public infrastructure projects. With a better understanding of when a project will move forward and the extent of its impact on property, property owners can minimize–but not eliminate–these uncompensated impacts.